Legal Limits on Development Exactions: Responding to Nollan and Dolan

Abstract

Over the last thirty years local governments have increasingly relied on development exactions as a funding source for land use development. Faced with shrinking budgets and the need to provide services attendant to growth, cities and counties have used the development approval process to require developers to provide both land and money to offset the perceived costs that development places on a community. These exactions might be required at any stage of development requiring government approval, but present the same choice to developers: make the required contribution if you want to proceed with development. Although exactions might take a variety of forms and serve a number of functions, they typically fall into three general categories: either dedication of land, money in lieu of land, or impact fees. At their best exactions reflect a sincere government effort to require developers to pay for the costs development places on the surrounding community. At its worst the system has been a means by which governments can use their monopoly power to extort from developers property interests often unrelated to the proposed development. Until recently judicial policing of exactions had been left entirely to the states, with courts reflecting a variety of approaches to how far government could reach in imposing exactions. This changed in 1987 when the Supreme Court for the first time addressed the issue of development exactions in Nollan v. California Coastal Commission. Seven years later the Court again addressed the issue of development exactions in Dolan v. City of Tigard, where it addressed the question left open in Nollan concerning the required degree of connection between the exaction and development impact. This article will examine the impact of Dolan on exaction law. Part one will first examine the growth of exactions and state law standards in policing their use. Part two will then examine the Supreme Court's decision in Nollan. Part three will then examine the Dolan decision itself. Finally, the last three sections of the article will address three basic questions that remain after Dolan: (1) when does the Dolan test apply? (2) what impact will Dolan have on state law standards? and (3) what exactions appear to be most at risk under the Dolan test?