Could a federal decision imperil housing programs in Oregon? | Opinion

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In a steady trend since 1987, the U.S. Supreme Court has favored property owners’ rights over public-policy-furthering regulations and has used the “takings clause” of the Fifth Amendment as the instrument to advance that concern.

While the takings clause assures that public agencies do not go “too far” in forcing property owners to give up property interests when the reason given is unrelated to the impacts of a development, the Supreme Court has gone well beyond that point. Most of the recent Supreme Court decisions rely on a broad statement from a 1960 case, Armstrong v. United States, which required the federal government to recognize a previously imposed lien on property later transferred to the federal government, saying: “The 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.”

The Armstrong quote, in its context, is not troubling, for it relates to a real property interest (the lien) that could not be avoided when the property was transferred. However, that quote has been used as a means for the court to use those broad terms “fairness and justice” to advance a worldview hostile to public interests, where the result imposes any significant impacts on the economic interests of a property owner. The court used the Armstrong quote in 1978 in the first modern takings case, Penn Central Transportation Co. v. New York City, to determine whether a historic designation of a railroad station was in effect a taking and found it was not. The court was untroubled in extending this broad test beyond a real estate interest to trade secrets in 1984 and since has invoked this test to evaluate whether public safety setbacks, moratoria to undertake required planning, and local fees and charges was in effect a “taking” of property. As the court moves rightward, the “fairness and justice” standard has become a useful one to advance a property rights agenda.

So, it may not have been a surprise when the Supreme Court asserted in Sheetz v. County of El Dorado earlier this year that the court could determine whether a local government’s fee schedule for a road assessment to serve a remote area was to be judged under the broad “fairness and justice” standard. Mere invalidation of the fee isn’t the only danger. A properly pled challenge would grant a successful challenger attorney fees and costs.

So, what does all this mean for Oregon’s land use regulatory program? The answer is that we don’t know, as the Sheetz court said the takings clause applied to the fee but sent the case back to the lower courts to determine just how it applied. Whether legislatively imposed fees can rely on whatever methodology justified adoption to show “fairness and justice” or whether it must be a case-by-case factual determination, is not at all clear. Many of Oregon’s housing initiatives are voluntary – in larger urban areas, more dense housing may be built in single-family zones, for example. However, there are provisions by which local governments must require allocations for affordable or low-cost housing as part of an annexation, which may be questioned as a taking. The same may be said of potential challenges to systems development charges for parks, sewers and the like each time such charges are imposed.

Most vulnerable may be the “inclusionary zoning” provisions authorized by the 2016 Legislature. A city that chose to use them (which for now appears to be only Portland) may require a set-aside of a percentage of housing units for lower-income buyers or renters. The Supreme Court dismissed a challenge to similar regulations in San Jose, California, in 2016, but the court was short a member (Justice Scalia having gone to his eternal reward – or punishment, as the case may be) and the court appeared evenly divided. A betting person would not wager against the court taking such a case today, nor that it would be inclined to view those regulations as a taking.

What may save the Portland version of inclusionary housing, when challenged in an individual case, is that the state legislature requires certain offsetting benefits (such as reduction of fees, greater densities, etc.) when inclusionary zoning is used. These “sweeteners” could be legally sufficient to avoid successful takings claim; however, the city would still be required to justify each application of inclusionary zoning and must deal with the applicant’s assertion that it did not create high housing costs. Those “sweeteners” make such a claim more unlikely, as most developers prefer to develop than litigate. Yet Sheetz may open the door to individualized assessments of all local exactions. Under current takings law, the local government may be required to satisfy the anomalous “fairness and justice” test.

There are further, and more perverse, outcomes that may result from Sheetz. First, if every condition and fee (whether imposed on a case-by-case basis or as part of a general set of requirements, such as a fee schedule) can be the basis for litigating takings claims (with successful claims being accompanied by attorney fee and cost awards), then almost any land use action beyond a building permit presents potential financial liability to the public agency. This gives applicants, particularly those with adequate financial resources, the ability to threaten litigation to reduce fees and remove conditions for public utilities such as sidewalks, buffering, and transportation from development approvals, leaving it to general fund allocations to compete with other public services, or later assessments on properties to provide improvements after the fact and with greater expense. Secondly, the exaction may be required to focus on the sufficiency of remedying impacts of one development, without addressing overall needs.

Maybe this will all work out – the Supreme Court could decide that it will defer to local judgments on fees and legislatively imposed conditions of approval (such as minimum street widths or sidewalks and drainage requirements). But a property-rights-centered court may well prefer to play the role of a reverse Robin Hood instead.

Edward Sullivan is a retired practitioner of land use and municipal law with more than 50 years of experience. Contact him at [email protected].

Carrie Richter is an attorney specializing in land use and municipal law at Bateman Seidel. Contact her at 503-972-9903 or [email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither author nor the DJC guarantees the accuracy or completeness of any information published herein.