Thoughts on the Koontz Takings Clause Case

Here are some early reflections on Koontz v. St. John’s River Water Management District, the important Takings Clause case the Supreme Court decided today. As discussed more fully here, the case involved a situation where Coy Koontz, a Florida property owner, was refused a permit to develop his land by a government agency, unless he agreed to, among other things, perform off-site repair and maintenance work on other properties he did not own, which were miles away from his land.

In Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994), the Supreme Court ruled that, under the Takings Clause, there must be an “essential nexus” and “rough proportionality” between the purpose behind a government-imposed physical invasion of property and the objectives of any permit scheme where development permits are conditioned on allowing the physical invasion. If there is no such connection, then a taking has occurred, and the Takings Clause requires that the property owner get “just compensation.” Otherwise, the government could essentially wipe out property owners’ rights to control their property simply by refusing them the right to develop their land in any way unless they do whatever the state demands.

Koontz addresses two major issues that previous Supreme Court cases had not covered: Whether the requirements of Nollan and Dolan apply when the government denies a permit, as opposed to issuing it with attached conditions, and whether those requirements apply to cases where the burden imposed by the government is an obligation to finance off-site “mitigation” as opposed to requiring the property owner to allow a physical invasion of his land. The Supreme Court majority answered “yes” to both questions. I think they got both of them right.

I. Issued Permits vs. Permit Denials

The distinction between issued and denied permits is the easier of the two. I think Justice Alito’s opinion deals with it effectively here:

We have often concluded that denials of governmental benefits were impermissible under the unconstitutional conditions doctrine…. In so holding, we have recognized that regardless of whether the government ultimately succeeds in pressuring someone into forfeiting a constitutional right, the unconstitutional conditions doctrine forbids burdening the Constitution’s enumerated rights by coercively withholding benefits from those who exercise them.

A contrary rule would be especially untenable in this case because it would enable the government to evade the limitations of Nollan and Dolan simply by phrasing its demands for property as conditions precedent to permit approval. Under the Florida Supreme Court’s approach, a government order stating that a permit is “approved if” the owner turns over property would be subject to Nollan and Dolan, but an identical order that uses the words “denied until” would not.

As the opinion points out, if the Court had ruled that the Takings Clause doesn’t constrain permit denials, then the government could essentially circumvent constitutional rights by manipulating the words it uses. In fairness, the whole issue of “unconstitutional conditions” – situations where the government endangers constitutional rights indirectly by placing conditional burdens on their exercise – is a difficult one. But this particular case is a relatively simple example of it. Few would accept the kind of argument made by the government in any context other than property rights. For example, the First Amendment would surely apply to a government policy that refused to allow permits to hold worship services in a church unless the parishioners first agree to perform some repair work on government property several miles away. Alito in fact cites numerous cases involving other constitutional rights where the Court ruled that the relevant provision of the Constitution constrains permit denials. Interestingly, the four liberal justices who dissented in the case agreed with this part of the Court’s decision. So the Court was unanimous on this point.

II. Applying Nollan and Dolan to Permit Schemes that Impose Financial Exactions

The second issue is tougher. The Court has long held that government regulations mandating a “physical invasion” of an owner’s property are can more easily be proven to be takings than those which do not. However, here too, the Court correctly points out that Nollan and Dolan would essentially be gutted if the government’s position prevails:

We note as an initial matter that if we accepted this argument it would be very easy for land-use permitting officials to evade the limitations of Nollan and Dolan. Because the government need only provide a permit applicant with one alternative that satisfies the nexus and rough proportionality standards, a permitting authority wishing to exact an easement could simply give the owner a choice of either surrendering an easement or making a payment equal to the easement’s value. Such so-called “in lieu of ” fees are utterly commonplace,… and they are functionally equivalent to other types of land use exactions.

In other words, under this approach, the government could impose any uncompensated land-use restrictions it wants, so long as it does so by requiring noncomplying property owners to pay a fine, no matter how high. Here too, almost everyone would agree that this kind of rule is unacceptable when it comes to other constitutional rights. The government could not force people to give up their First Amendment rights or Fourth Amendment rights in this way. The same principle should apply to the Takings Clause.

The four-justice dissent written by Justice Elena Kagan rejects the Court’s conclusion of the second issue because, it claims, requiring the owner to pay money for off-site mitigation is not really a taking:

[T]he Takings Clause applies only when the government appropriates a “specific interest in physical or intellectual property” or “a specific, separately identifiable fund of money”; by contrast, the Clause has no bearing when the government imposes “an ordinary liability to pay money…”

Thus, a requirement that a person pay money to repair public wetlands is not a taking. Such an order does not affect a “specific and identified propert[y] or property right[]”; it simply “imposes an obligation to perform an act” (the improvement of wetlands) that costs money… To be sure, when a person spends money on the government’s behalf, or directly to the government, it “will reduce [his] net worth”—but that “can be said of any law which has an adverse economic effect” on someone.[citations omitted]

Kagan goes on to argue that, under the majority’s approach even taxes might qualify as takings, since they too require the payment of money.

As Alito points out in response, the permit denial in this case does in fact burden a “specific interest in physical… property” because it restricts Koontz’ property rights to use a specific piece of land that he owns. It is thus very different from a tax unrelated to any particular property right, or even from a property tax that burdens all landowners equally, regardless of how they use their land. Most important, as noted above, under Kagan’s theory, the government could use the permit process to restrict property rights in almost any way it wants, so long as the penalty for noncompliant property owners was some sort of monetary fine.

The dissent also argues that the majority’s approach will lead to negative real-world consequences:

The majority’s approach, on top of its analytic flaws,threatens significant practical harm. By applying Nollan and Dolan to permit conditions requiring monetary payments—with no express limitation except as to taxes—the majority extends the Takings Clause, with its notoriously “difficult” and “perplexing” standards, into the very heart of local land-use regulation and service delivery… Cities and towns across the nation impose many kinds of permitting fees every day…

All now must meet Nollan and Dolan’s nexus and proportionality tests. The Federal Constitution thus will decide whether one town is overcharging for sewage, or another is setting the price to sell liquor too high.

I think Alito deals effectively with this argument as well noting out that the rule adopted by the majority is already the law in many states, yet the sky has not fallen there. Moreover there is an obvious difference between charges imposed for government services such as sewage disposal and permit conditions that restrict land use. In addition, the Nollan-Dolan standard still allows the government to restrict land uses that harm the person or property of others (e.g. – by dumping hazardous waste) without compensation. Finally, it should be emphasized that the majority opinion does not actually prevent the government from imposing regulations even in those cases where courts conclude that a taking has occurred. In such situations, the government can still do as it pleases, so long as it pays “just compensation” to the owner. If the benefits of the regulation to the public outweigh its costs, the government should be willing to pay. As the Supreme Court put it in Armstrong v. United States (1960), “[t]he Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation 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.”

Finally, the dissent claims that applying Nollan and Dolan to these types of cases is unnecessary because property owners are protected by the Penn Central balancing test and by the Due Process Clause of the Fourteenth Amendment. But, as I discuss in this article, the Penn Central test is extremely permissive and offers little meaningful protection for property owners. Moreover, it is difficult to see how that framework can apply if Kagan is right to conclude that monetary exactions linked to permit schemes are not takings at all. The Penn Central test, after all, is a test for determining whether a taking has occurred. As for the Due Process Clause, since the 1930s the Court has largely gutted it as a substantive protection for “economic” rights.

This post is already too long, so I will not go into some of the other, more technical, points raised by Alito and Kagan. Overall, Koontz is the most important victory for property rights in the Supreme Court for a long time.