It’s no secret that California courts have been rather adventurous in finding ways around the rule that a permit condition must relate in both size and scope to development impact the condition is designed to mitigate. The nexus and proportionality tests—established by Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994)—are intended to curtail the common municipal practice of using a permit application as an opportunity to exact unrelated public benefits.
Over the years, however, California courts have bored gaping holes through that edifice. For example, courts have held that legislative demands for property—as opposed to demands made at the permit desk—are subject only to review to determine whether the dedication “reasonably relate[s] to the broad general welfare purposes for which the ordinance was enacted.” California Building Industry Ass’n v. City of San Jose (2015). Thus, California courts have upheld legislation demanding, among other things, that developers dedicate a portion of new housing projects as affordable housing to be sold to government-selected purchasers with absolutely no showing of nexus and proportionality.
Another court-created rule that carved a massive hole into the Nollan/Dolan doctrine is the so-called Porterville rule. That rule holds that the government does not have to pay full and fair compensation for a taking if it could have hypothetically demanded the targeted property as a permit condition. In other words, the rule authorized the government to take land for pennies any time it could concoct a scenario where it could have demanded the land as a condition for approval of a hypothetical permit.
Earlier this week, the California Supreme Court issued its long-awaited decision in City of Perris v. Stamper, in which PLF filed an amicus brief asking the Court to place common sense limits the Porterville rule.
Boiled down, the facts of Perris are as follows: Stamper owns an undeveloped 9-acre lot that is zoned for light industrial. The city, as part of a traffic plan update, determined that it needed a 1.66-acre strip of Stamper’s land to build a road. The city condemned the strip then argued that under the Porterville rule, it only had to pay for the undeveloped value (approximately $50,000) of the land rather than its value if it was developed light industrial (approximately $1,000,000). The trial court agreed with the city and awarded a pittance as “just compensation.”
PLF’s amicus brief argued that the Porterville rule was too broad and allowed for the very type of extortionate exactions that Nollan/Dolan prohibited. Indeed, one of the key protections guaranteed by Nollan/Dolan is that government must prove that the need for the dedication arises from an impact of the proposed land use. That guarantee is undermined by a rule allowing government to determine what land it wants to advance a public project, then offering some hypothetical justification for why it could have taken the land as a permit condition at some point in the future (and upon the actual filing of the hypothetical permit application).
By a 6-1 margin, the Supreme Court agreed with PLF on this issue, adding a threshold inquiry to the Porterville rule that requires the court to determine whether the government had targeted the property as a probable part of a public project prior to condemnation. If so, the government must pay full compensation for the land, rather than the bargain-basement amount allowed by Porterville. In limiting the Porterville’s applicability, the Court recognized the potential injustice allowed by allowing government to both target and circumvent the compensation requirement.
The Perris case is still ongoing. The Supreme Court remanded the matter to the trial court to enter factual findings on the new threshold Porterville inquiry. And, if Porterville is determined to apply, the lower court must further determine whether the city’s demand for the 1.66-acre strip of land would have violated Nollan/Dolan.