July 15, 1994

More Power To Developers At The Bargaining Table

Arnold & Porter Article
Thanks to a U.S. Supreme Court ruling late last month, when a local government demands proffers and dedications to offset the potentially adverse consequences of development, a developer's response should be: "Prove it."

On June 24, the Supreme Court issued its ruling in Dolan vs. the city of Tigard, a significant land use and constitutional takings clause case.

Dolan, which is of particular interest to developers dealing with municipalities in connection with the local permit approval process and land use negotiations, raises the issue of the extent to which a government may demand land proffers in the regulatory process without crossing over into a comprehensive taking of private property.

In their five-to-four decision in Dolan, the Supreme Court under the facts of that case resolved the issue in favor of the property rights of the landowner.

While it is unclear how each jurisdiction's land use rules will be affected by the outcome of this case, negotiations in the development approval process are bound to be re-examined.

The facts in Dolan are as follows. Florence Dolan applied to the City of Tigard, Ore., for a permit to expand and redevelop her plumbing and electrical supply store in the city's central business district.

The planning commission of Tigard granted Dolan her permit subject to several conditions imposed by the city's Comprehensive Development Code (CDC), including the dedication of a portion of her property located in a flood plain to the improvement of a storm drainage system, and another portion of her land for a bicycle and pedestrian path.

The site owned by Dolan covered 1.67 acres, and the dedicated property, as conditioned by Tigard, consisted of approximately 7,000 square feet, or roughly 10 percent of Dolan's property.

The city relied on its CDC to assume that the expansion of Dolan's store would increase pressure on the water drainage system and heighten traffic congestion along the main thoroughfare.

Dolan claimed that these dedication requirements created an unconstitutional taking of her property because the requirements were not sufficiently related to the projected impacts of her redevelopment plans.

Although the Oregon Supreme Court upheld the city's permit requirements, the U.S. Supreme Court decided to revisit the question of how to balance the legitimate planning and regulatory rights of local governments with landowner's and developers' property rights.

In Dolan, the Supreme Court made clear that the prevention of flooding and the reduction of traffic congestion were legitimate public purposes, and that an "essential nexus" existed between these goals and the dedication requirements established by the City of Tigard.

The court then turned to the second part of their analysis, namely whether the degree of the proffers demanded by the city were roughly proportional to the projected impact of the proposed development. The Supreme Court decided that the city's findings about the possible impacts of Dolan's store expansion were constitutionally insufficient.

In essence, the court rejected a local government's use of generalized statements of necessity in demanding proffers and dedications in exchange for land use approvals.

They concluded, "No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development."

Dolan appears to offer developers an additional opportunity to approach local planning and development negotiations with bargaining leverage. This additional bargaining leverage may result in developers taking a tougher stance in situations where municipalities seek variances, and other land planning decisions.

Washington area developers have routinely offered concessions and proffers in the past without waiting for formal land use planning requirements to be imposed. For example, in exchange for site plan approvals, developers through the 1980s have provided for dedication of public parks and walkways or landscaping amenities, and in the suburbs, significant contributions to roads.

Now, post-Dolan, developers may be less forthcoming with their own concession packages and proffers. And, when local planning officials then seek such concessions and proffers, Dolan advises that the municipalities are no longer presumed to be constitutionally protected in their extraction of land and amenities from developers and landowners.

This will be particularly true where local governments try to extract concessions from developers who are seeking only to build at the density permitted in the zoning map and not at a higher density.

The Dolan decision highlights the ongoing legal debate regarding whether individual developers and landowners should be responsible for the regulatory burdens of development, or whether these burdens should be shouldered by the public at large.

In the past, cash strapped local governments, unable or unwilling to raise taxes, have tried to shift the cost of general amenities onto developers.

In Dolan, the Supreme Court puts local government on notice that demanding dedications and proffers without sufficient evidence of proportionality and necessity could well be unconstitutional. As a result, landowners and developers have newly enhanced bargaining power in local development negotiations.
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