By Michael Castle Miller | 63 Am. U. L. Rev. 919 (2014)

Cities are becoming increasingly privatized. This phenomenon is demonstrated by the prevalence of gated communities and homeowner associations, which are essentially private governments for the benefit of a subset of city residents. Less noticeable, however, is the increasing privatization of municipal finance and spending. Rather than drawing from general tax revenue, city projects increasingly rely on payments from residents who either most benefit from them or make them most necessary. This “user pays” philosophy is especially manifest in the use of exactions, or, more specifically, impact fees, on new developments. Exactions are concessions demanded of landowners before local authorities will approve building permits. Traditional exactions take the form of physical dedications of real property, such as building roads within a subdivision or deeding the public an easement for a bike path or for the preservation of wetlands.Much more common today are impact fees, which are monetary exactions to help pay for improvements to off-site, system-wide infrastructure or even affordable housing projects or job training. Exactions are justified as methods of internalizing the costs of new growth to the developers promoting the growth. For example, new development leads to increased water use, sewage, traffic, stormwater runoff, school enrollment, and fire coverage, among other things all of which will increase costs for the city. Without exactions, these costs would be externalized, forcing taxpayers to bear them even though only a few developers may make them necessary.

This user pays logic should be attractive to those who lean libertarian on economic matters. From the libertarian perspective, members of society should not be forced to fund services from which they do not derive a proportionate benefit. In other words, each person’s contribution to services should be carefully tailored to his or her benefit from those services. In the context of municipal services, improved infrastructure more heavily benefits developers than average individual taxpayers because the improvements increase the city’s capacity to accommodate new residents and makesubsequent developments more valuable. Thus, developers should shoulder a greater burden for financing these improvements than the average taxpayer. 

The same philosophy, however, has also driven a somewhat conflicting legal current that limits exactions the expanding application of the Fifth Amendment Takings Clause. The Takings Clause states that “private property [shall not] be taken for public use, without just compensation.” Since the end of the Lochner era, economic libertarians have sought to apply this Clause to limit economic regulations with redistributive effects that is, regulations that force some people to confer more benefits on the public than they receive in return. The Court signaled some support for this view in Armstrong v. United States, when Justice Black stated that the Takings Clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Some scholars, including Richard Epstein, propose that the Takings Clause applies to all regulations and taxes; the effect of which would prevent the government from demanding more money from individuals than it dispenses in “in-kind” benefits to them. While this view has not taken hold in modern jurisprudence, the U.S. Supreme Court has gradually expanded the Takings Clause to apply to a larger scope of economic regulations. As this has happened, the Takings Clause has emerged as a potential surrogate for the rejected Lochner-era reliance on the Due Process Clause as a tool to question government regulations.

At the end of the October 2012 term, these two trends converged in dramatic fashion in Koontz v. St. Johns River Water Management District. On its surface, the case requires impact fees to be subject to the nexus and rough proportionality tests that already govern in-kind exactions. To arrive there, however, the Court applied reasoning that implicitly and dramatically extended the reach of the Takings Clause sub silentio. This Note argues that the Koontz Court implicitly created a new and broad per se takings rule: whenever a government attaches a monetary obligation to specifically identified assets and the obligation is not a “tax,” a per se taking has occurred requiring just compensation. This rule will likely find explicit use in future Takings Clause challenges to regulations. To support this argument, Part I of this Note provides background on the various practical and theoretical issues at play in the Koontz decision. Part II analyzes the Koontz majority opinion to explain how Justice Alito’s careful word choice and reasoning lead to the implicit establishment of a new per se takings rule. It also argues that, although defining taxes is conceptually challenging, (perhaps even more so after the Court’s 2012 Affordable Care Act decision) distinguishing them from takings will not be extraordinarily difficult in practice.

Click here to read this Note.


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