Planning and Development

News publications across the country have affirmed the existence of a near-crisis in providing affordable housing options for first-time homebuyers and low-income housing consumers. Mayoral elections in Minneapolis and St. Paul emphasized the need to address this problem. There are numerous private for-profit and nonprofit housing developers who would love to serve this market; indeed it is the largest segment of the housing market that is not being served adequately by anyone. If asked, builders will tell you they cannot afford to construct housing that is affordable at the low end of the market. We know that the cost of land, labor and materials has risen substantially since the recession; that is a function of the market that can’t easily be addressed through public policy. One other well-documented factor is the cost of regulation, both by state and local entities. When it costs a builder $20,000 more to build the identical home in one state vs. another state, that is compelling evidence that regulatory costs are unbalanced in the high-cost state. Regulatory cost can be addressed by public policy, if there is the will to do so.

States and cities across the country have thrown hundreds of millions of dollars at the problem and barely moved the needle. What has been lacking thus far is a constructive discussion with housing developers about what it will take for them to serve this market.

What have state and local governments been doing to address this problem? Well, not much, actually. The governor of Minnesota recently convened a housing task force to come up with ideas to address housing affordability; curiously the trade organization representing the largest concentration of Minnesota homebuilders was not invited to serve on the committee. To the contrary, what a growing number of cities are contemplating is a new illegal tax on housing that would compel housing developers to pay a fee as a condition of being approved for a new development, unless the developer agrees to construct a certain number of housing units that will be held for sale or use by consumers at a certain income scale. Some refer to this as inclusionary zoning. The theory is that a housing developer ought to have to fund a public housing initiative as the price of securing government approval of a new private, unsubsidized housing project. Aside from having no statutory basis, at least in Minnesota, it’s a nice little maneuver that shifts responsibility for addressing a serious public policy problem from the responsible governmental body to developers of new multi-family and single family housing – thus, it’s now the housing industry’s problem.

Theoretically, a housing developer could bury the added cost of meeting this new tax by inflating the cost of its remaining housing stock (that is what occurs with other government fees). In this instance, not only is this approach arguably illegal, but in a tight housing market, it will also be very difficult for the for-profit housing sector to absorb this new tax. And the only way the nonprofit sector can satisfy such a requirement is for the government to subsidize it.  How ironic.

It’s time for government entities concerned about housing affordability to sit down with those folks who would like to build more affordable housing. Simply adding a new tax on housing may feel good to public policymakers, but it only makes housing that much more expensive for housing consumers.

For more than 30 years, a property owner who claimed that a regulatory action by the government amounted to a compensable taking under the Fifth Amendment to the U.S. Constitution has been required to litigate the issue in state court first, before being allowed to gain entry to federal court. The 1985 case of Williamson County Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 105 S.Ct. 3108 established a peculiar form of “ripeness” that required property owners first to exhaust their administrative remedies, and then exhaust their state court remedies before they would be permitted to sue out a federal takings claim in federal court. In other words, the federal courts would not consider a regulatory takings claim to be “ripe” for hearing in federal court unless and until the property owner had first jumped through both administrative and state court exhaustion hoops.

Williamson County’s ripeness doctrine has created confusion for courts and frustration and delays for litigants since it was handed down. The U.S. Supreme Court now seems to be interested in reconsidering Williamson County, signaled by its granting review of a Pennsylvania case that squarely raises the issue of whether property owner Rose Mary Knick may go directly to federal court to litigate her unconstitutional taking claim arising from local officials seeking to enter onto her 90-acre farm to search for ancient burial sites.

Fifteen years ago, a Minnesota litigant’s unsuccessful attempt to entice the Supreme Court to reconsider Williamson County illustrates the dilemma to litigants caused by the case’s ripeness doctrine. Rochester real estate developer Franklin P. Kottschade obtained approval from the City of Rochester in 2000 to develop townhomes on about 16 acres of his 220-acre development site in south Rochester. The city approved the townhomes, but attached numerous conditions to its approval, which resulted in the project becoming economically unfeasible for Mr. Kottschade. A court decision by the Minnesota Court of Appeals described the effect of the city’s conditions on the development: “The city’s imposition of the conditions reduced the buildable area to 4.93 acres, and resulted in a site that could accommodate only 26 of the proposed 104 townhome units[1].”

