Most development applications are approved by local governments, and are subject to a long list of “conditions of approval.” As a result, one of the biggest issues facing applicants is the added cost of these conditions.

The fairness and need for such conditions has long been debated in scholarly journals, planning departments and courtrooms around the country. A few months ago, in Koontz v. St. Johns River Water Management District, the United States Supreme Court issued an important decision that puts a new twist on the debate.

In order to understand the significance of Koontz, it may be helpful to consider the kinds of conditions that local governments typically impose on new development. While conditions of approval can take many forms, at least two broad categories exist.

The first category involves conditions of approval that require the dedication of real property. The best example is a condition requiring dedication of a strip of land that will allow the city to widen an adjacent street. If this strip is small compared to the size of the remaining property, and does not affect the proposed development, most landowners will not object.

Sometimes, however, conditions involving the dedication of land go too far. For example, a condition requiring the dedication of 50 feet of frontage to widen a highway and build a new storm drainage facility would seem unreasonable if the proposed development is comparatively modest and does not cause the need for such improvements.

Good arguments have been made on both sides as to why new development should be required to dedicate land needed by the government, in return for development approval. Thankfully, this issue was largely settled by two U.S. Supreme Court cases, Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994).

In those cases, the court decided that the government is allowed to condition approval of a permit on the dedication of property to the public, so long as there is a “nexus” and “rough proportionality” between the property that the government demands, and the social cost of the applicant’s proposal. The so-called “nexus” and “rough proportionality” tests are the benchmark for limiting conditions of approval in cases that require the dedication of a real property.

The second category involves conditions of approval that require the payment of money, rather than the dedication of property. The best example is a fee-in-lieu condition of approval. For example, instead of being required to mitigate on-site for the removal of trees, local government regulations may allow the applicant to pay a fee that allows the city to plant trees elsewhere.

Fee-in-lieu requirements have become commonplace in local zoning ordinances. When a fee-in-lieu condition is reasonable, most landowners won’t object, because a fee-in-lieu creates more development flexibility. But when the fee-in-lieu is high, relative to the impact of the project, or is applied unfairly, applicants will object and the project may come to a halt.

Prior to the court’s decision in Koontz, applicants in Oregon had little legal leverage to contest fee-in-lieu conditions, because the “nexus” and “rough proportionality” tests of Nollan and Dolan tests did not apply to monetary exactions. But they do now under Koontz. The “nexus” and “rough proportionality” tests of Nollan and Dolan that local governments have performed over the past 20 years will now be applied to monetary exactions as well.

This may cause heartburn for a few local governments. Some already have fee-in-lieu regulations that violate the Nollan/Dolan tests. In such cases, regulations will need to be amended to accommodate the rule of reasonableness that Nollan, Dolan, and now Koontz require – or these regulations could be struck down. In cases where local governments have considerable discretion to apply monetary exactions, such discretion will be limited under Koontz.

For the most part, the basic message of Koontz is common sense. In my view, Nollan and Dolan impose reasonable limits on conditions of approval, and local governments have worked hard over the years to comply with these rules. Amending regulations that violate Koontz may create a political challenge, but as these amendments occur and after a few cases are litigated under Koontz, local governments will arrive at a new normal, and more reasonable results will follow.

Phil Grillo is a partner in the Portland office of Davis Wright Tremaine. Contact him at 503-778-5284 or at philgrillo@dwt.com.

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Four bills being considered by the Oregon Legislature would help make existing industrial land more suitable for job creation and economic growth. These bills are especially noteworthy in 2013 as Oregon’s innovative land-use planning program prepares to celebrate its 40th anniversary.

The program proactively plans for development by directing growth within urban growth boundaries, where public facilities and services exist or can be provided. Over the past 40 years, Oregon’s planning program has succeeded in concentrating growth in urban areas and deterring sprawl into adjacent farm and forest lands.

For example, according to the U.S. Census of Agriculture, Oregon succeeded in reducing the loss of mid-size and large-scale farms to one-sixth the national average, even though the state’s population grew by approximately 80 percent during that period.

On the other hand, many Oregon communities have significant shortages of market-ready industrial land within their UGBs. For example, according to Portland’s most recent Economic Opportunities Analysis, the city has a shortage of approximately 700 acres of industrial land, mostly along the Portland Harbor.

This shortage of market-ready industrial land limits the state’s ability to expand and recruit traded-sector industries, which form the foundation of state and regional economic development strategies.

House bills 2284 and 2285 and Senate bills 246 and 253 would begin to tackle this shortfall by making existing industrial land more suitable for development. These bills, under the Oregon Business Development Department, would create a statewide program known as the Oregon Industrial Site Readiness Program. The purpose of the program would be to provide grants and loans to qualified project sponsors, to make state and regionally significant industrial sites market-ready.

