The Attorney General's opinion, that inclusionary zoning ordinances are generally consistent with Minnesota law, can be found here.

July 30, 2007

The Honorable Lori Swanson
Attorney General, State of Minnesota
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

       Re: Request for Attorney General Opinion, City of Forest Lake

Dear Ms. Swanson:

The City of Forest Lake has requested an opinion from your office regarding proposed City policies to promote affordable housing.  As the Star Tribune editorial attached as Exhibit 1 indicates, the affordable housing issue is currently a critical one in the metropolitan area.  Inclusionary housing policies of the sort proposed by Forest Lake are an important, and in many cases, necessary tool in addressing this critical issue.  The League of Minnesota Cities Insurance Trust has issued a legal opinion to Forest Lake, attached as Exhibit 2, indicating that zoning ordinances mandating the inclusion of affordable housing in certain residential developments are not permitted under state law and may constitute compensable "takings" under the U.S. Constitution.  That opinion, which presumably prompted the City's letter to your office, misconstrues the state law issue and is without any support in Constitutional law.  Yet because of the League's position with Minnesota cities, the opinion, if not corrected or withdrawn, will deprive Minnesota Cities of a critically important affordable housing tool.  In the Metropolitan Area it will force cities to choose between a legal opinion from their insurer and their obligations under the Metropolitan Land Use Planning Act.  For that reason, we are providing your office with this memorandum, attempting to clarify the questions posed by the City's letter, on behalf of MICAH, Home Line, and the Alliance for Metropolitan Stability, all non-profit organizations advocating for affordable housing throughout the metropolitan area.

I. Background on the Forest Lake Request

In December, 2006, the City of Forest Lake settled a lawsuit which had been brought a year earlier over the City's refusal to issue a conditional use permit and subdivision approval to accommodate an affordable housing development.  Part of the agreement settling the litigation required the City to review its comprehensive plan and zoning and subdivision ordinances "in order to affirmatively encourage the development of affordable housing."  An Affordable Housing Task Force established by the City pursuant to the settlement recommended a city ordinance requiring that any proposed residential development of 10 or more units include 20% affordable units. 

In response, the City produced a draft comprehensive plan housing chapter for submission to the Metropolitan Council, which committed the City to development of an inclusionary housing ordinance requiring 20% of the units in all developments of ten or more units to be affordable to low income households.  The ordinance would impose 30 year restrictive covenants on the affordable units and would permit developers to deposit into an affordable housing trust fund in lieu of meeting the affordability requirements.  The ordinance would provide benefits, such a density bonuses, to developers meeting the affordability requirements.  Such inclusionary zoning policies are currently employed in hundreds of cities around the country[1].  They are generally regarded as effective tools to produce affordable housing, address segregation, and undo the effects of pervasive restrictive zoning practices[2].

But the City then sought a legal opinion from the League of Minnesota Cities Insurance Trust regarding the legality of such an ordinance.  The League of Minnesota Cities responded that, based on Minn. Stat. Section 462.358, subd. 11 (hereafter, "Subd. 11"), any local affordable housing requirements may apply only upon the request of an applicant for a land use permit and must be the result of a voluntary agreement with the applicant.  The opinion also suggested that mandating affordable housing would potentially result in a "taking" under the United States Constitution.  This opinion badly misconstrues Section 462.358, subd. 11; ignores the Metropolitan Land Use Planning Act which supercedes Section 462.358 subd. 11 in the metropolitan area; and suggests application of Constitutional "takings" law to inclusionary zoning ordinances for which there is no precedent whatsoever.  This memo is an attempt to clarify the issues involved and to correct the errors in the League of Cities opinion.

As described in Section V below, the issue is a critical one.  The record of metropolitan area cities in encouraging voluntary production of affordable housing has generally been deplorable.  If the League of Cities position is endorsed by the Attorney General's Office as guidance to cities, a critically important tool is lost and the metropolitan area is doomed to more decades of ineffectual affordable housing planning, with the result that thousands more low income families will pay far more than they can afford for housing.

