Growth Caps: The light turns yellow, not green
(from Maine Townsman, July 2000)
by Christopher Vaniotis, Esq., Attorney, Bernstein, Shur, Sawyer & Nelson

In Home Builders Association of Maine, Inc. v. Town of Eliot, 2000 ME 82, the Maine Supreme Judicial Court (the "Law Court") upheld the Town of Eliot’s Growth Management Ordinance against a challenge based on the definition of "moratorium" in state law. The case was argued on October 6, 1999 and the decision was published on May 10, 2000. During those seven months, many towns in the high-growth areas of the state were watching closely. Portable classrooms, increasing traffic congestion, overburdened fire, police and public works departments, rising tax rates – all those factors had some communities thinking hard about enacting ordinances similar to the Eliot Growth Management Ordinance, if the Law Court said it was okay. Towns were sitting at the intersection, waiting for a green light from the Law Court.

Did the light turn green? Not necessarily. With respect to permit limitation ordinances or "growth caps," municipalities should read the Law Court’s decision in Home Builders v. Town of Eliot as a flashing yellow signal – you don’t have to stop, but you must proceed with caution.

In a sense, the light had never been red to begin with. To the best of this writer’s knowledge, no court in Maine had ever decided that a growth cap ordinance was unlawful. The Home Builders Association had previously filed suit against the Town of Standish, but that suit was settled – resolved through a consent judgment, agreed upon by the parties, not decided by the judge. However, the consent order in the Standish case recited the Home Builders’ argument that a growth cap could not be enacted as a standing municipal ordinance because a growth cap would constitute a "moratorium" as defined by state statute. 30-A M.R.S.A. § 4301(11).

A moratorium can remain in effect for only six months at a time (with a potential for extensions) and only as long as a municipality is facing certain extreme and unusual circumstances, also set forth in state law. 30-A M.R.S.A. § 4356. Eliot’s ordinance is a permanent limitation on new housing starts. It caps at 48 the number of building permits available for new dwelling units each year. If the limit is reached in any given year, people have to wait until the subsequent calendar year for their permits.

The Eliot ordinance was enacted in 1978. For most of the nineteen years it had been in effect prior to the Home Builders’ challenge, development was occurring so slowly that the number of building permits issued was well under the annual cap. In 1997 the convergence of several circumstances, including the development of a new elderly housing project which used up a number of growth permits, resulted in several people having to wait before building permits could be issued. At that point, the Home Builders Association began talking to the Town of Eliot about the consent order that Standish had agreed to less than a year earlier. The suggestion was that the Association would file suit against Eliot unless the Town repealed the ordinance. The Town didn’t, and the Association filed its complaint in the York County Superior Court.

The Home Builders challenged the ordinance on a variety of grounds, but focused on the same assertion they had used in their dispute with Standish – that the ordinance was actually a "moratorium," which did not comply with the statutory standards for a moratorium. The Town took the position that its Growth Management Ordinance was something entirely different from a moratorium, and was therefore not subject to the statutory limitations. The Superior Court agreed with the Town, holding that "[t]he ordinance in question is more accurately described as growth control ordinance than as a moratorium. Municipalities are authorized to enact growth control ordinances."

That decision left pending for decision all the other claims brought by the Home Builders – alternative theories why the ordinance might be invalid. But the Association was apparently eager to get a decision from Maine’s highest court on the narrow issue of whether Eliot’s Growth Management Ordinance constituted a moratorium. The Association therefore dismissed all its other claims in the Superior Court and filed its appeal to the Law Court on that single issue.

The question in the Law Court turned on interpretation of the definition at 30-A M.R.S.A. § 4301(11), which reads:

"Moratorium" means a land use ordinance or other regulation approved by a municipal legislative body which temporarily defers development by withholding any authorization or approval necessary for development.

The Home Builders Association argued that Eliot’s Growth Management Ordinance was, in effect, a moratorium, because in any year where the demand for building permits should exceed the number of permits available, the result would be to "temporarily defer development." The Town countered that the Legislature could not have intended to prevent towns from enacting ordinances which place annual limits on the number of building permits issued; the Town pointed to the fact that the definition of "moratorium" relied on by the Home Builders Association is found in the state’s "Comprehensive Planning and Land Use Regulation Act," which, among other things, encourages municipalities to "effectively plan for and manage future development" and promote "orderly growth and development…."

The Law Court agreed with the Town. The Court decided that the Eliot ordinance was not a moratorium because it allows a reasonable amount of development each year, rather than withholding all permits needed for development. The Court pointed out that in Eliot the cap had only been reached five times in 20 years and that the Town had amended the ordinance several times during that period. The Court stated: "[t]he town’s actions have complied with the legislative mandate to ‘encourage orderly growth and development.’" (Emphasis supplied by the Law Court.)

So why isn’t that a green light for municipalities wanting to enact growth cap ordinances? There are two reasons to proceed with caution. The first comes from the text of the Law Court’s opinion itself. Remember that the Home Builders Association had argued that Eliot’s ordinance was a "de facto" moratorium. The Law Court did not reject that idea entirely. The Court states: "[w]hile an unreasonable limit on development could, in certain circumstances, constitute a de facto moratorium, that is not the case here." Although the Court viewed Eliot’s growth cap as reasonable, the decision leaves open the possibility that the Court might view some other municipality’s growth cap as unreasonable, to the point of being a de facto moratorium. Unfortunately, the Court’s opinion provides no guidance as to where it might draw the line in the future between what is reasonable growth management and what is an unreasonable de facto moratorium.

The second basis for caution is that permit limitation ordinances might still be attacked on other grounds. Because the Home Builders Association voluntarily dismissed all its claims except for the moratorium argument, the Law Court’s decision tells us nothing about whether a growth management ordinance might be declared invalid for other reasons. If a permit limitation ordinance were to operate in an arbitrary or discriminatory manner, or were so restrictive as to be fundamentally unfair, then a court might be persuaded to declare it invalid on constitutional grounds, without even getting into the question of whether or not it would be a de facto moratorium. In that respect, Home Builders Association v. Town of Eliot has not really changed anything.

Finally, municipalities should keep in mind what a growth cap can and cannot accomplish. A permit limitation ordinance operates only in the dimension of time. It controls the rate of growth, but does not have any direct effect on where the growth occurs, how it occurs, or even how much development occurs in the end. If a town’s zoning ordinance puts 80% of the municipality’s land in the single family residential district, then (assuming market demand) 80% of the town will ultimately be developed for single family housing. A permit limitation ordinance will not change that build-out; it will only delay it. It regulates the speed of development, not the end result of development. Like a governor on an automobile engine, it prevents the car from racing out of control, but doesn’t change the destination.

To some extent, a growth cap can function as a kind of "security blanket" for a municipality – ensuring that the rate of growth never gets out of hand. Some analogies that come to mind are a surge protector, a flood control dam, or a pressure relief valve. But a growth cap is no substitute for comprehensive planning and well-thought-out land use ordinances. A permit limitation ordinance protects against having too much happen too fast, but it won’t stop sprawl or protect the environment or avoid the need to build new schools. At best, a growth cap can function as one part of an integrated system of growth management and land use ordinances within a municipality. Clearly, that is how the Law Court viewed Eliot’s Growth Management Ordinance. What Home Builders v. Eliot really does is affirm the ability of municipalities to enact reasonable limits and controls under their home rule power.

[Note (November 2009): “Rate of growth” ordinances (as defined in 30-A M.R.S.A. § 4301) are now also governed by some specific requirements in 30-A M.R.S.A. §§ 4314 and 4360, which were amended/enacted after the Home Builders Association case was decided.]