State Court Rulings on Impact Fees

In the first quarter of 2006, four cases of interest regarding impact fees were decided by courts in California, Maryland, Virginia, and Washington.  One dealt with fee calculations for time share resorts while another concerned water and sewer connection fees in new developments.  The third case dealt with an agreement between a builder and local government setting special fees for a new development project.  Finally, a court ruled that impact fee calculations should be based on an average of all the improvements in the service area, not just on the particular development.

Time Share Resort Classified Non-Residential in Development Fee Calculation

Marriott Corporation challenged  the development fee classification of a time share resort as non-residential in Marriott Ownership Resorts v. San Joaquin Hills Transp. Corridor Agency, 2006 WL 832353 (Cal. Ct. App. 2006).  Marriot challenged the assessment of transportation impact fees at a higher nonresidential rate for resort properties that were rented out on a time share basis.  The Transportation Corridor Agency (TCA),  the authority that assessed the fees, argued that the units should be classified as lodging, which is nonresidential for the purpose of assessing development fees.  Marriott argued that the nature of the units, were akin to multifamily residential use because they were sold to renters who hold a fee title to an individual unit and must pay a portion of property taxes for the unit.  Marriott also pointed out the above average size of the units, and the lack of traditional hotel amenities as well as traffic impact studies that suggested the resort’s impact was similar to an apartment or condominium complex. 

The court, however, agreed with the TCA and held that there was sufficient evidence to support the conclusion that the time share resort constituted a non-residential land use.  The court cited the fact that the property was zoned tourist commercial, Marriott was exempted from paying local park fees because it was nonresidential, and the resort was marketed and operated as a hotel.  The court also stated that the development fee calculation depended on a development’s land use classification, which was not dependent on traffic impact studies.  Finally, the court rejected Marriott’s contention that the development fee should be subject to heightened scrutiny under Nollan/Dolan.  The court instead applied a more deferential reasonable relationship test.

Special Fee Agreements Between Developer and City Held Invalid

A recent Maryland court of special appeals found that an agreement between a developer and the City of Frederick, Maryland, providing special fees of $1.00 per square foot was void and that the provision in the agreement waiving impact fees was similarly void.  Twigg v. Riverside Apartments, LLC, ___ A.2d ___ (Md. Ct. App. 2006) (2006 WL 927276).  The developer, Riverside Apartments, LLC, filed suit seeking specific performance on the agreements and sought a writ of mandamus to order the city to issue building permits pursuant to written agreements entered into with previous city mayors.  The agreements provided for a special fee of $1.00 per square foot and waived all other fees.  A lower court agreed with the developer and the City of Frederick appealed to the court of special appeals. 

In its appeal, the City contended that because the Board did not adopt an ordinance authorizing it to collect the special fee, that part of the agreement was void.  Similarly, the City argued that it could not waive its authority to collect impact fees unless it has express authorization to do so.  In reaching its decision to reverse the lower court, the appeals court found that at no time was the Board of Aldermen involved in the agreements, although the Board did adopt ordinances imposing impact fees on water, sewer and parks to relieve the burdens caused by new development.  Further, the court noted that the previous mayors “seemingly failed to consider whether they possessed the authority to enter into these Agreements; the result was that their acts were ultra vires."  The court agreed with the City finding that the special fee and the waiver of all other fees directly interfered with the City’s powers and as a result, the agreements were void. 

Court Holds “Reasonable Correlation Test” Not Applicable to Water & Sewer Connection Ordinances

In Eagle Harbor, LLC v. Isle of Wight County, ___ S.E.2d ___ (Va. 2006), developers challenged two county ordinances that increased water and sewer connection fees arguing that the fees were unreasonable and contrary to the law.  In 1996, the County Board of Supervisors enacted the ordinances setting water and sewer connection fees for each residential unit at $3,000.00 to connect to each of the county’s systems.  In 2001, the Board revised the ordinances increasing connection fees to $4,000 following a study that found the existing fees were insufficient to cover payments on the sewer and water debts. 

Plaintiffs challenged the 2001 ordinances claiming they were not “fair and reasonable” and that there was “no reasonable correlation” between the fees and the benefits derived from the water and sewer improvements projects.  However, because the plaintiffs only contended that the fees were “unreasonable and contrary to law,” and did not challenge the legality of the ordinance as an impact fee or as an impermissible tax as a special assessment, the Virginia Supreme Court ruled that the “reasonable correlation” test did not apply.

Washington 's Growth Management Act Does Not Require Localities to Make Individualized Assessments When Calculating Impact Fees

A recent Washington State Supreme Court decision held that the impact fee provisions of the Growth Management Act ("GMA") do not require localities to calculate impact fees on the basis of an individualized assessment of each development.  City of Olympia v. Drebick, 126 P.3d 802 (Wash. 2006). 

Under the GMA, localities that pass impact fee ordinances must create one or more reasonable service areas along with corresponding fee schedules to calculate impact fees.  Also, the GMA requires calculating impact fees by tying a particular development to the area “as a whole.”  See R.C.W. § 82.02.060(4).  The ordinances must also allow the locality to deviate from the fee schedule to account for “unusual circumstances in specific cases to ensure that impact fees are imposed fairly.”  The City of Olympia decided to create one service area that encompassed the City’s entire Urban Growth Area.  Drebick Investments applied for approval for construction of a four story office building in the service area.  The City conditioned the approval on the payment of a transportation impact fee of $132,328.98.  Drebick then submitted independent calculations that it believed provided a more realistic calculation of the impact that the building would have on traffic, but the City rejected Drebick’s calculations.

The issue before the Court was whether impact fee calculations should be based on an average of all public improvements that are necessary in the service area as a result of development or only those improvements that are attributable to a particular development.  The Court concluded that the calculation should be made on the basis of an average of all the improvements in the service area.  As such, many developers will be forced to pay more than their fair share and many will pay less because the process will not take into account the characteristics of the particular development.

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