HB 2284 and SB 246 would empower the Oregon Business Development Department to establish rules for certifying state and regionally significant industrial sites for inclusion in the Oregon Industrial Site Readiness Program. These sites would need to be either 25 net acres or greater in size within a UGB, or 15 net acres or greater outside a UGB. Upon qualification, the department would be able to extend loans to eligible employers to assist them in overcoming development-related constraints and incentivize industrial development of the site.

HB 2285 and SB 253 would focus on the creation of a similar grant program to assist public and private developers to perform due diligence assessments and create detailed development plans to bring large industrial sites into a state of market readiness.

While the particulars of these bills are likely to change as they move through the legislative process, as written, they are squarely aimed at making existing industrial land more suitable for development. Having a suitable supply of industrial land is precisely what Oregon’s innovative land-use planning program envisions.

For example, under Oregon Statewide Planning Goal 9 (economic development), all local governments are required to provide an adequate supply of suitable sites for a variety of industrial uses. According to a report prepared by several Oregon public agencies and business groups recently, there is a severe shortage of sizable market-ready industrial sites in the Portland area. Similar shortages exist in other parts of the state.

The Oregon Legislature is rightly concerned that as we continue to climb out of one of the deepest recessions in several generations, and as we prepare to celebrate the 40th anniversary of Oregon’s land-use planning program, Oregon needs to have enough market-ready industrial land to grow family-wage industrial jobs, both now and in the future.

One of the best ways to enhance the growth of family-wage jobs in Oregon is to provide economic incentives to develop the industrial land we already have. These bills would help make our existing industrial lands more fertile. In doing so, these bills would enhance Oregon’s industrial land supply, provide more room for family-wage jobs, and help cities and counties better satisfy the requirements of Statewide Planning Goal 9.

Phil Grillo is a partner in the Portland office of Davis Wright Tremaine. He represents the Working Waterfront Coalition. Contact him at 503-778-5284 or at philgrillo@dwt.com.

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West Hayden Island was brought into the Portland-metro urban growth boundary in 1983 to meet the region’s marine industrial land needs. Thirty years later, the city of Portland is still debating what to do about it.

West Hayden Island is approximately 800 acres along the Columbia River, between Oregon and Washington, along the Interstate 5 corridor. The eastern half of the island is mostly developed with a mix of residential, commercial and industrial uses. The western half is undeveloped and was purchased by the Port of Portland from Portland General Electric for future marine use.

West Hayden Island has been designated as both a Regionally Significant Industrial Area and a Habitat Conservation Area of moderate value. The port’s plan is to put 300 of the 800 acres on the island to industrial use, and protect the remaining 500 acres for habitat and open space use.

Before the port can use West Hayden Island for any urban use, the city must agree to annex and rezone the property. The terms under which annexation and future development can occur are what lie at the heart of the debate. The devil is in the details, and when it comes to West Hayden Island, there are plenty of details.

Earlier this month, at the most recent Portland Planning and Sustainability Commission meeting, Bureau of Planning and Sustainability staffers identified nearly 100 separate questions and approximately 19 issue areas that need to be addressed, such as environmental mitigation, community health impacts, economic need, and Vancouver, Wash. as an alternative. BPS staffers and the commission are working hard to sort through the details and are going the extra mile to ensure that all relevant stakeholders have been heard.

The commission soon will debate these questions as it prepares its recommendation to incoming Mayor Hales and the Portland City Council in early 2013. Meanwhile, it may be helpful to keep a few practical considerations in mind.

First, West Hayden Island provides the city an opportunity to significantly reduce its shortfall of industrial land. The city’s Economic Opportunities Analysis recently concluded that the city has only about 60 percent of the industrial land it needs, with a shortfall of about 630 acres (mostly marine industrial).

We see marine terminal development up and down the Columbia River (Longview and Kalama, Wash.) as a result of the deepened channel, and it is common knowledge that some of these developments would have been in Portland if there were marine terminal parcels large enough. The port’s proposal to set aside 300 of the 800 acres on West Hayden Island for industrial use can significantly reduce this shortfall.

Some people have suggested that a shortage of industrial land should be accepted as a fact of life for cities like Portland, and that companies that need space for marine industrial use should move across the river to Vancouver – or elsewhere. This is obviously a misguided idea, because it has been identified by BPS as one of the 19 key issues and seems to have the attention of the commission.

Second, overly aggressive mitigation requirements can create unintended consequences. When marine industrial uses cannot avoid impacts to resource values, these impacts are usually replaced in-kind (i.e., mitigated).