II.  The League's Memorandum Misconstrues Subd. 11

Minn. Stat. § 462.358 subd. 11 provides:

Subd. 11. Affordable housing. For the purposes of this subdivision, a "development application" means subdivision, planned unit development, site plan, or other similar type action. If a municipality, in approving a development application that provides all or a portion of the units for persons and families of low and moderate income, so proposes, the applicant may request that provisions authorized by clauses (1) to (4) will apply to housing for persons of low and moderate income, subject to agreement between the municipality and the applicant:

The key, and erroneous, conclusion of the League's opinion is that "the statute stresses that local housing requirements may apply only upon the applicant's request."   That is not what the statute says nor how it should be implemented in practice. The plain language of Subd. 11 does not - and cannot - interfere in any way with cities' well established discretion to deny land use applications which do not comply with city comprehensive plans and ordinances.  Such plans and ordinances may, and in the metropolitan area must, include affordable housing provisions.  Because Subd. 11 says nothing about whether a city may choose to condition discretionary land use decisions on inclusion by the applicant of an affordable housing component, the League is wrong to conclude that local affordable housing requirements may apply only upon the applicant's request.  Accepting the League's position would lead to the absurd result  that provisions of cities' comprehensive plans and zoning ordinances, provisions which are clearly authorized by law, apply only upon the request of developers.

Nationally, there are three broad types of inclusionary zoning ordinances.  Some are purely voluntary - offering incentives to developers to include affordable housing.  There should be no controversy about the ability of Minnesota cities to pursue such policies.  There are two additional types of policies in which a city imposes a requirement for inclusion of affordable housing.  One type, a mandatory policy like that proposed in Forest Lake, is very common nationally.  Such policies typically provide that all developments of a certain size include an affordability component (usually 10%-20% of the units), regardless of whether the city, prior to adoption of the inclusionary policy, would have had any approval rights over the proposed development[3].  Subd. 11 might be interpreted to limit this sort of unilateral imposition of an affordability requirement on a development, at least outside of the metropolitan area, because the statute ultimately requires an agreement on how any affordable housing component is to be implemented.  Such mandatory policies are permitted in the metropolitan area because of metro-specific legislation superceding the state's general land use laws. See Section III below.   The third type of inclusionary zoning ordinance, like that used in Boston, intermediate between the completely mandatory and the completely voluntary policies, ties affordable housing requirements to requests by developer's for discretionary land use concessions such as conditional use permits, variances, rezoning, or comprehensive plan changes[4].   This type of inclusionary policy is fully consistent with Subd. 11 and may be adopted in cities throughout the state. 

In a Minnesota city with local housing requirements like Boston's incorporated into its comprehensive plan and zoning and subdivision ordinances, any land use proposal which is consistent with the plan and ordinances must provide for a portion of the units to be affordable to lower income households.  That proposal then triggers the provisions of Subd. 11.  The city then may propose any of a number of specific affordability provisions set out in the Subd. 11.  In response, the applicant may incorporate such provisions into the application and the city and the developer agree upon  specific affordability provisions among those permitted by Subd. 11.  Subd. 11 is thus fully consistent with a Boston-type inclusionary zoning policy. 

The critical point missed by the League is that the Subd. 11 doesn't limit the circumstances which might induce a developer to include affordable housing in its proposal; rather the statute focuses entirely on what happens next.  The statute does not remotely imply that a city must forgo its traditional discretion and approve a land use proposal which does not include an affordable housing component. 

A number of Minnesota cities have proactively sought affordable housing proposals for large available building sites by advertising their willingness to rezone the land to provide for greater density, agree to variances as to street width and set back requirements, and to issue special use permits for planned unit developments in return for proposals which included an affordable housing component.  Chaska's Clover Ridge and Chanhassen's Arboretum Village are good examples.  (See article on Chaska's Clover Ridge.)  The agreements produced in these projects are exactly the sort of agreement contemplated by Subd. 11.  Boston's ordinance  makes a city wide legislative policy what Chanhassen and Chaska did in specific cases.  There is nothing about Subd. 11 which implies that it authorizes regulatory relief in exchange for affordable housing agreements on a case-by-case basis, but not if applied consistently on a city-wide basis. It's possible that the League's opinion, drafted in reaction to a strict mandatory policy proposed by Forest Lake, simply ignored this sort of local housing requirement and overstated the conclusion that all such policies apply only on an applicant's request.

