Developers Push Back Against Burdensome Infrastructure Costs

Every new development project whether residential, office or commercial, places added demand for infrastructure and other public facilities such as roads, parks, schools and public transportation.

For much of the 20th century, the burden of paying for the additional infrastructure fell on the public sector, funded by state and local tax collections. Today’s development environment is different as governments routinely shift the burden of new infrastructure costs to the private sector.

A series of cases out of Maryland shows just how far some public entities will go to transfer costs to private developers.

In 2001, the Somerset County Sanitary District began to encounter problems with its sewer system, including frequent backup and overflow of raw sewage.

An engineering firm found that the District needed to construct a new bypass sewer main to help alleviate the overloading of the old sewer system, as well as provide additional capacity for new development. In 2004, the District decided to build the new bypass main at a cost of $3.2 million.

Around the same time, a handful of developers requested water/sewer allocations to ensure adequate capacity for new development.

One of these developers estimated that his build would generate 9,400 gallons of sewage a day, or 0.27 percent of the 3.5 million gallon capacity of the new bypass.

Rather than asking the private developers to pay for the part of the bypass that they would utilize, the District pushed the entire $3.2 million cost onto the small group of property owners by imposing a $30.20/front foot benefit charge.

So while existing users of the sewer system were paying less than $2/front foot, some developers were stuck paying thousands of dollars per year to subsidize the entire cost of the bypass.

One developer, who requested an allocation in 2004 but ultimately abandoned his project, has been assessed amounts ranging from $18,000 to $20,709 per year between 2008-2015 on land that is currently unimproved.

NAHB advances the position that regardless of how the government shifts this burden, it must meet certain constitutional requirements.

From the constitutional perspective, this is referred to as Nollan/Dolan/Koontz analysis, coming from three important Supreme Court cases. These three cases provide the basic principle: There must be a nexus and rough proportionality between government demands and the impact of a development.

For example, the Constitution does not allow a locality to force the builder of a single lot to build a four-lane highway just because of the traffic impact of the single lot. It must be proportional.

A number of developers have brought lawsuits claiming that the District’s actions violate constitutional principles. However, the courts in this case have so far agreed with the District, ruling that Nollan/Dolan/Koontz analysis does not apply to front foot benefit charges.

This article is a blog post from NAHB Now.