By Paul Post
Area builders applaud a recent federal court ruling that could save them large sums by prohibiting some types of development fees local municipalities charge them.
Towns, cities and counties quite often impose such fees for new construction projects and use the money for things such as road, infrastructure and recreation facility upgrades.
But the U.S. Supreme Court, on April 12, sided with a rural California resident whose local government required him to pay a $23,420 “traffic impact fee” in order to obtain a building permit for a small pre-fab home he wanted to put at the rear of his property for his grandson.
“How’s that going to impact traffic? It wasn’t going to impact anybody,” said attorney David Robinson, of the California law firm Holland & Knight, whose clients include numerous builders and developers.
“This decision will have a major impact because it will result in a lot of changes in the way government operates,” he said. “For so very long the fox has been running the henhouse. If a developer wants to build something on one side of town, they’ve been charged a massive fee to build a public amenity on other side of town that has nothing to do with project in question. The bottom line is, that’s going to be really hard for the government to do now.”
Moving forward, impact fees must be able to stand up to two basic considerations. One is a proximate test. The impact local government is seeking compensation for has to be in some way logically or proximately related to the development.
Second, is the fee in reasonable proportion to the impact? For example, government couldn’t require a $100,000 fee for a $10,000 impact.
“This is going to be a serious check on what governments can do,” Robinson said. “It’s not going to be business as usual any more. It’s new, it’s very powerful. It will save developers money. But it’s also going to create a lot of litigation. There’s no question about that. You’re going to see a whole lot of experts on both sides, arguing whether an impact is directly related or proximate and whether the fee charged is reasonable. There will be a lot of debate about how this new rule is applied in any given situation.”
John Munter, president of Greenfield-based Munter Enterprises Inc., said, “Municipalities in some cases make a ridiculous request like, we want you to put in a mile of sidewalk where there isn’t any. They can come up with very expensive mitigation that doesn’t fit into the economics of a project. If you have a $1.5 million project, but have to spend $300,000 to do it, obviously it doesn’t make any sense. In those cases a law like this would certainly help.”
“In general, it’s good because it will keep things a little bit more fair,” he said. “I don’t think it’s going to completely hinder reasonable mitigation from occurring.”
In fact, while the Court ruled unanimously, three justices concurred that the decision does not prohibit the “common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.”
Long-time Town of Wilton Councilman Raymond F. O’Conor said, “It is unclear what impact the court’s ruling will have. In my opinion the town’s formulas and schedules are reasonable and sound. If impact fees are impermissible, the costs of additional infrastructure, traffic remediation, recreation facilities and conservation projects will be borne by the residents.”
But builders and realtors alike say any cost savings stemming from the Court ruling is more than welcome, especially in today’s economic climate of rising costs and relatively high interest rates.
The National Association of Realtors says the average impact fee on a single-family home was almost $14,000 in 2019. Such costs have gone up considerably since then.
“Costly and burdensome requirements imposed on property owners, such as obtaining land-use permits as a condition of using or developing their property may be unrelated to the externalities of the development, may artificially increase the cost of real estate,” the NAR said. “At a time when many buyers are struggling to afford or find properties, government action must create certainty and stability in the housing market to promote development, support home ownership, and protect private property rights.”
The NAR, joined by the American Property Owners Alliance, REALTORS Land Institute and California Association of REALTORS filed an amicus brief with the Court last year. “Impact fees have real consequences for home ownership in America, particularly with today’s high interest rates and limited housing affordability,” they wrote. “Many prospective home buyers are priced out of the market by the tens of thousands of dollars in impact fees imposed on the average property owner.”
Mark Levack of Glens Falls-based Levack Real Estate Inc., said, “I am in favor of anything that brings down the cost of development approvals. This decision will help to make it slightly more affordable to the end user or consumer.”
John Witt, owner of Saratoga Springs-based Witt Construction Inc., said various fees can be quite burdensome. “We just had a two-lot subdivision, in the city of Saratoga Springs, off existing road frontage on Willow Lane on the West Side,” he said. “We were charged a $2,000 application and $4,000 recreation fee ($2,000 per lot). We also must install sidewalks, street trees, light poles, water and sewer extension down Willow Lane at a cost of $150,297 plus the fee to bond with a letter of credit.”
Moving forward, cases will likely be handled on a jurisdiction-by-jurisdiction basis as rules may vary considerably from one state and municipality to another.
Chief Counsel Lori Mithen-Demasi, Association of Towns of the State of New York, said, “We recommend that each town work with their town attorney to ensure compliance with state and federal laws when creating and implementing land use approval and permit requirements. At this time, it is our understanding that the U.S. Supreme Court decision in Sheetz v. County of El Dorado does not substantially change what towns can lawfully require regarding land use approval and permit conditions.”