In a nod to Williamson County’s administrative exhaustion requirement, Mr. Kottschade asked the city for a variance from the conditions that it had just imposed. Unsurprisingly, the city denied the variance request. In an about-face from Williamson County, however, Mr. Kottschade did not follow the state court exhaustion requirement by suing out his regulatory takings claim in state court; instead, he sued directly in federal court for a regulatory taking. Both the U.S. District Court and the U.S. Court of Appeals for the Eighth Circuit dismissed the case based on the controlling authority of Williamson County. The Eighth Circuit pointed out, however, the dilemma that litigants like Mr. Kottschade face because of Williamson County:

The plaintiff [Mr. Kottschade] points out, and justly so, that if he is required to seek a post-deprivation remedy in a state-court inverse condemnation action, he may end up being altogether denied a federal forum for what is undoubtedly a federal right. Such a federal forum, he urges, is guaranteed by 42 U.S.C. § 1983 [the federal civil rights statute] … and a plaintiff has a right to bring a § 1983 claim in a federal trial court, at his option. If plaintiff must go to the state courts, he would presumably need to show, in order to prevail … that a taking had occurred, and that just compensation had not been paid. If the state courts hold for the plaintiff, then all is well, from his point of view, and there would be no need for recourse to a federal forum. But if they hold against him, for example, on the ground that no taking has occurred, doctrines of former adjudication may be a bar to a new action under § 1983 in a federal trial court[2].

What the Eighth Circuit is pointing out is that a property owner may fall victim to two different doctrines of federal adjudication. If the property owner follows Williamson County and sues in state court first – and loses – then when the property owner attempts to seek relief in federal court, another federal doctrine may further thwart federal court consideration of the claim on the merits, under the theory that the claim has already been decided.

Rose Mary Knick may resolve this dilemma. It is being briefed now, but is unlikely to be decided until the Supreme Court’s next session, which will begin in October. Stay tuned.

[1] Kottschade v. City of Rochester, 760 N.W.2d 342, 345 (Minn. App. 2009)

[2] Kottschade v. City of Rochester, 319 F.3d 1038, 1041 (8th Cir.), cert. denied, 540 U.S. 825 (2003)

In cities and towns across Minnesota, newly elected mayors and city council members assumed their positions Jan. 1. While each official typically has a list of policy objectives to be pursued during his or her term, an increase of affordable housing to meet growing demand is frequently on the top of the list. This year is no different: The new mayors of St. Paul and Minneapolis have stressed the need for their respective cities to address this problem.

When the average person thinks about “affordable housing” they may think about subsidized housing, such as Section 8 housing. While this is an important category of housing, it represents a very small percentage of the greater market. Instead, the focus should be on “housing affordability,” which connotes a broader market perspective. In this scenario, there is enormous demand that the private housing market could and would serve if the challenge of building an affordable home is addressed. For example, 10 years ago 72 percent of new homes built in the Twin Cities sold for less than $325,000. Today only 38 percent of new homes sold for less than $325,000. Meanwhile, incomes for potential homebuyers, especially at the lower income thresholds, have increased only modestly in that span of time.

Contributing Factors

The cost of land, materials and labor are all significant contributors to the cost of housing and each has increased substantially following the recession. However, of equal or greater importance, is the impact of local government policies that regulate land use in a way that arbitrarily drives up the cost of land and the house constructed on that land. The St. Paul Pioneer Press has documented that an identical home costs $20,000 more to construct in Minnesota as opposed to being constructed in Wisconsin. National data indicate that regulatory costs comprise 25 percent of the cost of new housing. For local government officials who are serious about addressing housing affordability in their community, taking a hard look at the impact their regulations have on housing would be good place to start.

For example, city policies that require new housing to be constructed on over-sized lots or meet minimum dimensional standards directly affect housing affordability. The core cities and first-ring suburbs are full of desirable housing (undersized by today’s standards) on very small lots; these homes and neighborhoods are highly valued and frequently draw above-market offers when put on the market. Why such housing can’t be constructed in all cities in Minnesota is a question for local government leaders to answer.

Another example relates to local government fees. Few would question the need for cities to cover the costs associated with constructing and operating sewer, street and park systems. Housing contractors accept their responsibility to pay their fair share of these costs as part of the permitting process. Unfortunately, cities have determined that developers and contractors of all sorts, but especially housing contractors, are an easy source of revenue to avoid taxing their residents. Consequently, we see local park fees as high as $6,000 per housing unit and street fees of $20,000 per acre depending on the city. These are on top of what the developer or contractor is required to build and pay for within their new development area. Cities pocket millions from these practices and won’t give up on them easily; yet, if they are truly serious about addressing housing affordability for their local work force and for their children, these policies must be examined and be repealed or substantially pared back.

The new year is always a time for optimism about the year ahead. Let’s hope this optimism translates into policy changes that allow more housing to be constructed that is affordable to more Minnesotans.

