November 24, 2024
In its unanimous November 21, 2024 decision in Habdab, LLC v. County of Lake et al., the Illinois Supreme Court affirmed the authority of Illinois counties and municipalities to impose transportation impact fees on development projects without having to rely on, or comply with, the restrictions and specific requirements of the Illinois Road Improvement Impact Fee Law, 605 ILCS 5/5-901 – 919 (“Impact Fee Statute”). As part of its ruling, the Court also held that the challenged impact fees were constitutional and that Illinois law clearly authorizes all municipalities (home rule and non-home rule) to impose impact fees as part of an annexation agreement.
Background
In 2009, the County of Lake and three Lake County municipalities, including the Village of Mundelein, entered into an Intergovernmental Agreement (“IGA”) to establish construction funding for highway projects in central Lake County. Under the IGA, developers of future commercial and residential developments would be collectively assessed 50 percent of the construction costs for the road improvements, and the County would pick up the remaining 50 percent as a public benefit. The municipalities agreed that they would condition future annexations within the designated central Lake County areas on the execution of an annexation agreement that would require the respective developer to pay the impact fees consistent with the formulas set forth in the IGA. Significantly, developers would be required to pay the applicable fees only upon one of several triggering events, which included plat, zoning, or annexation approval, or, in certain circumstances, issuance of a grading, site development, or building permit, or a certificate of occupancy.
Habdab LLC, the Plaintiff developer in this case, entered into three annexation agreements with the Village of Mundelein for commercial developments within the Lake County area covered by the IGA. Under the IGA and the first two annexation agreements, Habdab was required to pay approximately $190,000 in fees in order for the County to issue a construction access permit for the properties. Rather than pay the fees, Habdab sued the County and the Village of Mundelein in Lake County Circuit Court.
Habdab raised two main arguments. First, it alleged that the fees imposed pursuant to the IGA and the annexation agreements were improper, and the County and the Village had no authority to require payment, because imposition of the fees did not comply with the requirements of the Illinois Impact Fee Statute, which includes a methodology for fees different, and presumably less advantageous to the Plaintiff, than the fee structure imposed under the IGA and annexation agreements.
Second, Habdab alleged that requiring payment of the fees in order to get construction access permits for its developments was an unconstitutional condition on its development rights.
The trial and appellate courts ruled in favor of the County and the Village, and the Plaintiff appealed to the Illinois Supreme Court.
Illinois Supreme Court Upholds Fees
The Court first ruled that the IGA and annexation agreement fees did not violate the Illinois Impact Fee Statute, because the fees governed by the Statute (called “road improvement impact fees”) are only those fees required to be paid as a “condition to the issuance of a building permit [for residential developments] or a certificate of occupancy [for all other developments] (emphasis added).” The Court determined that the statutory scenario is different than the fees imposed pursuant to the IGA and the annexation agreements, which fees must be paid as a condition (in this case) to annexation approval (which is not one of the triggers under the statute). Thus, the Court held that the Impact Fee Statute, and its specific restrictions and fee amounts, did not apply to the fees imposed on Habdab under the IGA and annexation agreements.
Significantly, the Court reiterated that the Illinois Municipal Code authorizes all municipalities (not just the home rule units authorized to impose fees under the Impact Fee Statute) to enter into annexation agreements that require payment of monetary contributions and fees related to the development of the annexed property. Further, the Court explained that it was irrelevant as a legal matter whether the County and the municipalities entered into the IGA specifically to avoid the various requirements and restrictions in the Impact Fee Statute.
The Court also held that the requirement to pay fees as a condition of annexation of the Plaintiff’s properties was not an unconstitutional condition. Evaluating the fees under the U.S. Supreme Court Nollan/Dolan analysis (Nollan v California Coastal Commission, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994)), the Court found that the IGA satisfied the required nexus between the fees and the legitimate state interest of providing funds for road improvements necessary to minimize traffic congestion. The Court also found that the County and the Village had met their burden of establishing “rough proportionality” between the burden on the Plaintiff (to pay the fees) and the harm (traffic congestion) that the County sought to remedy. In reaching this conclusion, the Court noted that the fees under the IGA would be divided by the number of developable areas and assessed based on the number of acres contained within each development. “These individualized criteria sufficiently establish the nexus between the nature and extent of the impact of the proposed development.” Habdab, 2024 IL 130323, ¶ 38. The Court also noted that Habdab had voluntarily agreed to enter into the annexation agreements.
The case is significant because it confirms that municipalities have the authority, if exercised properly, to impose fees for road and other development related impacts. The case also demonstrates that thoughtful, well-drafted annexation and intergovernmental agreements can survive constitutional scrutiny under existing U.S. Supreme Court precedents.
A link to the Illinois Supreme Court decision can be found here. For more information about this case, contact Peter Friedman or any Elrod Friedman attorney.