Nebraska Supreme Court Upholds Impact Fee Ordinance

The Supreme Court of Nebraska recently upheld an impact fee ordinance adopted by the City of Lincoln.  Home Builders Ass’n v. City of Lincoln, 711 N.W.2d 871 (Neb. 2006).  In 2003, the City of Lincoln began collecting impact fees on new developments for water and sewer, roads and parks.  The City Council included findings with the Ordinance that “new development in the City was creating additional demand for public facilities such as water treatment and wastewater systems, arterial streets, and neighborhood parks and trails.” 

Plaintiffs filed suit seeking declaratory and injunctive relief arguing that the Ordinance was invalid and unenforceable.  In its grant of summary judgment in favor of the City, the District Court for Lancaster County ruled that the City used the impact fees under the Ordinance to generate revenue and these were clearly not traditional regulatory fees.  Further, the court rejected the City’s assertions that it could collect the fees under the authority of an occupation tax statute.  However, the court further ruled that the City did have implicit authority under its home rule charter to collect the “impact fees” as a form of excise tax, and that the Ordinance did not violate any constitutional provisions.

Plaintiffs appealed to the state court of appeals but the case was removed from that court and placed on the state supreme court’s docket.  In April, the Nebraska Supreme Court ruled that Lincoln's impact fees are valid. In examining the City’s home rule charter, the court referred to its decision in In re Application of Lincoln Elec. System, 655 N.W.2d 363 (2003), in which the court discussed the distinction between legislative and home rule charters.  Referring to its Lincoln Electric System decision, the court noted that unlike a legislative charter that originates from the legislature and grants power to a municipality, a home rule charter has “as its basis a constitutional provision enacted by the people authorizing the electorate to empower municipalities with the authority to govern their own affairs.”  Home Builders Ass'n, 711 N.W.2d at 876.
 
Here, the court further described the distinctions between home rule charters that operate as a grant of powers (specific enumerated function) and those that operate as a limitation of powers.  The court noted that Lincoln has a “limitation of powers” charter such that its present charter “does not merely enumerate specified powers, but grants all powers possible to the City.”  711 N.W.2d at 876-77.  

Regarding the constitutionality of the Ordinance to raise revenue, the state supreme court disagreed with Plaintiffs’ contention “that the City’s assertion of authority to enact the Ordinance is inconsistent with the Nebraska Constitution.”  Id. at 878.  The court noted that the question was:

not whether the Legislature could assert its plenary power over taxation to preclude the City from imposing impact fees – rather, the question is whether, in the absence of an express provision, the City may exercise that power.  The constitutional limitation that a home rule charter must be consistent with and subject to the laws of the state simply means that on matters of such general concern to the people of the state as to involve a public need or policy, the charter must yield to state legislation. [ ] But until the superior authority of the state has been asserted by a general statutory enactment, the municipality may properly act under its charter.

711 N.W.2d at 878.

The Nebraska Supreme Court's decision was a defeat for Lincoln-area builders who had argued that the fees were an illegal tax because the Nebraska state statute did not specifically authorize them.

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