City Hall

Federal Judge Ponders City Fee on Developers

Is the city's affordable housing fee fair?

By Josh Feit September 26, 2014

This post was supposed to make it into this AM's Likes & Dislikes column, but I couldn't figure out if I Liked or Disliked the news. 

Yesterday, U.S. District Court Judge James Robart heard arguments in  a developer lawsuit against the city that we've been following.  

A pair of developers—Urban Visions and Clise Properties—sued the city in federal court, claiming that the city's incentive zoning policy is an illegal fee on developers because the city hasn't shown a formal relationship between the fee and the supposed impact nor, the developers say, has the city done the basic math to justify the specifics of the fee. The developers are relying on a recent U.S. Supreme Court ruling, known as the Koontz ruling, that said the government cannot extract permitting fees without showing a "nexus"—a fancy word for a direct relationship—nor without ensuring a "rough proportionality" between the cost of the fee and the impact of the development. 

Ostensibly, yesterday's hearing didn't deal with the substantive issues in the case; rather, the city was asking the judge to dismiss the developers' claim on the grounds that the developers lack standing to sue. I say "ostensibly" because the argument that ensued had everything to do with the substantive issue: Is the fee fair? 

The city's contention that the developers don't have standing is straightforward: They say the developers haven't been charged any fees because they haven't applied for any building permits under the incentive zoning program. As a result, they've got nothing to sue about. 

The developers' rejoinder? They have been affected by the fee because, since the policy is on the books, the fee immediately lowers their property values. 

That difference of opinion works against the city's case to have the lawsuit dismissed; the judge cannot dismiss the case if there's a "genuine issue of material fact"—meaning: if there's a disagreement over the basic facts. 

It's not clear what the judge will do. One option is to dismiss the case without prejudice, which means the developers could sue the city again when one of the developers attempts to do a project under the incentive zoning program, such as Urban Visions' planned 60-story project at 2nd and Marion. 

The developers lost their case against the incentive zoning fee in front of the Growth Management Hearing Board (GMHB) earlier this year—and that ruling doesn't bode well for the developers in federal court if the case moves forward. 

The developers argued in front of the GMHB that that the city violated its own comprehensive plan which, the developers said, meant that the incentive zoning charge could no longer be considered a tax. (Federal and state law allows taxes without requiring proportionality and nexus claims.) Without the ability to label the incentive zoning fee a tax (a get-out-jail free card on the Koontz standard), the city would have been more vulnerable to the developers' claims about nexus studies and rough proportionality. However, since the developers lost their GMHB claim, they're going to have a tough time in federal court proving that the city is out of line. 

While there isn't a Like or Dislike here, there is fodder for an Isn't it Weird That item. The city's argument that developers don't have standing because their property hasn't been affected by the zoning fee totally contradicts the city's argument in a new policy they're considering, a "Linkage Fee" that would charge developers a fee regardless of whether they took advantage of an incentive or not. The city rebuts developers' complaints that such a policy would raise rents by saying the cost would be eaten at the front end by the developer because the very existence of the fee would be factored into the sale value. 

Likewise, the developers' argument that the incentive zoning fee automatically impacts their property contradicts their argument against the "Linkage Fee" because they contend the fee isn't a factor until it goes live with rents. 

[Full disclosure, Urban Visions' Greg Smith was an original investor in PubliCola. He is no longer involved in the web site, though, since we were purchased by SeattleMet in 2012.]  



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