Virtually all local government jurisdictions in the United States follow a development code when evaluating a proposed development application (Houston, Texas is a notable exception, along with rural townships dominated by traditional agricultural uses). Rather than follow the dictates of their respective development codes, however, a growing number of jurisdictions compel that some types of land use applications follow a planned development approach, backed up by a development contract.

This planned development approach may offer helpful flexibility to the project applicant. It can also be a time-consuming and expensive process that yields no better outcome than would be realized by traditional zoning and subdivision regulations. Moreover, many of these jurisdictions use the development contract to extract concessions from the applicant that would not otherwise be permissible under a straightforward application of their rules.

I often see development contracts used to compel dedication of oversized rights-of-way, payment of questionable fees and even to impose conditions unrelated to the actual project being proposed. Inasmuch as the development contract typically is provided to the applicant toward the end of the review process, the applicant is left with little time to review or seek the advice of counsel and often has no choice but to accept the document as-is or risk losing their project. This, of course, is exactly the outcome that these jurisdictions expect. I often get calls from clients who are upset about the process cities use with development contracts. Unfortunately, once the contract is signed and recorded, it is too late to do anything to remedy it.

I strongly encourage my clients to seek a clear understanding at the earliest opportunity of the anticipated conditions of approval likely to be recommended by the planning staff, including the terms of any development contract and any extraneous fees or other impacts. Some cities cooperate and some don’t. The unfortunate outcome of this approach by cities is to generate more distrust and animosity from project proponents, who otherwise are held to very strict standards as a condition of project approval. That’s fine when the conditions are known in advance and the applicant can make an informed decision about whether to pursue a project or to abandon it as too expensive or burdensome. But to use the planned development process, coupled with a development contract to trap the unwary is simply unfair.

It may not occur to you, when you walk from the bus stop to your office, that you are taking part in a form of “multimodal” transportation. Again, if you get off the train in Minneapolis and pick up a Nice Ride (bicycle) for a tour of Nicollet Island with visiting friends, you are taking part in multimodal transportation. Almost every trip we take requires multiple forms of transportation; car, transit, carpooling, biking and walking.

Leveraging multimodal transportation in the development arena was the focus of one of two panels sponsored recently by Larkin Hoffman and the Minneapolis/St. Paul Business Journal. Panelists included Lucy Galbraith, transit oriented development director at Metro Transit, Mark Fabel, executive vice president at McGough Construction, and Jaci Bell, director of development for Kraus-Anderson Realty.

Until the 1980s, most developers viewed transit as the way people got to work in the central cities. Planners and designers changed all that by creating incentives to partner on transit oriented development (TOD), locating transit stops in or around private offices, shopping centers and multifamily sites. Green space, parks, bike sharing and other public amenities were added to many TOD projects more recently. TOD has created some of the most vibrant urban environments here in the Twin Cities and around the country.

Take a look at Bloomington Central Station (BCS), a 45-acre campus developed around a transit station and public park. Planned by McGough, the project combines the headquarters for Health Partners, with condos, apartments, a new Hyatt hotel and structured parking facilities. BCS is just two station stops from Mall of America, a pioneer in transit-oriented development, which was constructed more than 25 years ago with a transit station built into its east parking deck. More than 10 years ago the last station for the blue line added light rail transit (LRT) to Mall of America and what is now the busiest transit station in the state.

Panelists also pointed to more than $2 billion of commercial development along the green line which runs in the center of University Avenue between downtown Minneapolis and downtown St. Paul. Adult bookstores and movie houses have been pushed out by successful ethnic restaurants and groceries, student housing, senior housing and new employers, all connected by LRT.

Galbraith noted that 40 percent of employees don’t drive to work, so good transit and multimodal facilities are essential to attracting employees from an increasingly tight labor pool. Sometimes employee incentives take the form of free- or reduced-price transit passes. Other employers offer bike racks, showers or preferred parking for carpools. Today’s smart phone apps, like ZAP, even create opportunities for friendly competition among coworkers who uses transit or bike to work. The entire environment for TOD has improved dramatically in 30 years.

For a complete review of the TOD panel, follow this link to the Q&A published by the Business Journal.

Cities throughout Minnesota are busy updating their comprehensive plans, a process that typically occurs every 10 years or so. As a reminder, comprehensive plans serve as the visionary roadmap for a city’s intended long-term growth; the implementing tools are the zoning ordinance, subdivision ordinance and similar policies. Of course, cities have the discretion to amend their comp plans any time they choose to, provided they follow proper procedures in doing so, but most elect not to do so because of the burden it imposes on staff.