The statute does not contain even the slightest implication that a city is required to approve an application for discretionary land use concessions if no such affordability agreement can be reached.  To infer one would be to unduly ties cities' hands and overturn the well established ability of cities to control their growth.  It is well established that cities have wide discretion to deny requests for rezoning, variances, subdivision approvals, and special use permits and to condition approval upon compliance by the applicant with the city's comprehensive plan and zoning ordinances.  Freundshuh v. City of Blaine, 385 N.W.2d 6, 9-11 (Minn. App. 1986)(rezoning);  Hubbard Broadcasting, Inc. v. City of Afton, 323 N.W.2d 757, 763 (Minn. 1982)(special use permit); VanLandschoot v. City of Mendota Heights, 336 N.W.2d 503, 508-09, fns 6, 7 (Minn. 1983)(subdivision, variances).   It is equally well established that policies promoting affordable housing are legitimately part of a city's comprehensive plan[5].  Indeed, in the metropolitan area, it is mandatory that such policies be part of the comprehensive plan.  See Minn. Stat. §   473.859 and discussion in III below.  Further authority is found in Minn. Stat. § 462.358 which  makes advancement of affordable housing a purpose of  subdivision ordinances throughout the state.  While provision of affordable housing is not specifically mentioned as a purpose of Minn. Stat. 462.357, governing zoning ordinances statewide, there can be little doubt that it is included in the phrase "promoting the public health, safety, morals, and general welfare"  which defines the purpose of such ordinances:

      It is plain beyond dispute that proper provision for adequate housing of all
      categories of people is certainly an absolute essential in promotion of the
      general welfare required in all local land use regulation."

 Southern Burlington County NAACP v. Mt. Laurel Township, 336 A.2d 713, 727 (N.J. 1975), cert denied, 96 S.Ct. 18 (1975); Britton v. Town of Chester, 595 A2d 492, 495-96 (N.H. 1991); Suffolk Housing Services v. town of Brookhaven, 511 N.E. 67, 69 (N.Y.App. 1987).

The statute does not give developers a right to demand land use concessions from a city which are contrary to reasonable provisions set out in the city's comprehensive plan and zoning or subdidivsion ordinances.  Subd. 11  does not purport to force cities to grant discretionary permits to developers who decline to comply with city affordable housing policies which require some form of mutually agreeable income restrictions on a portion of the units in a project.

III.  Land Use Planning in the Metropolitan Area is Controlled by the
       Metropolitan Land Use Planning Act.

Minnesota Statutes §§ 473.851 - 473.871, the Metropolitan Land Use Planning Act (MLUPA) provides for local comprehensive planning and land use controls within the seven-county metropolitan area, consistent with planned and coordinated development and growth.   Minn. Stat. § 473.851.  The statute requires every metropolitan area unit of local government to adopt a comprehensive plan, consistent with the requirements of the statute, to be reviewed by the Metropolitan Council.  Minn. Stat. § 473.858 subd. 1.  Local zoning ordinances must be consistent with the comprehensive plans.  Id.   The comprehensive plans must include land use plans with a housing element:

      containing standards, plans, and programs for providing adequate housing
      opportunities to meet existing and projected local and regional needs, including
      but not limited to the use of official controls and land use planning to promote
      the availability of land for the development of low and moderate income housing. 
      § 473.859 subd.2(c).

The land use plan must also include a housing implementation program:

      including official controls to implement the housing element of the land use
      plan which will provide sufficient existing and new housing to meet the local
      unit's share of the metropolitan area need for low and moderate income housing. 
      § 473.859 subd. 4(3), emphasis added.

A. MLUPA Authorizes Inclusionary Zoning Ordinances.

In the metropolitan area affordable housing provisions must be an integral part of each city's comprehensive plan and zoning and subdivision ordinances.  Every comprehensive plan and land use ordinance must address the city's and region's need for affordable housing in a way that "will" result in provision of sufficient new affordable housing.  Every city must, then, reject proposals for rezonings, subdivisions, special use permits, or variances incompatible with those provisions.  This context certainly provides a rational basis for Boston-type inclusionary ordinances.  The imposition of such ordinances necessarily results in land use proposals which will include affordable housing components, triggering the process for reaching agreement on affordability mechanisms established by Subd. 11.  There can be no doubt then that Boston-type inclusionary zoning ordinances and policies are authorized by MLUPA.

B. MLUPA Supersedes Subdivision 11 in the Metropolitan Area.

The provisions of the Land Use Planning Act supercede the provisions of otherwise applicable planning statutes "wherever a conflict may exist."  § 473.858 subd. 1.  Therefore, any limitation on inclusionary zoning policies which could  be inferred from the language of § 462.358 subd. 11, would be superceded in the metropolitan area by the Land Use Planning Act authorization of, and requirement for, comprehensive plans and official controls [6]  to provide sufficient affordable housing to meet local and regional needs. 

