A Washington County judge ruled last week that a longtime practice of charging developers roadway fees in Woodbury is unlawful.
The city sought to collect roughly $1.3 million for future roadway projects from developer Martin Harstad for a 183-home residential development called Bailey Park. The New Brighton-based developer filed a lawsuit in county district court in January arguing the fee was illegal.
The ruling could shake up how cities fund public infrastructure and whether those costs should fall on taxpayers or the developer.
In striking down the fee, which Woodbury calls a "major roadway assessment fee," Washington County Judge Richard Ilka determined it to be an impact fee that is "unlawful and unenforceable."
The city plans to appeal the court's ruling.
Impact fees are imposed on new or proposed developments and typically go toward funding infrastructure and other public services needed as a result of new development.
For Harstad, the fees would have been used to fund construction of items like roundabouts and traffic signals to accommodate any increase in traffic near the Bailey Park neighborhood, which is located west of the intersection of Radio Drive and Bailey Road.
Similar cases have raised legal challenges with the practice in the Twin Cities.
Harstad's attorney, Rob Stefonowicz, said he likens Woodbury's process of levying future costs to developers to a 2013 ruling, where a Ramsey County District Court rejected a City of Roseville impact fee ordinance.
The court ruled Roseville's fee was more like a tax than a regulatory or license fee.
"We don't think the city (of Woodbury) should be using this fee as part of its approval process, because it's not authorized," Stefonowicz said.
In 2011, the Woodbury City Council approved a policy giving the city the ability to assess and collect fees for roadway construction costs as a property develops.
In the council's development agreement with Costco in September, Woodbury included an agreement for the warehouse retailer's application to wholly fund nearby road improvements, including traffic signals on Weir Drive and Tamarack Road and a road extension to Nature Path.
The city's attorney, Mark Vierling, declined to comment on the case or what the city plans to do with recently approved developments such as Costco until after the 60-day appeal period.
In a statement Thursday, Woodbury City Administrator Clinton Gridley said the city plans to appeal the court's ruling and defend the city's practice of assessing fees for future roadways for developers.
"Woodbury and many other Minnesota cities have long established that the cost burden of the roadway improvements needed to serve development should not be an obligation paid by the taxpayers and should be borne by the developer," Gridley said. "This is why we negotiate roadway financial participation with developers to pay their fair share."
Stefonowicz said the fees also created improper financial burdens for Harstad's property in addition to the costs of developing his property.
"Those are costs that he's already bearing," Stefonowicz said. "These fees are related to future roadway improvements that are off-site and may or may not happen."
Legal arguments aside, some experts point to the benefits of impact fees because they alleviate costs residents pay for public projects that are needed as a result of development.
John Adams, a retired University of Minnesota geography professor who researched impact fees, said developers have a financial incentive to avoid paying impact fees because they can pay the average costs for public projects instead of the full amount. But cities may be less willing to approve new developments if they have to fund costly public infrastructure projects.
"New land development imposes costs on a community," Adams said. "The question is, who’s going to pay those costs, the developer or the residents?”
Adams added the arrangement can sometimes backfire when cities develop too fast, because residents don't factor the costs of needing more public safety and other government services that can lead to higher tax levies each year.
The result, he said, has led to a number of Twin Cities suburbs with more retail space than the cities can support, as well as negative impacts on affordable housing.
“It’s a typical political tug-of-war,” Adams said. “Generally speaking, the community doesn’t understand what's going on, and they think all development is good.”
The Bailey Park neighborhood hasn’t come before the Woodbury Planning Commission or City Council and is still listed on the city’s development map.