The Pacific Legal Foundation's Lauren Wiggins and the Cato Institute's Ilya Shaprio have coauthored an article in the Washington Examiner about a Seattle-area case in which a couple who asked for a building permit were ordered to pay $50,000 to the city so that it could replace the pipes in its drainage system:
The city ignored the McClungs’ protests that their fees would go towards improving infrastructure not on their property, so their development would have no impact on the drainage system—let alone one worth $50,000. The city did not care; the McClungs were a captive source of revenue.
The McClungs sued the city under the Fifth Amendment to the Constitution, whose Takings Clause prohibits the government from “taking” private property for public use without just compensation. They argued that the city could not force them to pay impact fees for off-site pipes absent proof that their development would have a specific detrimental effect on the existing drainage system.
The Ninth Circuit—not the most property rights-friendly court, and a leading source of Supreme Court reversals—ruled in favor of Sumner. The court first reasoned that money is not property: The development permit was conditioned on the payment of fees rather than some imposition on the land itself, so there could not be an unconstitutional taking of property. Further, the court held, because the fees were imposed by an ordinance, the city did not have to show any evidence that the McClungs’ development had an individual, adverse impact on the drainage system. That the city thought the pipes needed upgrading was justification enough.
This is unfortunately typical of efforts by local governments to abuse their permitting powers by twisting the arms of property owners. Although it is illegal under the Supreme Court's decision in Nollan v. California Coastal Commission more than twenty years ago, cities continue to do it and courts continue to find clever ways of allowing them to.