An Exaction is a cash payment or contribution of property required to be made by a developer in order to offset the development's demands on the local government's infrastructure and public service(s). An exaction is a condition for receiving development approval from the local unit of government. Exactions in the form of cash payments are also called impact fees or fees in lieu of dedications of land.
Exactions are not allowed in all states. Other states will have different procedures or requirements for how, and when, they can be used. In certain states, landowners can only be required to install on-site improvements necessary to mitigate impacts within the proposed project and cannot be required to fund or install improvements to other’s land (including public land) that will confer any special benefits on the public or on other persons or property.
From time to time, landowners have argued that certain exactions required by local governments are overly burdensome and constitute a regulatory taking. Claims that exactions are takings of private property have made their way to the U.S. Supreme Court. Two of the most notable cases involving exactions are Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). Collectively, the Court’s decisions in the cases have established two important tests as to whether or not an exaction constitutes a regulatory taking.
The first test an exaction must satisfy is the presence of an “essential nexus” between the exaction and the public interest the exaction is intended to serve. Essential nexus means if there is a connection between the fee charged or the property required and the public impact the proposed development will have, the exaction is not a regulatory taking.
The second test that must be satisfied is that the exaction is roughly proportional to the extent of the proposed project’s impact. Put differently, if the amount of the impact fee or the value of the property required to be contributed is nearly equal to the cost of the facilities or work needed to mitigate the impacts of the proposed development, the exaction is not a regulatory taking.
Brad Neumann, Michigan State University