From the national experience, it is clear that programs which simply provide incentives for developers to produce affordable housing are far less effective than those which require developers to include an affordable component:

      Incentive zoning leaves a developer free to build only upper income housing
      if it so chooses.  Fox and Davis, in their survey of municipalities using inclusionary
      devices, found that while developers sometimes profited through density
      bonuses, they were usually reluctant to cooperate with incentive zoning programs;
      and that therefore  those municipalities that relied exclusively  on such programs
      were not very successful in actually providing lower income housing. Id. at
      1067.  Sole reliance on "incentive" techniques (or, indeed, reliance exclusively
      on any one affirmative device) may prove in a particular case to be insufficient
      to achieve compliance with the constitutional mandate…
      A more effective inclusionary device that municipalities must use if they
      cannot otherwise meet their fair share obligations is the mandatory
      set-aside…
      Where practical, a municipality should use mandatory set-asides even
      where subsidies are not available. 

Mt. Laurel II, 456 A.2d at 445-447, citing Fox & Davis, "Density Bonuse Zoning to Provide Low and Moderate Cost Housing," 3 Hastings Const. L.Q. 1015 (1977); Minnesota Housing Finance Agency, "Study of Inclusionary Housing Initiatives," February 2002, pgs. 21, 28, http://www.mhfa.state.mn.us/about/InclusionReport.pdf (mandatory inclusionary housing produces more units than voluntary efforts). 

A metropolitan area city could therefore reasonably conclude that a mandatory ordinance such as that proposed by Forest Lake is required for the city's compliance with its obligations under MLUPA.  When a city exercises its traditional land use discretion so as to comply with MLUPA, Subd. 11 is superceded to the extent that any conflict may exist.

Thus, both the type of mandatory inclusionary zoning adopted by the City of Napa and that in Boston are permissible in the metropolitan area, as are affordability restrictions different from, or of longer duration than, those set out in Section 462.358 subd. 11.

IV. Properly drafted inclusionary zoning policies do not constitute
     constitutional "takings".

The League's opinion that an inclusionary zoning ordinance constitutes a "taking" under the U.S. Constitution, for which the City would have to pay "just compensation," is wholly without merit.  Such ordinances have been enacted around the country since the early 1970s.  There are currently hundreds of such ordinances, many of them in the mandatory form covering any development of a certain size originally proposed in Forest Lake.  There have been no successful challenges to such ordinances under the U.S. Constitution.[7]   

The League of City's reliance on the Nollan/Dolan line of cases [8] is misplaced as these decisions are simply not applicable to an inclusionary zoning ordinance.  Both of these cases dealt with requirements, imposed ad hoc on specific individualized projects, that developers exchange property rights for land use concessions from the cities.  The heightened judicial scrutiny applied to such "exactions" does not apply to general land use regulations, and there is no support in the case law for the League's application of Nollan and Dolan to inclusionary zoning.  The U.S. Supreme Court has stated:

      …we have not extended the rough-proportionality test of Dolan beyond the
      special context of exactions - land use decisions conditioning approval of
      development on the dedication of property to public use.  City of Monterey
      v. Del Monte Dunes, Ltd, 526 U.S. 687, 702 (1999).

In City of Monterey, four dissenting justices joined the majority in this part of the decision, "rejecting extension of 'rough proportionality' as a standard for reviewing land-use regulations generally."  Id. at 733 (Souter, J., concurring and dissenting).

Courts which have specifically considered the issue have held that the far more deferential review applied to general zoning ordinances is to be applied to inclusionary zoning provisions.  In Southern Burlington County N.A.A.C.P. v. Township of Mt. Laurel, 456 A.2d 390 (N.J. 1983)(Mt. Laurel II), the New Jersey Supreme Court rejected the claim that mandatory inclusionary zoning ordinances were takings under the U.S. Constitution.   Pointing out that virtually all physical zoning provisions have implications for the socio-economic use of the property, the Court concluded that there was no basis for a distinction between mandatory inclusionary zoning provisions and any other sort of zoning regulations.  Then, in a case decided subsequent to the Nollan decision, the New Jersey Supreme Court held that "the rational-nexus test is not apposite in determining the validity of inclusionary zoning devices…"   Holmdel Builders Ass'n v. Township of Holmdel, 583 A.2d 277, 288 (N.J. 1990).  

