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Is House Bill 2550, which requires a net ecological gain standard as the policy for all land use, development, and environmental laws in Washington an unconstitutional taking or exaction? - Austin Watkins

August 19, 2020

Is House Bill 2550, which requires a net ecological gain standard as the policy for all land use, development, and environmental laws in Washington an unconstitutional taking or exaction?                                                   Austin Watkins - LLM Student

Short Answer:

 

House Bill 2550, as a legislative action, is likely not an unconstitutional taking. However, ad-hoc permits or land use decisions implementing the net ecological gain standard must comply with the Nollan/Dolan standards for development exactions which require that the individual exactions: (1) have an essential nexus between the legitimate state interest asserted and the permit condition; and (2) the permit condition must be roughly proportional to the anticipated impact of the development.

 

Introduction:

 

The Washington State Legislature (“WA Legislature”) has introduced House Bill 2550, which if enacted, will set “net ecological gain” as the policy of the State of Washington (“State”) for all land use, development, and environmental laws. Establishing Net Ecological Gain as a Policy for Application Across Identified Land Use, Development, and Environmental Laws, 66th Reg. Sess. (W.A. 2020), available at https://app.leg.wa.gov/billsummary?BillNumber=2550&Year=2019 (“HB 2550”). Net ecological gain will require all new development within the State to improve the ecological baseline of the property being developed. This is a radical departure from the State’s existing policies, which requires consideration of the environment through a variety of laws, such as the State Environmental Policy Act, Growth Management Act (“GMA”), and Shoreline Management Act (“SMA”). Both the GMA and SMA have an existing “no net loss” standard for shoreline and critical area ecological functions and values; however, there are currently no laws in Washington requiring a net improvement of the environment for pre- to post-development.

 

As proposed, net ecological gain will apply to state and local regulations and decisions involving: (1) the SMA; (2) the GMA; (3) construction projects in state waters regulated under Chapter 77.55 RCW; and (4) the Model Toxics Control Act. HB 2550. Net ecological gain is defined as a standard for a development, project, policy, plan, or activity in which the impacts on the ecological integrity caused by the development are outweighed by measures taken consistent with the mitigation hierarchy to avoid and minimize the impacts, undertake site restoration, and compensate for any remaining impacts in an amount sufficient for the gain to exceed the loss. HB 2550.

 

As net ecological gain requires improvement over the ecological baseline there is a serious concern that this development exaction could constitute a taking or unconstitutional exaction under the U.S. Constitution’s Fifth Amendment, specifically under the Nollan/Dolan test which requires that the exaction have a logical nexus to the legitimate state interest and that it is roughly proportional to anticipated impact of the development.

 

Background:

 

Overview of Existing No Net Loss Standard

 

The existing gold standard framework in Washington for protection of shoreline and critical area ecological functions and values is the no net loss standard. For example, under the SMA, shoreline regulations “must include policies and regulations designed to achieve no net loss of those ecological functions.” WAC 173-26-186(2). Washington’s no net loss policy under the SMA traces its history back to a 1989 Executive Order. E.O. 89-10. E.O. 89-10 established an interim no net loss standard for wetlands within the State. Id. Since then this policy has been adopted by the WA Legislature and administrative agencies of the state through regulations and tribunal rulings.

 

The WA Legislature has implemented the no net loss standard through the GMA, which

imposes a duty upon local governments to adopt development regulations that protect critical areas by preserving their ecological functions and values. RCW 36.70A.060(2); RCW 36.70A.172(1); WAC 365-195-825(2)(b). The Washington Growth Management Hearings Board has interpreted this statutory duty to protect critical areas as a no net loss standard. Tulalip Tribes of Washington v. Snohomish County, CPSGMHB No. 96-3-0029 (Final Decision and Order, Jan. 8, 1997); Pilchuck Audubon Society v. Snohomish County, CPSGMHB No. 95-20047 (Final Order and Decision, Dec. 6, 1995). These decisions announced a rule which allows some localized impacts to critical areas on a case-by-case basis; however, on the whole the regulations must protect the structure, value, and functions of the protected critical area. Id. For example, local regulations may allow development within wetland buffers, assuming that the project compensates for the impacts elsewhere such as requiring on- or off-site mitigation. GMA’s no net loss standard is developed at the policy level with development regulations designed to have no net loss from project impacts. Id.

