Ocean Harbor House Homeowners Association v. California Coastal Commission (May 23, 2008, H031129) 163 Cal.App.4th 215.
A $2 million mitigation fee based on the present value of lost present and future public shoreline recreational values and imposed by the California Coastal Commission as a condition to the issuance of a development permit for the construction of a sea wall to prevent shoreline erosion is not an unconstitutional taking.
The Ocean Harbor House condominium project is located on Monterey Bay in Monterey, California. Due to significant shoreline erosion over the years, the oceanfront buildings of the project have become threatened by destabilization. The Ocean Harbor House Homeowner’s Association unsuccessfully tried a number of measures to protect the threatened structures, and eventually determined that a 585‑foot seawall was needed. The Association applied to both the California Coastal Commission and the City of Monterey for permits to build the sea wall (approval from both agencies was required because the City does not have a Commission‑approved Local Coastal Program).
The City’s Planning Division prepared an environmental impact report (EIR) to assess the impact of the proposed sea wall. The EIR determined that the proposed sea wall would eventually cause significant erosion of approximately one acre of the public Del Monte Beach on either side of the protected coastal area of the project, essentially making the protected area a peninsula into Monterey Bay. The City approved the proposed sea wall with a few minor conditions. The Commission also agreed to approve the sea wall, but only if certain conditions were met. The Commission report on the sea wall project determined that there was no way to prevent the loss of the acre of beach, and recommended imposition of an in-lieu mitigation fee to buy beach property for the public elsewhere on Monterey Bay to satisfy the requirements of the Coastal Act.
The Commission debated three proposals for valuing the appropriate amount of the fee. The first proposal was based on the cost of buying enough sand to cover an acre of beach. The fee using this method was between $1,031,400 and $1,206,900. The second proposal was based on the market price of comparable beach property on Monterey Bay, and would result in a fee of approximately $1 million. The third proposal was based on the recreational value to the public of an acre of beach. Using a number of analytical economic studies, this method resulted in a fee of $5.3 million based on a recreational value of $13 per person, per visit, over a period of 50 years. After debating the merits of all three methods, and hearing arguments from interested parties including the Association, the Commission settled on the third method, and imposed a fee of $2,150,054 based on the discounted present value of the $5.3 million lost recreational value over a 50‑year period. The Association challenged that fee by petition for a writ of administrative mandate, claiming the fee was an unconstitutional taking in violation of the Fifth Amendment. The trial court denied the petition, and the Association appealed that decision.
The Nollan-Dolan Test – Nexus and Rough Proportionality
The California Court of Appeal for the Sixth Appellate District examined the Association’s takings claim using the rules set forth by the United States Supreme Court in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374. In Nollan, the Court determined that in order to not constitute a taking, a permit condition needed to have a “nexus”, or logical link, to the alleged impact of the permitted work. In Dolan, the Court concluded that in addition to the nexus test, there needed to be a “rough proportionality” between the permit condition and the extent of the impact the condition is designed to mitigate. In other words there must be an “individualized determination” that the condition is related “both in nature and extent” to the impact.
Neither Nollan nor Dollan dealt with in-lieu mitigation fees, but the California Supreme Court ruled in Ehrlich v. City of Culver City, (1996) 12 Cal. 4th 854, that the Nollan-Dolan test applied to such fees.
In this case, the court examined the facts to determine whether the proposed $2,150,054 fee based on lost recreation value satisfied the Nollan-Dolan test. It first held that there was clearly a sufficient nexus between the proposed fee and the impact of the sea wall because the lost acre of beach directly caused the loss in recreational value to the public, and the fee was intended to provide the Commission with funds to purchase beach front elsewhere on Monterey Bay to provide substitute recreational value. It then analyzed the Commission’s methodology in calculating the fee to determine whether there was a rough proportionality between the amount of the fee and the likely impact of the sea wall. The court discussed the materials used by the Commission in determining the recreational value of the lost acre of beach, and explained that the economic formula for determining the recreational value of a beach is essentially equal to the “difference between what a person is willing to pay to enjoy it and how much it actually costs to do so,” or in this case, roughly $13 per person, per visit. Based on the voluminous economic analysis considered by the Commission, the court held that the proposed $2,150,054 fee was clearly proportional to the value of the loss that needed to be mitigated (i.e., the lost recreational value to the public of one acre of beach on Monterey Bay), and thus satisfied the Dolan prong of the test.
For more information please contact Aaron Sobaski. Aaron J. Sobaski is an associate in the firm’s Orange County office as a member of the firm’s Real Estate Practice Group and Sports Industry Team.