I imagine one of the hardest tasks confronting a city official when considering a comp plan update relates to a proposed land use change that radically departs from the existing plan, possibly catching affected residents totally unaware or worse. This dilemma occurs especially in growing cities in which large sections of historically agriculture land is being considered for inclusion under an active development designation, such as commercial or residential. It also occurs when cities are seeking to redevelop a blighted area, perhaps by moving from commercial to residential or vice versa.

We’ve all attended the meeting at which a land use change is being debated and residents object to the change on the basis of its impact on their neighborhood and lifestyle. Inevitably the resident will note that when they bought their home they checked the city land use maps to confirm they were buying adjacent to property guided for a low or no-impact development; the proposed change, if adopted, will have an impact. It’s a fair point and yet we all know (well, maybe we don’t know) that owning one’s own property does not guarantee any sort of long-term use of another’s property. Were it any other way we would never see another new development occur anywhere.

Of course, we’d all love to preserve natural vistas, tree stands and marshy meadows that give us personal enjoyment. One way to do this is to buy the desirable property containing such features! Absent that step, possibly the city could be convinced to buy it; not usually viable either. In the end, the city is legally entitled to consider and act on land use changes that support future growth desired by the city (actually the underlying landowner’s consent is not even required – the city can do it unilaterally over the landowner’s objection).

Some cities embrace change and see value in growth and redevelopment. It funds infrastructure, schools, parks and makes for a more vibrant community. Growth begets growth. Others object to growth and prefer to preserve the existing character of their respective cities in order to protect small-town charm, rural character, large-lot development pattern, etc. For this latter group of cities, the worry is not about a land use change that triggers expansive growth, but rather a change that impedes growth that was formerly contemplated by landowners based on an existing plan. Plenty of speculative investment in real estate occurs based on one comp plan, only to see that investment quashed, based on a change in direction. We’ve seen this “growth-no growth” whipsaw play out in several semi-rural cities in our metropolitan region.

As others have noted in this blog, one way to get ahead of the surprise element of a planning change is to participate in a city’s comp plan review process, either as an appointed committee member or as an observer. This, of course, becomes troublesome because it often involves frequent daytime and nighttime meetings that are not easy to attend as a volunteer. Short of that, paying attention to a city website and registering for notices of future meetings or actions is a good fall-back option.


Forgive developer Martin Harstad if he thought he was in Potterville and not Woodbury when the city told him he had to pay nearly $1.4 million in “road assessments” as a condition of approval for his “Bailey Park” residential development. Harstad sued Woodbury to challenge its authority to demand the road assessments and won in both the trial court, and now the Minnesota Court of Appeals in a published decision released September 18.

For now, it’s a wonderful life for Harstad, other developers and for property owners who have been troubled for years over whether Minnesota cities have the power to condition development approvals on the payment of (frequently hefty) fees for future road improvements to accommodate new growth and development. Here, the court of appeals struck down what amounted to an impact fee assessed by Woodbury, but sidestepped the longstanding question of whether impact fees are legal in Minnesota.

As is the case for other developers, Harstad was already paying significant amounts for transportation infrastructure that would be needed within the Bailey Park development. Woodbury attempted to rationalize its road assessment policy by declaring that new development must not only “pay its own way,” but also pay “all associated costs” for “public infrastructure.” This meant, according to the city, that if a proposed development is perceived as contributing to the need for unspecified, offsite road improvements at unspecified locations outside the development, at unspecified points in the future, then road assessments under the city’s formula must be imposed and collected now as a condition of approval for the development.

The court of appeals said that Woodbury can only exercise powers conferred by the state legislature and that Woodbury overstepped its powers here. The court said of the statute on which the city pinned its hopes for upholding the assessment (Minn. Stat. Sec. 462.358, subd. 2a): “In fact, subd. 2a does not authorize collection of any type of assessment. Rather subd. 2a authorizes city planning.”

While Woodbury called its fees “major road assessments,” these types of charges have a variety of names, including “transportation improvement district fees,” “trip charges” and “transportation fees.” The name may vary, but the purpose is the same: cities are seeking to capture revenues for anticipated future upgrades to area roads to accommodate growth from new development. Regardless of a particular city’s label, the commonly-recognized name for this revenue-raising practice is “impact fee.”

Impact fees were defined by the Minnesota Supreme Court in Country Joe, Inc. v. City of Eagan, 560 N.W.2d 681, 685 (Minn. 1997), as fees: (a) in the form of a predetermined money payment; (b) assessed as a condition to the issuance of a permit or plat approval; (c) justified as within local government powers to regulate new growth and development and to provide for adequate infrastructure; (d) levied to fund large-scale, off-site public facilities and services necessary to serve new development; and (e) in an amount proportionate to the need for the public facilities generated by new development. Country Joe did not clearly decide, however, whether impact fees were illegal in Minnesota.