 

Under the SMA, no net loss is analyzed both at the regulatory and project level. Washington State Department of Ecology, Shoreline Master Program Handbook, ch. 4, pg. 2, available at https://fortress.wa.gov/ecy/publications/parts/1106010part4.pdf. No net loss under the SMA incorporates the following concepts: (1) existing conditions of the shoreline ecological functions should not deteriorate due to permitted development; (2) new adverse impacts to the shoreline environment should be avoided and when avoidance is not possible, mitigation is required; and (3) mitigation alone cannot prevent all cumulative impacts so restoration is needed. Id.

 

 

 

 

 

 

Analysis:

 

Overview of Proposed Net Gain Standard

 

Under HB 2250, net ecological gain is defined as “a standard for a development project, policy, plan, or activity in which the impacts on the ecological integrity caused by the development are outweighed by measures taken consistent with mitigation hierarchy to avoid and minimize the impacts, undertake site restoration, and compensate for any remaining impacts in an amount sufficient for the gain to exceed the loss.” HB 2550. Further, HB 2550 states “[i]t is the policy of the state that environmental, land use, and development laws … [shall] result in the achievement of net ecological gain …” Id. HB 2550 requires that regulations be designed to improve the environment. Id. If enacted into laws, the state and local governments will require net ecological gain on individual projects, including land use, building, shoreline, and critical area permits. It is unclear from HB 2550 exactly how much of an ecological gain will be required. However, for the purpose of this paper it is assumed that net ecological gain at the project will require the following: (1) avoidance of project impacts; (2) on- and off-site mitigation in excess of the project’s impacts; and (3) mandatory restoration efforts or mandatory contributions to restoration efforts, in excess of the project’s anticipated impacts.

 

HB 2550’s Taking Analysis

 

The U.S. Constitution’s Fifth Amendment prevents private property from being taken for public use without just compensation. This clause is commonly known as the Takings Clause. The Takings Clause has three distinct applications to land use: (1) physical takings; (2) inverse condemnations or partial takings; and (3) unconstitutional exactions. The first type of a taking is a per se physical taking where the government causes a permanent physical occupation of property. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426 (1982). HB 2550 does not cause a permanent physical occupation of the property, so no physical taking has occurred. The second type of a taking an inverse condemnation or partial taking, which requires an ad-hoc analysis of the following factors: (1) the economic impact of the regulation; (2) investment-backed expectations; and (3) the character of the government action. Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978). The Court has further announced that the Penn Central test aims to spot government actions that are the functional equivalent of a direct physical appropriation of the property. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 537 (2005). As HB 2550 likely does not destroy all economic uses of the property and allows reasonable development, no inverse condemnation has occurred under the Penn Central test. Therefore, HB 2550’s regulations fall into the third type of takings, exactions. An exaction is a development condition that requires the dedication of land, payment of money, or similar action to obtain development approval. Nollan v. California Coastal Comm’n, 483 U.S. 825, 838–42, 107 S. Ct. 3141, 3149–51, 97 L. Ed. 2d 677 (1987); Dolan v. City of Tigard, 512 U.S. 374, 391, 114 S. Ct. 2309, 2319–20, 129 L. Ed. 2d 304 (1994); Koontz v. St. Johns River Water Mgmt. Dist., 570 U.S. 595, 595, 133 S. Ct. 2586, 2589, 186 L. Ed. 2d 697 (2013).

 

In Nollan, the Supreme Court found that a development exaction requiring the dedication of an easement allowing public access to the beach violated the Constitution’s Taking Clause. Nollan 483 U.S. at 838-39. In Nollan, the California Coastal Commission required a public easement when Nollan requested permission to replace an existing single-family home. Id. at 827-29. The California Coastal Commission reasoned that the new home would block the view of the ocean and argued that the state had a legitimate interest in promoting beach access. Id. The Court generally rejected the California Coastal Commission’s argument and held that the development exaction could be lawful if it substantially furthered a governmental purpose that would justify the denial of the permit. Id. at 825. However, the court held that the beach access requirement was unrelated to land use regulation, was part of a program to provide beach access, and that the state cannot compel coastal residents alone to contribute to the realization of their beach access goals. Id. at 825-26. The Nollan court announced the requirement that development exactions must have an essential nexus between a legitimate state interest and the permit condition. Id.