Mitigation banks are helpful tools, where they exist, because credits can be purchased from these banks to replace needed resource values. But in the absence of such tools, mitigation typically occurs on other industrial land along the river because of its lower cost. If mitigation ratios are high, and mitigation banks do not exist, mitigation requirements on marine industrial land often result in the conversion of usable industrial land to mitigation sites.

The city needs to strike a careful balance so that usable industrial land is not converted to mitigation sites. Reasonable mitigation ratios and mitigation banks will help reduce these unintended consequences.

Third, West Hayden Island provides the city with an opportunity to focus on its top priorities with practical solutions. We all know that Portland prides itself on its reputation for sustainability, and rightfully so. Some see West Hayden Island as an opportunity to create the greenest and most sustainable port facility in the world, or at least along the West Coast.

Amid these laudable goals are some significant realities and other top priorities. For example, in 2012, Oregon gained only 18,700 jobs – one for every eight residents seeking work. The port is seeking a large parcel of land on West Hayden Island to attract and retain important “traded-sector” firms to the city. Increasing traded-sector work is a top priority for both the city and the state because of the multiplier effect it creates.

Some people say that ports don’t employ many people and the working waterfront is yesterday’s technology, located in the wrong place. I say, tell that to the 40,000 people who work along Portland’s waterfront and who rely on those businesses to support themselves and their families.

We should remember that much of what we buy and most of the fuel that powers our cars, buses, trucks, trains and planes, arrives in Oregon and is distributed by businesses and people who work along the river. Those basic facts are not likely to change any time soon.

Simply put, the people who work along the waterfront in Portland help keep Oregon moving. They also provide us with products and services we use every day, some that we simply cannot live without. So, as the city works its way through the 100 or so questions and 19 issues associated with the West Hayden Island decision, I hope they also remember what really happens along the working waterfront in a 21st century city like Portland, and why a practical solution is so important.

Phil Grillo is a partner in the Portland office of Davis Wright Tremaine. He represents the Working Waterfront Coalition. Contact him at 503-778-5284 or at philgrillo@dwt.com.

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In its most recent Economic Opportunities Analysis, the city of Portland discovered it has a shortage of 740 acres of industrial land – including a shortfall of 342 acres in the working harbor. A previous estimate showed a shortage of 1,620 acres – including a shortfall of 459 acres in the working harbor. Whichever estimate is correct, one thing is clear: Portland has a chronic shortage of industrial land that must be solved soon.

Portland’s shortage of industrial land has grown, despite the city’s adoption of an Industrial Sanctuary Policy three decades ago. The policy was designed to maintain a stable base of industrial land near the city’s center, and help achieve long-term livability goals.

At the time, other American cities were converting large amounts of industrial land to other uses, especially along rivers. Building on its reputation for innovative land-use planning, Portland took a different approach. It chose to protect its close-in industrial lands for manufacturing, freight distribution and other heavy uses so that firms would not decentralize or move to other states – taking valuable jobs, tax base and other benefits with them.

But that policy is only as strong as the political will to enforce it. Over time, incremental rezoning and regulatory restrictions have added up and led to the land shortage.

The city’s mismatch between industrial supply and demand matters for several reasons:

First, while Portland has recently become a mecca for the creative class, it is also a port town. Today, its working harbor is home to more than 900 firms that employ approximately 40,000 people at family-wage rates – accounting for roughly one out of eight jobs in the region.

According to the city’s EOA, each of these jobs creates roughly 3.69 jobs in the region. Recent figures show that output has been growing faster in the manufacturing sector than it has in the service sector. In short, manufacturing remains a key sector in Portland’s economy.

Second, industrial land is easy to lose and hard to find. Portland has limited opportunities to annex land for industrial purposes, and rezoning is difficult because of public opposition and significant differences in land value.

Despite its Industrial Sanctuary Policy, this sticky problem has often been compounded by the city’s actions. For example, the city since 1980 has rezoned a significant amount of industrial land for other uses. Also, land inside the city is constrained by environmental contamination, wetlands, floodplains and other natural features.

These constraints decrease the supply of buildable land that can be developed for industrial use. As demonstrated by the North Reach portion of the River Plan, the temptation to add new regulatory constraints to industrial land is high. New local land-use regulations that reduce the supply of developable land inside the urban growth boundary make Portland’s chronic shortage of industrial land even greater than it would be otherwise.

Third, all local governments in Oregon are required under Statewide Planning Goal 9 to maintain an adequate supply of land for a variety of industrial and commercial uses. Portland City Council will review its draft EOA this summer, and then decide how to solve its industrial land shortage, as part of a land-use process known as Periodic Review.

