EXPLANATION OF PARK FEES

Few things get the dander up of residential developers like a discussion of fees and dedications exacted by municipalities and counties during the subdivision process. Most developers grudgingly submit to the reality that streets, storm and sanitary sewer systems, utilities and drainage, which are required to service new residences, are costs that should be borne by new residents (passed through to the end consumer by the developer and builder). The one fee, however, that really causes consternation is the park fee charged by the municipality. The purpose of this article is to identify the legal authority for park fees, explain what the fees are properly used for, and advise of some options for developers who feel the fees being charged exceed the amount that may legally be exacted.

Pursuant to Minnesota Statutes Section 462.358, Subd. 2b, cities may require that a reasonable portion of a proposed subdivision be dedicated for public use as parks, recreational facilities, playgrounds, trails, wetlands, or open space. Counties may also require a developer to dedicate land for parks, but if a county chooses to do so, it must adopt a capital improvement plan and parks and open space plan if there is not already a open space component in the county’s comprehensive plan. Both cities and counties may accept an equivalent amount in cash from the applicant for all or part of the portion required to be dedicated (“in-lieu fee”); the amount of cash is based on the fair market value of the land to be dedicated. The in-lieu fees must be placed in a special fund and used only for the purposes for which the money was obtained, and cannot be used for general operation or maintenance. And, it is this provision, permitting the in-lieu fee, which has opened the door for cities and counties to establish a per lot park fee. The amount of the fee, however, is limited by law.

Last year the State Legislature amended Minnesota Statutes Section 462.358 to add the requirement that there be an essential nexus between the fees or dedication imposed by the municipality and the municipal purpose sought to be achieved by the fee or dedication. This amendment did not establish new law, but rather merely codified a requirement that had been recognized by Minnesota Courts. The essential nexus requirement operates as a limitation on the city or county setting the park fee; the fee or dedication required must bear a rough proportionality to the need created by the proposed subdivision or development. This means that the city or county must consider the increased need for parks and trails created by the development, and the park fee charged cannot be out of proportion to that increased need. A hypothetical situation may be useful to understand how statutory framework is intended to operate.

For example, the City of Big Elk has 10,000 citizens residing within the city limits. The City has approximately 100 acres of park land servicing its current residents. This means the City has about 1 acre of park for every 100 residents. Now, lets say undeveloped real property in the City of Big Elk sells for $100,000. per acre. Developer Joe acquires a parcel of land within the City which he wants to plat into 25 residential lots for single family dwellings. If the average household consists of 4 people, the 25 residential lots will increase the population of the City by about 100 people. The City would be within its authority to figure Developer Joe’s proposed development will need one acre of park to coincide with the increased burden on the City’s park system the new residents will cause. The City can require Developer Joe to dedicate one acre, or the City can instead exact the fee of $100,000 so that it can use the funds to buy a park land at a later time. The City can also decide that instead of performing this calculation for every proposed project, it want to simply establish a per lot park fee. Given the calculations used in this hypothetical, a $4,000.00 per lot park fee would satisfy the “roughly proportional” test now required by statute (1 acre at $100,000 per acre, divided by 25 residential lots equals $4,000 per lot).

Last year the Legislature also amended Minnesota Statutes Section 462.358 to require that the basis for establishing an amount to be dedicated or preserved must be established by ordinance or as part of the adoption of a fee schedule under M.S..A. § 462.353, Subd. 4a. M.S..A. § 462.358, Subd. 2b(b). Cities that collect $5,000 or less in fees may adopt a fee schedule by ordinance or resolution either annually or more frequently; a city that collects more than $5,000 in fees may establish a fee schedule by ordinance.

Finally, what can a developer do if it does not agree with the park fees being allocated to a proposed project? The applicable statute was amended last year to require that if a city is given written notice of a dispute over a proposed fee in lieu of dedication, before the city’s decision on the subdivision application, the city may not condition its approval of the development on the applicant’s waiving its challenge of the validity of the proposed fee. M.S.A. § 462.358, Subd. 2c(b). And the application may proceed as if the fee had been paid if: 1) the applicant gives the city written notice of the dispute ver the proposed fee in lieu of dedication; 2) the proposed fee is deposited in escrow prior to the city making its final decision on the application; and 3) the applicant appeals the fee within 60 days of the approval of the application. If the appeal is not filed by the deadline (or if the applicant does not prevail in the appeal), the fees in escrow are transferred to the city. The argument that the applicant should make in the appeal is that the fee fails to meet the rough proportionality test now required by statute. The key to challenging the fee in lieu of dedication is to do so in writing before you pay it.

Ryan J. Hatton is an associate with Rinke-Noonan and practices in areas of construction law and litigation, Mechanic’s Liens, Bond claims, and land use litigation.