 

In Dolan, the Court remanded an Oregon State Supreme Court decision which upheld a development exaction requiring a property owner to dedicate land for: (1) a greenway to reduce flooding along a creek; and (2) a bicycle/pedestrian path. Dolan, 512 U.S. at 374. Dolan had requested approval to expand the parking lot of her business. Id. In Dolan, the Court reaffirmed its Nollan holding that the government may not require a person to give up a constitutional right in exchange for a discretionary benefit when the property has little to no relationship to the benefit. Id. While the Court held that reducing flooding and reducing traffic impacts were legitimate public purposes with a relationship to the proposed land use decision, the Court summarized the city’s decision as:

 

The findings upon which the city relies do not show the required reasonable relationship between the floodplain easement and Dolan’s proposed building. The Community Development Code already required that Dolan leave 15% of her property as open space, and the undeveloped floodplain would have nearly satisfied that requirement. However, the city has never said why a public, as opposed to a private, greenway is required in the interest of flood control. The difference to Dolan is the loss of her ability to exclude others from her property, yet the city has not attempted to make any individualized determination to support this part of its request. The city has also not met its burden of demonstrating that the additional number of vehicle and bicycle trips generated by Dolan’s development reasonably relates to the city’s requirement for a dedication of the pathway easement. The city must quantify its finding beyond a conclusory statement that the dedication could offset some of the traffic demand generated by the development.

Id.

 

Dolan affirmed Nollan’s rule and further added that the state must also demonstrate that the exaction is roughly proportional to the anticipated impact of the development. Id. at 391. More recently, in Koontz, the Court again re-affirmed its Nollan/Dolan test for development exactions. Koontz, 133 S. Ct. at 2589. Koontz extended the Nollan/Dolan test to situations when the state denies development permits after a developer has refused a demand for monetary exactions; and extended the Nollan/Dolan test to situations where the government requires monetary fees as a development exaction. Id. at 2603.

 

HB 2550 establishes a sweeping requirement that land use regulations require individual development permits to improve the environment, even over the pre-development baseline. On its face, HB 2550 veers into the realm of the Nollan/Dolan, potentially creating per se unconstitutional exaction. However, the Washington Court of Appeals has generally foreclosed on facial Nollan/Dolan challenges to legislative actions, stating “it will be an unusual instance, at best, when the ‘mere enactment’ of a restriction could be said to violate these [Nollan/Dolan] standards of nexus and rough proportionality. Olympic Stewardship Found. v. State Envtl. & Land Use Hearings Office through W. Washington Growth Mgmt. Hearings Bd., 199 Wn. App. 668, 747, 399 P.3d 562, 599 (2017). See also Cal. Bldg. Indus. Ass’n v. City of San Jose, 351 P.3d 974, 990 n.11 (Cal. 2015) (holding that the Koontz decision does not purport to decide whether the Nollan/Dolan test is applicable to legislatively prescribed monetary permit conditions that apply to a broad class of proposed development). As the Nollan/Dolan test is generally ad-hoc, it will be highly unlikely that a court will find that the legislative enactment of HB 2550 is a per se unconstitutional exaction. Instead, the court will analyze the facts of each case to determine if an unconstitutional exaction has occurred on a permit by permit basis.

 

Recommendations:

 

It is recommended that the net ecological gain standard, as applied, comport with the Nollan/Dolan two prong test. The development regulations: (1) must have an essential nexus between the legitimate state interest asserted and the permit condition; and (2) the permit condition must be roughly proportional to the anticipated impact of the development. As discussed above, Nollan/Dolan claims will likely be on an as applied basis versus facial attacks to the legislation. Therefore, it is recommended that the nature of the regulations and individual permits be structed in a manner to ensure permit level compliance with Nollan/Dolan.

