Koontz Ruling Good for Cities

Last Friday, the Supreme Court handed down a 5-4 ruling now known as Koontz, whose details have been well-explained by others. The broad outcome is that nexus limitation and proportionality test now apply to land-use permits regardless of whether the permit was actually issued, and to cases where the government agency is asking for money, not just property or property easements.

I hate to agree with Sam Alito and Tony Scalia on anything, but like a broken watch, even these two dunces have occasion to be correct. The logic of the case is remarkably simple. If it is legal for the government to make a demand so enormous that the owner gives up without the government having to execute the demand, the owner is in no sense protected from exorbitant demands. Money, of course, is property, so it makes sense that it should be legally treated the same way as land. Elena Kagan’s dissent, on the other hand, is nonsensical – declaring that it “threatens to subject a vast array of land-use regulations, applied daily in states and localities throughout the country, to heightened constitutional scrutiny” seems to me like saying that you’re not going to uphold a Constitutional right because it might be inconvenient for local governments.

Much of the media reaction has made it sound as though the ruling will allow developers to run roughshod over local agencies, but this is not so. The ruling means that agencies must make their demands in accordance with the nexus limitation, i.e. the demand must be related to harm caused by the project, and the proportionality test, i.e. the demand must be relative to the magnitude of harm caused. Therefore, the ruling confirms that developers can be charged for their impacts, in proportion to their impacts.

So why does John Echeverria worry that the ruling might impact things like wetland mitigation banks and sewer expansions? Because in current practice, impact fees regularly violate the proportionality test. This could be for complicated reasons like Prop 13, where municipalities are using impact fees to shore up their budgets. It could be for simple reasons like the political expedience of charging developers for improvements instead of existing voters. But the ruling does not put wetland mitigation banks or sewer improvements at risk; all it means is that existing residents and businesses will have to pay their fair share.

The American Planning Association is also unhappy, saying that the ruling creates a “terrible precedent allowing landowners to determine what they feel are sufficient mitigation efforts”. Again, not true. The ruling give landowners an equal seat at the table. Both sides now know that fees of reasonable relation and scale to the project are legal. This will discourage cities from making unreasonable demands, not preclude them from setting reasonable conditions.

Hopefully, this case means that if you want to build an apartment building, the government can’t require that you pay for arts and crafts classes at the community center. Hopefully, it means that the government can’t demand that you replace a mile of sewer line because your building happens to be the one that causes the existing system to hit capacity. But wait, you say, that kind of thing happens all the time. Well, yeah – that’s the problem! As others have noted, this arrangement discourages infill development. The cost of public improvements should be borne by the public.

The cynic in me thinks that the real reason some planners and bureaucrats are upset about this decision is that they are more interested in shaping the city in a predetermined form than actually building successful cities. This ruling undeniably reduces their ability to arbitrarily shape the development of the city. On the other hand, maybe there is just a fundamental disagreement about the proper scope of planning and the extent to which building something that resembles a successful city and building a successful city are or are not the same thing.

In my opinion, the Koontz ruling is good for cities, because it will make it easier for property owners to try different ideas. Current practice gives municipalities enormous leverage to change development proposals that do not conform to the city plan. However, there is no guarantee that the city plan is the best thing for the city. In the long run, cities are creatures of emergent order, and we should expect the market to outperform any central plan.

The only way to find out what works and what doesn’t is to give people more freedom to try different things. In the context of city development, exorbitant fees are just as bad as severely restrictive zoning. To the extent that Koontz loosens the control that cities exercise using fees, it is a good thing for the natural growth of cities.

Note: I have been rereading some Jane Jacobs and James Howard Kunstler, and am working on some posts that will expound on the themes of the last three paragraphs, and hopefully explain these ideas a little more clearly.

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