Koontz and the Future of Local Government Finance

At Strategic Economics, we’ve been closely following the commentary on the Supreme Court’s decision last week in Koontz v. St. Johns River Water Management District (and, to speak for myself at least, experiencing some intense flashbacks to land use law class!). For those of you who have been distracted from land use wonkery by the Court’s other major cases last week, Koontz could have important implications for local governments’ ability to mitigate the impacts of development and pay for infrastructure, protection of wetlands, affordable housing, climate change preparation, and other important community needs. The Court’s decision extended the Nollan/Dolan test – under which local governments may only require a land owner to dedicate or relinquish a portion of their property as a condition for a land use permit if there is a “nexus” and “rough proportionality” between the requirement and the permit – to the payment of fees, as well as the dedication of physical property. Previously, development fees had been subject to a less stringent test established under Penn Central Transp. Co. v. New York City, which asked local governments to balance the common good with economic impact on property owners (although many states, including California, had already enacted stricter rules). Now, local governments will need to establish that their fees have a direct relationship and are proportionate in amount to the impacts caused by a development project, or be subject to challenge under the takings clause of the Fifth Amendment. (For a more complete discussion of the case and all the legal mumbo jumbo, see the excellent summaries on The Atlantic Cities blog and CP&DR.) Cities have used development fees to pay for everything from wetland mitigation banks to new affordable housing, schools, streets, and sewers. Now, these fees could be threatened.

We often work with cities to identify potential funding sources for public improvements, and developer contributions can be an important component of these financing strategies. For us, the Koontz decision raises more questions than it answers. Some of the questions we’ve been kicking around the office are:

  • How far do the “nexus” and “rough proportionality” tests now extend, and how will local governments and courts decide what is a development fee (or to use the more technical term, a monetary exaction) and what is a user fee, special assessment, tax, or other types of fee that are not covered by Koontz? For example, will liquor license fees be subject to Koontz? As Justice Elena Kagan points out in her dissent, state courts have long struggled to make these distinctions among different types of fees. Now the distinction will become even more critical.
  • What will the Koontz decision mean for the emerging field of community benefit payments, in which developers voluntarily pay for community benefits (such as parks or streetscape improvements) in return for building at higher densities? Will these type of incentives be subject to the more stringent Nollan/Dolan test?
  • Are local governments in California somewhat protected from the effects of the ruling? California’s Mitigation Fee Act already requires local governments to establish a direct relationship between development projects and the improvement being financed, and to limit the size of the fee to the amount needed to pay for the improvement. However, some types of fees are excluded from the Act, such as park (Quimby Act) fees and fees collected under a development agreement.
  • Is Ehrlich Dead? As Bill Fulton wrote on CP&DR, the California Supreme Court’s ruling in Ehrlich v. Culver City had previously provided more flexibility for exactions that are applied as part of a general policy, rather than on a case-by-case basis. Does Koontz overturn that rule?

Financing Infrastructure for TOD

This spring, the U.S. Environmental Protection Agency released our report on existing and emerging tools for financing infrastructure for transit-oriented development (TOD). Written by Strategic Economics in partnership with CH2MHill, Arup, and EPA staff, this report provides local governments with a comprehensive overview of the tools and strategies that are available to help pay for infrastructure. In particular, it  focuses on the types of facilities that are commonly needed to support new development near transit. We’ve already heard from partners and planners around the country who have found this resource helpful, and we hope that it will continue to prove useful as debates continue at the federal and state levels about how to pay for rebuilding the nation’s crumbling infrastructure.

What will you find in the report?

  • Accessible explanations of how particular funding tools work, and how they can be assembled into financing strategies that communities can use to pay for infrastructure
  • Case studies of how communities from across the country have successfully financed their infrastructure projects
  • Profiles of innovative efforts to “think outside the box” and come up with creative solutions for financing TOD infrastructure, including partnering with anchor institutions, managing and paying for parking at a regional level, and implementing district energy systems

…and much more. So please download a copy and let us know what you find valuable for your community!

Jetsetting

The month of March has been busy one for us at Strategic Economics. We kicked things off with a staff retreat, started several new projects and our principals Dena, Nadine and Sujata traversed the country for convenings and project work in Boston, New Orleans, Washington DC and beyond!

Earlier this week, Nadine traveled to Boston, MA to speak at the Value Capture Forum: Innovative Strategies to Fund 21st Century Transportation. This forum, hosted by HNTB Corporation and Metropolitan Area Planning Council (MAPC) provided a space for attendees to develop and explore ideas related to value capture concepts. Specifically, it addressed how Value Capture can fund capital needs for new transportation and/or provide support for ongoing operations and maintenance. Nadine’s overview of Value Capture laid the groundwork for the day’s subsequent presentations on Value Capture in practice and the development of innovative funding and financing strategies. Looking forward, MAPC hopes to see forum attendees use their newly acquired Value Capture knowledge to garner greater public and political support for their projects and related economic strategies. MAPC’s forthcoming whitepaper will synthesize forum topics and present the ways value capture concepts can be used to help the region meet its transportation needs. Keep your eyes out for this resource, as it is sure to be a good one.

On the same day, just a few states Westward, Dena presented on Transit-Oriented Development (TOD) and economic development to planners, policy makers and developers in the Lansing, MI region. Her speech was part of a longer-term effort led by the National Charrette Institute to help develop a unified vision for the Michigan/Grand River transit Corridor. Located in the Greater Lansing / Mid-Michigan region, the 19-mile corridor is a major artery through the region with great economic and revitalization potential.  The Corridor connects the State Capitol in Downtown Lansing with Sparrow Hospital, Michigan State University, and several key retail destinations.  In fact, jobs in this corridor comprise almost 40 percent of the region’s total jobs and closer to 50 percent of the region’s transit supportive jobs. Dena’s presentation included an introduction to TOD, a discussion of the relationship between transit and economic development, and a Q&A session (link to the video coming soon). Central to her overview were descriptions of how employment conditions in the Michigan/Grand River corridor make this an important employment spine for the region and an opportune place for enhanced transit.  The presentation set the stage for a more comprehensive charrette that will be happening in two parts.  The first part will take place in early May, and the second part will be in the fall.  This work is being funded by the Tri-County Regional Planning Commission as part of their Sustainable Communities grant from HUD. Additional support comes from the Michigan State Housing Development Authority.  For more information about the project go to http://migrand-charrette.com/

Future travel destinations for StratEconers include Anchorage, Alaska and Lakeworth, Florida. Until then, we are happy to have the office full and are enjoying the longer days.

Happy Spring everyone!

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