 

There is an Essential Nexus for Most Net Ecological Gain Development Exactions.

 

First, the development exaction must demonstrate an essential nexus between the legitimate state interest and the development exaction. It is likely that there is an essential nexus between the legitimate state interest of protecting and enhancing the ecological functions and values of the environment and development exactions designed to protect or enhance the environment, such as increased buffers to mitigate for loss of shoreline from surrounding development. Therefore, most individual permit conditions will pass the first prong with little showing.

 

Each Exaction Must Have an Individualized Determination of Rough Proportionality and Some Development Exactions May Exceed This Rough Proportionality Requirement.

 

Second, the development exactions must be roughly proportional to the anticipated impacts of the development. For the purpose of this paper it is assumed that net ecological gain at the project level will require the following: (1) avoidance of project impacts; (2) on- and off-site mitigation in excess of the project’s impacts; and (3) mandatory restoration efforts or mandatory contributions to restoration efforts, in excess of the project’s anticipated impacts. Under Dolan, the government must demonstrate that the development exaction is roughly proportional to the development. Dolan, 114 S. Ct. at 2319-20. “No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent of the impact of the proposed development.” Id.

 

The Washington Supreme Court generally requires this analysis for individual exactions. Sparks v. Douglas Cty., 127 Wn.2d 901, 915, 904 P.2d 738, 746 (1995). In Sparks, the Washington Supreme Court upheld a development exaction requiring right-of-way dedication as a condition of plat approval. Id. The court found that while there was not a specific Dolan analysis, the county’s exaction was based upon the increase in traffic from the development and the specific need for right-of-way based upon the individual and cumulative impacts of the subdivisions. Id.

 

In a contrary example, the Washington Supreme Court found that a 30 percent open space requirement violated a state statute which authorized fees only when reasonably necessary as a direct result of the proposed development. Isla Verde Int’l Holdings, Inc. v. City of Camas, 146 Wn.2d 740, 764, 49 P.3d 867, 880 (2002), abrogated by Yim v. City of Seattle, 194 Wn.2d 682, 451 P.3d 694 (2019). The court found the 30 percent open space requirement, which was uniformly applied, cannot be imposed automatically, but must be tied to a direct impact of the proposed development. Id. However, it should be noted that the court ruled on a state statute and not the Nollan/Dolan test, even though the two were similar. See also Henderson Homes v. City of Bothell, 124 Wash.2d 240, 247, 877 P.2d 176 (payment of a uniform $400 per lot fee as a park mitigation fee held invalid). In Burton v. Clark Cty., 91 Wn. App. 505, 529, 958 P.2d 343, 357 (1998), the Washington Court of Appeals found that a development exaction which required the construction of a road across the proposed development was an unconstitutional exaction. The road was required to provide for a future connection to another road in the area. Id. The court found that the county failed to meet its burden showing a rough proportionality between the government interest of connecting the roads for traffic and emergency reasons to the impacts from the proposed development, such as traffic congestion. Id.

 

It is important that the State and local jurisdictions comply with the limitations imposed by the rough proportionality prong of Dolan. For example, a developer proposes to build 100 single family homes in an urban growth area which is partially within shoreline jurisdiction. There will be a park and open space in the shoreline area, but no residential development within shoreline jurisdiction. The city, under net ecological gain standard, requires the developer to design the single-family homes with interior open space dedication, rainwater gardens, and bike/pedestrian paths. In addition, the city requires the developer to improve the shoreline by removing bulk armoring and replacing it with natural shoreline stabilization, at a cost of $5 million, even though shoreline development was generally not a park of the proposal. In the alternative, the developer can pay $5 million to the city as mitigation. In this case, the shoreline exaction requiring improvement of the shoreline is not roughly proportional as the development will have little to no impact on the shoreline environment.

 

The State and local jurisdictions must take extra precautions to show their work and they must be able to easily identify how the development exaction is roughly proportional. The government bears the burden of proving rough proportionality. While the development exaction may include cumulative impacts from other developments, a single developer should not bear the cost and burden of making substantial improvements to the environment over the baseline of their pre-development conditions.