Michael Gruen, President of the City Club of New York
Juan Rivero, City Club Governing Committee
A disarmingly simple plan for rezoning Manhattan’s office district running from Grand Central Terminal north to about 58th Street has been approved by the Planning Commission and will come to a Council vote around the time of the November election.
It has three key components: 1) The City almost doubles the allowable floor area for new buildings on large sites along the major thoroughfares; 2) it sells to the landowner the right to build the increased space at the estimated market value of development rights (a base price of $250 per square foot); and 3) it applies the proceeds to unspecified transportation and pedestrian circulation improvement projects likely, when selected, to be located at Grand Central.
The City Club of New York has asserted that the scheme thinly disguises an illegal sale of zoning rights. It exceeds the permissible scope of zoning power, which is to regulate land use. Instead, it monetizes the very power to zone, breaching the constitutional line between fair, planning-oriented regulation, and taking. (1)
The Planning Commission (CPC) defends the legality of the proposal, arguing that it is consistent with incentives that have been offered to developers since 1961 and frequently used to promote many types of public benefits, including plazas, subway stations improvements, and affordable housing, a strategy often described as “incentive zoning.” (2) CPC also argues that the property owner has free choice not to build beyond current zoning limits and, if he chooses to do so, his payment of the applicable charge is purely voluntary. (3)
The Nollan, Dolan and Koontz cases establish certain criteria for judging exaction cases: There must be a “nexus” between the exaction and a legitimate governmental objective; the exaction must be reasonably related to the owner’s prospective action, a concept described as “rough proportionality;” and these rule apply to exactions of money as well as of property interests (such as an easement or dedication of a road). The application of these tests helps flesh out the meaning. For example, the tests are not satisfied where:
• The exaction does not advance a legitimate governmental purpose that would justify denying the permit the owner seeks or would receive if the owner acceded to the exaction demand. So, a coastal resources commission may deny a building permit because it would cut off public view of the beach from the road fronting the property; but it cannot require the owner to grant an easement of lateral access along the applicant’s beach as a condition for granting the permit. Nollan.
• The exaction requires more from the owner than is reasonably necessary to advance the legitimate governmental purpose. So, a municipality may not require a building permit applicant to give an easement for public passage along a creek if the governmental purpose is to control flooding and an easement limited to keeping construction away from the creek would suffice. Dolan.
• The exaction requires a permit applicant to contribute more to resolution of a problem than the owner’s fair share, based on the owner’s contribution to creation of the problem. So, the municipality may not require the applicant to grant an easement for a bicycle and pedestrian path to alleviate traffic congestion, without first ascertaining how much additional traffic can be attributed to the applicant’s building expansion. Dolan.
• Each determination is not made on an individual basis taking into account the unique factors applicable to the particular circumstances. Dolan.
The City’s rezoning proposal closely mimics the don’ts of Nollan/Dolan/Koontz:
• There is no “nexus.” Withholding permission to build new modern office space would frustrate the announced major purpose of the rezoning, being to encourage development of new office space. The City needs to get over casting the charge as a “price” for the privilege of building. Structuring it instead as an impact fee would bring the analysis to the next step of “proportionality.”
• The proposal lacks proportionality wherever one looks. The contribution is a fixed amount representing market value of the floor area allowance the owner would like to use. It has nothing to do with the cost of mitigating public burdens that new construction might cause. It has nothing to do with how the burdens created by the owner’s development compare to problems that already exist in the district (and that, therefore, should be underwritten at public expense) or to burdens created by new development just outside the district, where developers contribute nothing. Only work near Grand Central is presumed to have any negative impact at all.
• In fact, the decisions about what projects will be funded by these contributions, and what they will cost, is not yet known because that will only be decided by a committee which has yet to be appointed. It could be many years before a given contribution is spent on an as yet unknown project.
CPC’s suggestion that the contribution is purely “voluntary” is one that Koontz rejects out of hand. Where government offers a choice between granting a permit for use of property, it affects constitutional interests and forces an unpalatable choice. Here, if the owner refuses to pay, he loses the right to build on his property in a manner the City, by virtue of the rezoning, has determined is appropriate. If he pays, it is his money rather than his real property that is taken. Koontz holds that the Nollan/Dolan tests apply regardless of whether the owner pays to build or is unable to build because he would rather not pay. The fact that the owner has a Hobson’s choice in the matter does not exempt the government from having to meet the tests of reasonable relation and rough proportionality. Claiming that the contribution is voluntary merely diverts attention from the failure to pass these tests.
From a policy standpoint, the scheme looks bad. It looks like the planning process has been turned upside down. That process would normally focus on planning issues such as anticipating an impending weak office rental market in East Midtown because of obsolescent buildings, and planning solutions such as using up zoning to encourage new construction. That is what CPC is empowered to do. But its chain of reasoning appears rather to have focused on financial issues such as how to finance essential improvements to remedy an existing transportation mess, and how to tap the financial resources of building owners so as to avoid spending general funds or raising taxes. Only then does it reach a solution ostensibly, but not actually, within its authority: upzone and sell the new zoning rights, which the City can mint as easily as the Treasury can mint money.
This is not an appearance that builds respect for the Planning Commission nor for the integrity of government in general. That the motives of the Commission may be pure is immaterial. Appearance drives impressions and voters.
If, as appears, money is the motivating factor, the scheme is risky. If it is found illegal, the court would most likely void the financial transaction but leave the upzoning in place, at least for projects already in development at that time.
Michael Gruen is a lawyer and President of the City Club of New York. Juan Rivero is a lawyer, planner, and member of the City Club governing committee.
This Commentary does not necessarily represent the views of the Center for NYC Law, or our Director Ross Sandler, who also serves as Fiduciary Chair of the City Club of New York.
Footnotes:
1. The City Club’s report to the Planning Commission is on its website: www.cityclubny.org. Sunrise Check Cashing v. Town of Hempstead, 20 N.Y.3d 481, 485 (2013) holds that the power to zone is restricted to regulation of land use. In general, a municipality may not sell zoning rights. Municipal Art Society of New York v. City of New York, 137 Misc.2d 832 (Sup. Ct. N.Y. Co. 1987). The constitutional standards applying to “exaction” cases (where the zoning authority demands a quid pro quo for permitting development) are set forth in Nollan v. California Coastal Commission, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994); and Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586 (U.S. 2013).
2. As the name implies, “incentive zoning” usually involves the City’s desire to encourage construction of a public amenity that developers would be unlikely to provide without some form of governmental incentive. Incentive zoning often offers additional floor area if the developer will provide the desired amenity. See Asian Americans for Equality v. Koch, 72 N.Y.2d 121, 129 (1988).
3. CPC Report No. N 130247(A) ZRM. See also, Duncan, “Bloomberg’s Plan for Bigger East Midtown Towers Is ‘Zoning for Dollars,’ Group Says,” New York Times, August 27, 2013, available through www.cityclubny.org.