When an owner applies for a permit to use property in a certain way, the government body with jurisdiction can either deny the permit, grant the permit outright, or grant the permit subject to conditions. Under Supreme Court doctrine, these types of conditions – known as “exactions” – must meet two constitutional thresholds. First, there must be a close linkage between a problem the owner’s project will create or exacerbate, such as increased traffic caused by a proposed new shopping mall, and the exaction the government proposes, such as a requirement that the applicant dedicate the land for a new right-turn lane. Second, the condition the government suggests must be proportional in magnitude to the problem. The exaction must meet this two-part test even if the applicant rejects the government’s proposal and decides not to proceed.
The Court’s goal in adopting these rules was to ensure that the government does not obtain for free property rights that it otherwise would have to pay for. In other words, the tests presuppose that the government is obtaining a benefit from the imposition of the exaction. That presupposition is wrong for two reasons. First, a properly designed exaction does not create a benefit for anyone. Rather, it mitigates the negative effects that the applicant is imposing on its neighbors. Second, the mitigating effects of the exaction inure to those neighbors and not to the government itself: the government typically gains nothing, because the government is not acting in an enterprise capacity. Rather, the government is serving as a referee, mediating between the competing property rights of an applicant that seeks to develop its land and members of the broader community who do not wish to see their own property rights impaired by a neighbor’s intensified use. If a government agency fears takings liability under these stringent tests and decides either to grant the permit unconditionally or to impose conditions that are too weak, it is striking an unfair balance between these competing property rights and allowing the applicant to impose external costs on its neighbors. The current test, in short, pushes government bodies toward proposing weak or no conditions and thereby inequitably tips the scales in favor of applicants.
This Article argues that members of the broader community should be permitted to counter this inequity by bringing reverse exaction claims, challenging particular government impositions as insufficient to offset the negative effects of an applicant’s proposed development. Like traditional exaction claims brought by permit applicants, these reverse claims would succeed or fail based on the Court’s two existing criteria, namely (1) the degree of linkage between the problem and the condition the government exacted and (2) the magnitude of the condition. This claim, however, would be viewed from the opposite perspective. The neighbors would argue that the government’s granting of consent with inadequate conditions attached effects a compensable taking of their own property rights. In a traditional exaction claim, the wronged landowner receives compensation that is ultimately paid by the beneficiaries of the government’s over-exaction, typically taxpayers; here, the wronged neighbors would be compensated from funds the government would raise from the applicant that received a permit without initially paying the full cost of its own externalities.
Stein, Gregory M., "Reverse Exactions" (2018). UTK Law Faculty Publications. 84.