Are transit impact fees the right solution to aid MBTA? by Jim Lyle

Jim Lyle, Posternak Blankstein & Lund

It comes as no surprise that the MBTA is facing substantial funding hurdles on a variety of fronts, including with respect to the proposed Green Line extension and upgrades to the Red Line. However, what might surprise Boston-area residents is how the city of Cambridge has proposed to raise the funds for these and similar improvements. Recently, the Boston Globe reported that real estate developers may be called on to subsidize pending MBTA projects. While most sophisticated developers would agree that an efficient and well-funded public transportation system is vital to the continued growth of Metro. Boston - and the concept of developers contributing to public projects that serve their own interest is certainly not a novel idea - there are significant legal ramifications to the funding mechanism proposed by the city of Cambridge.

The Commonwealth of Mass., at both local and state levels, has been working to address critical repairs and other necessary enhancements to Greater Boston’s transportation system in an effort to avoid a repeat of last year’s crippling disruptions to service. In need of new ways to drive funding to support this ongoing process, the city of Cambridge is reportedly actively seeking to secure funding from Boston Properties for upgrades to the Red Line’s Kendall/MIT Station by imposing a “transit impact fee” in connection with the developer’s permitting of a one million square-foot expansion of the Kendall Square urban renewal zone. Additionally, the MBTA is apparently considering similar vehicles to fund recently well-publicized shortfalls encountered with respect to the Green Line extension into Somerville and Medford. State transportation secretary Stephanie Pollack suggests this type of funding will facilitate public transportation improvements that will clearly benefit real property developers in these communities. However, historically Mass. communities attempting to impose similar impact fees have consistently lost court battles with real estate developers challenging such impact fees as an unlawful tax.

In short, under Mass. law, cities and towns do not have the power to tax; and pursuant to the analysis first laid out by the state’s highest court in its 1984 decision in the Emerson College v. City of Boston case, a valid municipal fee must be in exchange for a particular governmental service which benefits the payer of the fee in a manner not shared by the public at large, and the charges must be related to the costs of actually providing the specific services (as opposed to raising revenues generally).

Therefore, to withstand scrutiny for its proposed transit impact fee, the city of Cambridge must establish that Boston Properties (and other developers) will uniquely benefit from the project in some tangible manner. At this juncture, it is difficult to see how developers would directly benefit from an improved MBTA station in comparison to the benefits which would generally be enjoyed by existing Cambridge residents, workers and businesses and, moreover, how the specific fees charged will be correlated with the cost incurred in providing that particularized developer benefit. If the benefit to developers is not proven to be distinguishable from benefits to the general public, or if the fee structure does not properly reflect the costs incurred, the City of Cambridge could face a lawsuit for imposing unlawful taxes on a private business, which could effectively put a halt to the entire concept of using developer funding to aid the MBTA.

Again, Massachusetts case law is generally not favorable to municipal impact fees imposed on a private developer to help fund public projects. In 2000, the Appeals Court addressed a challenge to the validity of a “school impact fee” imposed by the Town of Franklin on residential real estate developers for upgrades to public school classrooms.

The town argued that renovations would improve the quality of the schools, making the town a more desirable place to live, which would benefit developers with investments in the area. In that case, it was determined that expanded school facilities provided no “particularized benefit” to the fee payers but in fact enhanced the entire community. Accordingly, the school impact fee was struck down by the court as unlawful tax. Applying the same rationale, the Superior Court struck down an affordable housing impact fee imposed upon residential projects by the Town of Barnstable. The court ruled that the fee provided no private benefit to the payers, and instead was primarily used to meet the town’s affordable housing mandate.

In contrast, Massachusetts courts have upheld municipal charges against developments for sewer connection fees, water surcharge fees and other utility service charges where the fees were more directly tied to the private developments and otherwise satisfied the Emerson College test.

Other states have adopted more liberal standards for reviewing the constitutionality of municipal impact fees (e.g. requiring only a reasonable connection between the additional public improvements and the proposed development, coupled with a further reasonable connection between the disbursement of the funds and the benefits accruing to the development).

As commercial and residential development in Greater Boston continues to expand, needed improvements to the MBTA will be critical to supporting such development. As the need for funding increases, mutually beneficial arrangements that are acceptable to the numerous interested parties, including developers, existing property owners, municipal authorities and the MBTA, need to be created to fairly allocate the financial burdens and ultimately ensure success of the area’s public transportation system. Unless Massachusetts law moves in the direction of adopting more liberal standards for evaluating municipal impact fees, as many commentators have advocated, then the City of Cambridge and other municipal authorities seeking to adopt similar funding mechanisms to improve MBTA facilities face steep hurdles. In this specific instance, it appears an upgraded Kendall/MIT station will benefit existing Cambridge property owners, residents, businesses and workers in a manner at least equivalent to the benefits likely afforded to the real estate developers in question, and thus it is unlikely the transit impact fee as currently proposed would survive challenge under current Massachusetts law. Logically, all stakeholders, including developers, should share the responsibility to fund needed improvements to the area’s public transportation system; and Massachusetts law should be changed to the extent necessary to facilitate reasonable developer contributions to this critical effort.

Jim Lyle is partner at Posternak Blankstein & Lund, Boston, Mass.