Legal Corner: Constitutional limits on moratoria

Moratoria or interim controls are an important legislative tool, and one that municipalities across Colorado have been implementing or contemplating enacting in order to address significant questions. Denver City Council recently approved a one-year moratorium on new data center construction to give the city time to study community impacts. Last year, the City of Littleton extended their moratorium on processing applications related to retail fuel sales within city limits. Moratoria can give municipalities much needed breathing room when faced with novel legislative issues and new or controversial uses of land. But what are the legal limitations on moratoria?

Overview

A moratorium halts progress of a particular activity by pausing governmental actions necessary for that activity to occur, such as permitting or licensing. They can be used for a variety of goals, such as preventing uses that are legal but would not be a good fit for the community, to allow for increased time to study effects of a proposal or class of uses, and to develop appropriate conditions.  

Courts in Colorado have stressed that moratoria are important tools that allow effective government functioning. Slack v. City of Colorado Springs, 655 P.2d 376, 379 (Colo. 1982). Municipalities have wide latitude in determining their need for a moratorium, including on an emergency basis. However, moratoria can still be held to be invalid on constitutional grounds or if their length or terms conflict with a state law that preempts local authority.

Complying with constitutional requirements

When a government action takes something of value from a citizen or business, the government may be required to compensate the owner for the value of that item. Tahoe-Sierra Pres. Council v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 322-23 (2002). The taking can be done through the government’s physical occupation of property, such as a building highway through private land, or through “regulatory takings” like development conditions or through a regulation that deprives an asset of value, such as declaring that a piece of land cannot be used for development. Regulations such as moratoria often interfere with individuals’ property rights, and therefore over-extensive moratoria could constitute regulatory takings by the government.

In determining if a moratorium has gone too far and constitutes a taking, courts will conduct a fact-specific balancing test of the economic impact of the regulation, its interference with distinct, investment-backed expectations, and the character of the government action in making the regulation. 

When examining the economic impact, a court will examine the reduction in value of the property in question before and after the moratorium is active. Tahoe-Sierra Pres. Council, 535 U.S. at 340-41. The limitation on use of property does not, however, create a compensable taking. As the Colorado Court of Appeals has stated, "absent extraordinary delay, fluctuations in value that occur during a temporary moratorium ... are, simply, incidents of ownership” and do not amount to a regulatory taking. Williams v. City of Central, 907. P.2d 701, 704 (Colo. App. 1995).

In considering the regulation’s interference with investment-backed expectations, the court will examine whether the expectation was reasonable, whether the landowner was on notice that the moratorium might occur, and what the actual investment lost is. Dep’t of Health v. Mill, 887 P.2d 993, 1000-01 (Colo. 1994). Here, the court will focus on vested rights. Expectations such as a hope that a permit will be approved or that a fixed-term permit will be renewed are likely too speculative for the court to consider. City of Aspen v. Marshall, 912 P.2d 56, 60-61 (Colo. 1996); Ficarra v. Dep't of Regulatory Agencies, 849 P.2d 6, 22 (Colo. 1993). In terms of notice, individuals do not have to actually be aware that the moratorium may occur. Courts have found that parties have constructive notice when they should have been aware that additional regulation could occur, such as when engaging in a sufficiently dangerous business. Dep’t of Health v. Mill, 887 P.2d 993, 1001-02 (Colo. 1994).

Length and procedure

The length of a moratorium is a significant factor to be considered when examining the legality of moratoria, but courts have not yet provided hard and fast rules on how long moratoria may last. The U.S. Supreme Court has held that moratoria beyond one year should perhaps be viewed with a "special skepticism" but that the length of a moratorium is only one factor to consider in determining whether it constitutes a regulatory taking. Tahoe-Sierra Pres. Council, 535 U.S. at 341-42. In fact, when making the above decision, the Court upheld a 32-month moratorium. The Colorado Supreme Court has also found length to be an important factor and has held that a five-year moratorium was not a true “temporary time-out" as compared to a ten-month moratorium. City of Fort Collins v. Colo. Oil & Gas Ass’n, 369 P.3d 586, 594 (Colo. 2016).

The process by which a moratorium is enacted must also comply with certain requirements. Municipalities cannot amend, repeal, or suspend an ordinance by an act of less dignity than the ordinance itself. Deighton v. City Council, 902 P.2d 426, 428 (Colo. App. 1994). In other words, if the moratorium is suspending a city ordinance, such as zoning ordinances, then the moratorium itself must be passed by an ordinance with all of its formalities. Governing bodies eager to act cannot simply suspend an ordinance by motion or resolution. This ensures that people affected by ordinances are given adequate procedural protections.

In conclusion

Moratoria can be an effective way for communities to protect themselves from unwanted intrusions. It is important, however, for municipalities to consider the length and how the moratorium will interact with property rights held within the community. If municipalities are considering enacting a moratorium, it is important to consult with your municipal attorney in order to comply with the myriad of legal requirements.

This column is not intended and should not be taken as legal advice. Municipal officials are always encouraged to consult with their own attorneys.