Most recently, the California Court of Appeals declined to apply the Nollan/Dolan analysis to a facial challenge to the Napa, California, mandatory inclusionary zoning ordinance.  Home Builders Ass'n v. City of Napa, 108 Cal. Rptr. 2d 60 (Ct. App. 2001).   The Home Builders decision was based in substantial part on decisions holding that Nollan/Dolan  review is applied to individualized city review of particular developments whereas generally applicable legislation, such as mandatory inclusionary requirements for specific types of development, "warrant(s) the more deferential review that the Dolan court recognized is generally accorded to legislative determinations."  Id. at 65-66.  The Court in Dolan distinguished general zoning laws by noting that they were essentially legislative determinations made about classes of property rather than essentially adjudicative decisions like the building permit on a specific parcel at issue in Dolan.  Dolan, 512 U.S. at 385.  Minnesota Courts have adopted that analysis, noting that Dolan "applies only to adjudicative determinations that condition approval of a proposed land use on a property transfer to the government" and does not apply "to a citywide, legislative land-use regulation."  Arcadia Development Corp. v. City of Bloomington, 552 N.W.2d 281, 286 (Minn.App. 1996).  Thus the Nolan/Dolan exaction analysis simply does not apply in situations where no property transfer by the developer is required or where the inclusionary requirement is of general applicability - as in a city's comprehensive plan and zoning and subsidivion ordinances, as proposed by Forest Lake.[9]

The deferential standard for review of general zoning laws was set out in Agins v. City of Tiburon, 447 U.S. 255 (1980).  There, the Court held that such laws would not effect a taking if they "substantially advanced legitimate state interests" and did not deny an owner "all economically viable use of his land."  Id. at 260; Arcadia Development Corp., 552 N.W.2d at 286.  Requiring housing developments to include affordable housing substantially advances the legitimate state interest in the provision of affordable housing as evidenced by Minn. Stat. §§ 473.851 - 473.871.  Especially given the incentives which would be provided to developers in an ordinance like that proposed by Forest Lake, an affordability requirement affecting twenty percent of the units certainly does not deprive an owner of all economically viable use of the land.  Concret Pipe & Prods. v. Construction Laborers Pension Trust, 113 S.t. 2264, 2291 (1993)("mere diminution" in value, however serious, is insufficient to demonstrate a taking); Arcadia Development Corp., 552 N.W.2d at 286.

There is one concern related to Nollan and Dolan raised by the proposed Forest Lake ordinance.  Permitting a fee in lieu of meeting the affordability requirement raises concern that the fee may be considered an exaction.  Commentators have suggested that it might be a good practice to avoid such an alternative.[10]

V. The issue is a critical one and the League of City's opinion inflicts
    severe harm on efforts to produce affordable housing

As noted above, the Metropolitan Land Use Planning Act places heavy emphasis on the importance of each metropolitan area jurisdiction maximizing its efforts to produce its fair share of the areas need for affordable housing.  The tool which the Metropolitan Council has relied upon most heavily since 1995 to effect this legislative goal is the Livable Communities Act (LCA).  The LCA makes cities which negotiate affordable housing goals with the Metropolitan Council eligible for a variety of grant programs.  Most cities have negotiated goals for production of affordable housing for the period 1995 through 2010.  In a recent report, the Council took stock of the success of these cities in meeting their goals through 2005.  The results were extremely disappointing.  Two thirds of the way through the 15 year period to which the LCA goals applied, cities with affordable housing production goals had yet to produce 65% of their goals for homeownership, and 73% of their goals for affordable rental housing.  See, report attached as Exhibit 3. 

A 2003 study, "The Next Decade of Housing in Minnesota"[11] found 171,062 metropolitan area households whose incomes were at or below 60% of area median income paying more than 30% of income for housing (above the federal standard, generally considered the maximum affordable housing cost).   The study estimated that at least an additional 22,000 low income households, new to the metropolitan area in the decade 2000-2010, would be unable to find affordable housing.  The inability of most metropolitan area jurisdictions to facilitate production of affordable housing, evidenced by their unmet LCA goals dramatically demonstrates the need for new tools, such as inclusionary zoning ordinances.  As noted in Sec. III.B., above, inclusionary zoning policies which require affordable housing are more effective than those which merely provide incentives.

The League of Minnesota Cities Insurance Trust insures many Minnesota and metropolitan area cities and its lawyers represents them in land use cases.  The League's opinion then will have a serious chilling effect on cities seeking to improve their affordable housing performance by using the most effective tools available.  Their insurer, and the entity that will defend them, has publicly indicated that they will be legally liable if they impose any sort of mandatory inclusionary zoning requirement, even, apparently, one which is imposed only when a developer seeks assistance which is purely at the discretion of the city. 

The League's opinion virtually assures that metro area cities collectively will continue to substantially fail to meet their legal obligation under the Metropolitan Land Use Planning Act to plan and provide for the region's affordable housing needs for low income families.  It is based on a serious misinterpretation of Minnesota law and Constitutional precedent and must be rejected.

Yours Truly
 

Jack Cann