The court in Harstad did not address whether Woodbury’s road assessment was an impact fee, or whether impact fees are legally authorized in Minnesota. [This blogger made the case that such fees are not legally authorized in Minnesota in a March 2009 article in Hennepin Lawyer entitled Road Improvements: When Are Special Assessments Legitimate?

The court of appeals in Harstad also did not address whether Woodbury’s road assessment was an illegal tax. Country Joe held that the City of Eagan’s “Road unit connection charge” was an illegal tax under state law that limits municipal taxing powers. The court of appeals in Harstad did not address the illegal tax issue because it was raised only by amicus parties and not by either of the parties to the litigation. The City of Woodbury has until October 18 to decide whether to petition the Minnesota Supreme Court for review.

Many of us are familiar with the scenario of presenting a development application before a public body, such as a city council, that appears to be going well until the wheels come off for some unexpected reason. This happens most frequently when one or more residents who have “only just heard” about the project being considered show up to voice objections, raise questions and make allegations, some of which are untrue. What’s a project proponent to do? Well, if you are well-prepared and fortunate to have a strong recommendation of support from staff, maybe nothing. But, then again, when you are dealing with a public body in a public process, even that may not be enough.

If there is one thing politicians strive to avoid it is controversy and they will avoid it whenever possible. In any case, what matters most is being more prepared than anyone else. If you are perceived as the expert in the room, as evidenced by strong preparation, you may get a measure of deference that helps you successfully complete the process. But if there is any doubt, especially in a chamber full of irate residents, you and your client are likely the least important people in the room.

Part of being prepared requires understanding the development interest for which one is advocating and why the site in question is necessary for future operations. Local zoning regulations bear directly on this question, so you need to be confident about how those regulations help or potentially hurt your cause. It is imperative to evaluate the “risk factors” associated with an application on the front end to avoid, if possible, being surprised deeper into the process, such as at a pivotal public hearing. This means laying out the proposed project in the context of the applicable regulations, such as land use controls, design standards, environmental restrictions, etc., to ensure that any perceived risk exposure has a ready response. One must also understand the nature of the request: Does your application raise a legislative policy question, such as a zoning change, or something that is quasi-judicial, such as a permit?

The former circumstance vests the public body with broad policy discretion provided that it acts fairly and reasonably to apply established standards designed to protect the public. In the latter circumstance, such as a conditional use permit, the rules are tighter and the public body can be held more strictly accountable both to its regulations and the state of the record supporting the application. Your “risk factor” analysis helps you anticipate where you have the greatest exposure so that your record has been properly created to address all applicable standards as well as likely questions. Are you better off doing the traffic study now or waiting to see whether it will be a source of concern down the road? Admittedly, judgments need to be made depending on the facts as you know them.

In the modern age of the internet, it is possible to research all manner of things that may actually be helpful in preparing a development application and the supportive record. However, that same tool is available to everyone else, too, and thus you are always exposed to the prospect of a citizen who has conducted “research” and now purports to understand your project and your business and has an opinion about one or both. Understanding whether your industry is confronting public adversity elsewhere is a key factor in your preparation. If so, what is being used successfully to respond to that adversity? If you or your client has made mistakes, what has been done to remedy them, with assurance that they won’t happen again? For companies that are heavily regulated, such as in the mining sector, this is a constant source of concern. Any negative headline, whether true or not, may well be used to counter your project. Remember, your personal credibility, along with that of your client is being tested in the process; being prepared means knowing where the shots will come from.

Putting a narrative together tied to the applicable regulatory standards, even as a cheat sheet, is an important tool for helping one respond to questions that were not previously the subject of discussion. Not being able to respond confidently in the heat of the hearing to predictable or even random questions may lead directly to a motion to table the pending application, allowing the public body to avoid the potential political conflict that is brewing. Being able to confidently march the public body through the application requirements and the supporting record often leads to the logical conclusion that your application can and should be approved in spite of the opposition.

If your best effort is not working, you may need to make a decision about whether to request that your application be tabled to address specific questions. If you are dealing with a legislative policy question, this approach may be advisable given the breadth of discretion vested in the public body. If however, their discretion is more limited and you have a strong record, you may need to call their bluff and force the members of the body to express their opinions. Once you understand what you are up against, then you can make an informed decision about how to proceed. You might be successful; but then again, you might not. And if not, that’s why saloons exist.