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Coastal Commission In-Lieu Fee Upheld

An unusual Coastal Commission mitigation fee to offset the impact of a private seawall has been upheld by the Sixth District Court of Appeal, which rejected arguments that the fee was unconstitutional, was prohibited by the Coastal Act and was the result of post hoc rationalization.

The Commission determined construction of the seawall in Monterey would cause the erosion of 1 acre of beach over 50 years, or 870 square feet annually. The Commission calculated the recreational value of the lost beach based on the number of annual visitors and the amount they spend per visit to come up with an impact figure of $5.3 million. Using a 3% annual discount rate, the Commission imposed an impact fee of $2.15 million to be paid in five annual installments of $430,000.

The court ruled that the fee passed both the Nollan nexus test and the Dolan rough proportionality test. Property rights advocates have decried the ruling, and the property owners involved asked the state Supreme Court to accept the case in July.

The Ocean Harbor House Homeowners Association applied to the City of Monterey for a permit to construct a 585-foot-long seawall because storms, tides and shoreline erosion had been threatening seaward condos in the complex since the 1980s. The city prepared an environmental impact report, which concluded construction of the seawall would cause the beach to erode on either side, breaking the continuity of a two-mile-long beach. The city required the association to provide alternative lateral access through a parking lot, concluded the impact on recreation would be insignificant, and approved the permit.

The homeowners association then headed to the Coastal Commission. The Commission staff prepared a report recommending a permit for the seawall and imposition of an in-lieu fee to buy an acre of beach property along southern Monterey Bay for public recreation. The staff proposed three methods of valuing the acre of beach: The cost of replacing an acre of sand ($1 million to $1.2 million), the cost of buying beachfront property ($1 million), and the "recreational value" method ($5.3 million). Although the staff recommended using the land-replacement method and imposing additional requirements, Commission members said the fee should be based on the value of the lost recreational benefits. Over the association's objections, the Commission approved the permit, the $2.15 million fee and other conditions in January 2005.

The homeowners association sued, and Monterey County Superior Court Judge Robert O'Farrell ruled for the Commission. On appeal, a unanimous three-judge panel of the Sixth District upheld the lower court.

The association argued that the exaction lacked the logical link, or nexus, with the impact of building the proposed seawall. A nexus is required under Nollan v. California Coastal Commission, (1987) 483 U.S. 825. The association contended the in-lieu fee was not tailored to the direct, on-site impacts of the proposed project, as buying beach property elsewhere would not mitigate loss of beach at the condominium complex. The association said the fee was similar to the easement that the U.S. Supreme Court rejected in Nollan because it was not related to the proposed house construction.

The appellate court disagreed because the association's "view of the impacts of the seawall fails to recognize the loss of recreational use as a distinct impact. Nollan did not involve such an impact."

"[A] fee to purchase beach for public recreation has a logical tendency to mitigate loss of recreational use on the beach at the complex," Presiding Justice Conrad Rushing wrote for the court. "Nollan does not suggest that where a project has an unavoidable on-site impact that cannot be directly mitigated, the Commission may not require equivalent off-site mitigation."

The association also argued the fee violated the rough proportionality requirement established in Dolan v. City of Tigard, (1994) 512 U.S. 474. Here is where the method of determining the fee came into question. The Commission based the fee in part on studies that found beach-goers in Huntington Beach spend an average of $13 per person per visit. The Commission used that figure, state park data showing 968,000 annual visitors to Monterey Bay beaches and 60.6 acres of beaches to determine the fee. The association argued this methodology was inappropriate because it was based on expenditures with local businesses and the tourism industry, and was not based on the loss of local sand. Thus, they argued, the fee was not roughly proportional to the seawall's impact.

"Again," Rushing wrote in rejecting the argument, "homeowners fail to consider the loss of recreational use as a direct impact of the seawall and thus a proper focus of separate mitigation. Although it would have been incorrect to measure that loss by the economic impact of an acre of beach, the Commission's analysis properly focused on the economic recreational value and relied on pertinent data concerning consumer surplus."

The association also attacked the use of a study from Huntington Beach because of Monterey's differences in beach facilities and climate. But the court found that the study was appropriate and the Commission had evidence supporting the study's use.

On the question of Commission authority for imposing the fee at all, the homeowners association argued that a portion of the Coastal Act (specifically, Public Resources Code 30235) gave the property owners the right to build a seawall and permitted the Commission to impose only mitigations regarding the immediate impact to local sand supply. The court, however, said the Coastal Act's overall provisions for preserving natural resources and maximizing public access still applied. "[T]he Commission has broad discretion to adopt measures designed to mitigate all significant impacts that the construction of a seawall may have," Rushing wrote.

Finally, the association argued the Commission engaged in post hoc rationalization by first choosing the fee amount, and then adopting a valuation method to support that amount. The court rejected the argument, noting that the very first Commission staff report contained three potential ways to determine the fee, including the recreation value method the Commission ultimately selected.

The Case:
Ocean Harbor House Homeowners Association v. California Coastal Commission, No. H031129, 08 C.D.O.S. 6326, 2008 DJDAR 7603. Filed May 23, 2008.
The Lawyers:
For the homeowners association: Meriem Hubbard, Pacific Legal Foundation, (916) 419-7111.
For the Commission: Christiana Tiedemann, attorney general's office, (510) 622-2100.
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