So, what should be done?

First, be vigilant. Portland should keep a closer watch on its industrial land supply. The city’s last EOA was adopted in 1989. An appropriate economic analysis should be adopted at least every five years.

Appropriate resources should be devoted to this task and should have the buy-in of the business community. Accurate and up-to-date economic information that is adopted as part of the city’s comprehensive plan is necessary so that the city and the public have an adequate factual basis to guide future land-use decisions.

Second, be realistic. New land-use regulations that further constrain the supply of industrial land need to be carefully considered and should not be enacted unless there is a broader consensus to do so.

Rezoning industrial land for other purposes will continue to get the city into long-term trouble, because once a significant shortfall in industrial land exits (as it does now) it becomes a chronic problem and is very difficult to fix.

Third, remember the three-legged stool. Economic vitality is an important part of sustainability and is on equal footing with social and environmental vitality. This is especially true in the working harbor. The city should carefully consider opportunities to annex and convert land inside the UGB to industrial use, particularly along the river and near existing industrial areas, so that industrial uses and related infrastructure can remain clustered together.

The city of Portland cannot have a sustainable future unless it realistically resolves its chronic shortage of industrial land, especially along the working harbor, where much of the state’s economy and many of its family-wage jobs are located.

Portland City Council will soon begin a discussion on how to resolve its chronic shortage of industrial land: Hearings will take place this summer, beginning on Sept. 5 at 2 p.m. Your participation is greatly encouraged

Phil Grillo is a partner in the Portland office of Davis Wright Tremaine. He represents the Working Waterfront Coalition. Contact him at 503-778-5284 or at philgrillo@dwt.com.

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The Portland Plan is coming, and people who recall the River Plan, which the city of Portland enacted last year, will find this one familiar. Like the River Plan, this new plan has been developed through a bottom-up planning process. This involved several years of community meetings and public outreach, resulting in more than 20,000 comments from residents and businesses.

And like the River Plan, which has been appealed to Oregon’s Land Use Board of Appeals and the Oregon Court of Appeals, the Portland Plan may have a negative impact on the family-wage jobs in the working harbor.

The Portland Plan will be adopted by City Council and used to guide the city’s land-use decision-making process over the next 25 years. Many of the policies adopted in the Portland Plan will eventually find their way into the city’s adopted comprehensive plan and zoning code, so now is the time to positively influence those decisions.

The Portland Planning and Sustainability Commission has already held two hearings on the draft plan this month, and will hold another today, at 1900 S.W. Fourth Ave., conference room 2500, from 5:30 to 9 p.m.

One of the guiding principles of the Portland Plan is advancement of social equity. To its credit, the plan recognizes that one of the key strategies needed to achieve this goal is creation of well-paying, family-wage jobs. In doing so, the plan tries to tailor specific strategies to “geographic districts that have distinct issues.”

In the Gateway neighborhood, for example, the plan proposes a special funding strategy to create an education center, based on a partnership between several local school districts, Portland Community College, Portland State University and the city. The education center will help provide students with better workforce skills and better access to family-wage jobs.

Like the River Plan, however, the Portland Plan could threaten the thousands of family-wage jobs in the working harbor. Much of the area is devoted to river-dependent industrial businesses, including heavy manufacturing and freight distribution facilities critical to the rest of the region’s economy and unable to move elsewhere.

The plan proposes to focus business development on only five industry clusters, including “advanced” manufacturing (which is not defined), athletic and outdoor equipment, clean technology, software, and research and commercialization.

By the city’s own measure, the harbor accounts for approximately 40,000 well-paying jobs and 900 private-sector businesses – approximately one out of eight jobs in the metro region. But it appears that most of the existing industries in the harbor will not be recognized and supported by specific policies in the Portland Plan. This is either an oversight or a policy choice that needs to be corrected.

In the end, the success of the Portland Plan will largely depend on the resources available to implement it. Without significant growth in family-wage jobs and per capita income, the city’s equity goals will largely become an exercise in trying to do more with less.

With that said, the Portland Plan acknowledges that the path forward requires the city to work smarter, be more practical and be more ready to take on difficult conversations. One of the keys to achieving this is for the city to more fully engage the business community, including the working harbor.

For purposes of the Portland Plan, it is important for the city to have a laser-like focus on job creation, education, infrastructure and the support of existing area businesses, because these are the critical investments that make job growth and equity possible. Now is the time for people in the business and industrial community to offer their views of the Portland Plan.

Phil Grillo is a partner in the Portland office of Davis Wright Tremaine. He represents the Working Waterfront Coalition. Contact him at 503-778-5284 or at philgrillo@dwt.com.

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