Recently the Minnesota Supreme Court invalidated a municipality’s use of an unauthorized transportation fee to fund projects that are not directly tied to a specific project. It also invalidated a city’s use of a development contract to “negotiate” such an illegal fee into the contract. Minnesota cities have long contended that development contracts are bona fide arms-length agreements which reflect true give-and-take between the parties. The Supreme Court rejected this argument on the basis that a city’s police power authority created an overarching pressure on a developer to concede the transportation fee or risk project denial. You would think this settles, finally, once and for all, this vexing issue. You would be wrong.
The association for Minnesota cities has communicated to its members that there are still several work-arounds available to cities that are determined to collect these fees. For example, a city could deny projects that are deemed premature owing to a lack of necessary infrastructure. The irony is that the court decision involved a developer who already had committed to pay for the necessary transportation improvements, inside and outside his development; this in fact is quite routine.
What cities are objecting to now is their inability to collect such fees and save them for future roadway projects some other place at some other time, rather than relying on taxpayers to fund such improvements (assuming another developer doesn’t agree to construct them). One city, and there may be more, has tentatively decided to impose a city-wide development moratorium so it can evaluate how to continue collecting the fees. This will adversely affect multiple development projects that are queued up for approval, putting their long-term viability at risk depending on the duration both of the moratorium and the current real estate cycle.
The battle between developers and cities seems never-ending as cities continue to perceive developers as ripe for fee extraction. And, frankly, too many developers have accommodated cities in their thinking. It might be time for the development community and city representatives to sit down and negotiate a truce.