In 2004, the Texas Supreme Court, in Town of Flower Mound v. Stafford Estates, Ltd. Partnerships, 135 S.W. 3d 620 (Tex. 2004) issued a significant decision regarding Texas law relating to exactions/dedications imposed by governmental entities as conditions to issuing permits for the development of property. The court restated and followed the rules established in two landmark United States Supreme Court cases, Nollan v. California Coastal Com'n, 483 United States 825 (1987), and Dolan v. City of Tigard, 512 United States 374 (1994), in ruling that exactions/dedications that are made as a condition of development permit approvals which do not (1) bear an essential nexus to the substantial advancement of some legitimate governmental interest, and (2) are not roughly proportional to the projected impact of the proposed development, violate federal and state constitutional provisions prohibiting the taking of private property for public use without just compensation. Resolving some ambiguity about their application to certain types of cases, the Texas Supreme Court applied the Nollan and Dolan rules to non-dedicatory exactions imposed on a discretionary basis. The Texas Court held that the required boundary road improvements in that case were insufficiently related to the impact of the development on the road or the roadway system and therefore a compensable taking. However, the court declined to decide whether the application of Nollan and Dolan would be appropriate to all legislatively imposed exactions. The Texas Supreme Court also ruled that state law does not entitle a developer to recover attorney's fees or expert witness fees.

In 2005, the Texas Legislature responded to Town of Flower Mound v. Stafford Estates with HB 1885, now ?212.904 of the Texas Local Government Code. The legislative history indicates that the legislation was intended to codify and modify the decision made in the Stafford Estates case. 79 (R) HB 1835, Senate committee report, Bill Analysis, Author’s Sponsor’s Statement of Intent. Texas Legislature Online, http://www.capitol.state.tx.us/tlodocs/79R/analysis/html/HB01835E.htm. Texas Local Gov’t Code ?212.904 now provides that if a city requires a developer to bear a portion of certain infrastructure costs as a condition of plat approval, the developer’s portion of the cost must be roughly proportionate to the proposed development as approved by a licensed professional engineer who is retained by the city. Texas Local Gov’t Code ?212.904, Texas Legislature Online, http://tlo2.tlc.state.tx.us/statutes/lg.toc.htm (last visited 7.30/07). A developer may appeal the engineer’s decision to the governing body and then to a county or district court. Id. If the developer (but not a city) prevails in an appeal, he is entitled to costs and attorney fees. Id.

Another section of the Texas Local Government Code, chapter 395, provides additional and extensive requirements for "impact fees," as defined by statute. Under the statute, “impact fee” means “a charge or assessment imposed by a political subdivision against new development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to the new development. The term includes amortized charges, lump-sum charges, capital recovery fees, contributions in aid of construction, and any other fee that functions as described by this definition.” Id. at ?395.001. However, the statute specifically excludes the following from the definition:

(1) dedication of land for public parks or payment in lieu of the dedication to serve park needs;
(2) dedication of rights-of-way or easements or construction or dedication of on-site or off-site water distribution, wastewater collection or drainage facilities, or streets, sidewalks, or curbs if the dedication or construction is required by a valid ordinance and is necessitated by and attributable to the new development;
(3) lot or acreage fees to be placed in trust funds for the purpose of reimbursing developers for oversizing or constructing water or sewer mains or lines; or
(4) other pro rata fees for reimbursement of water or sewer mains or lines extended by the political subdivision. Id.

The chapter establishes many requirements for impact fees and limits the amount of the fees. The capital improvement plan must include a plan for awarding either:
(1) a credit for the portion of ad valorem tax and utility service revenues generated by new service units during the program period that is used for the payment of improvements, including the payment of debt, that are included in the capital improvements plan; or
(2) a credit equal to 50 percent of the total projected cost of implementing the capital improvements plan. Id. at ?395.014 The impact fees that may be charged are limited accordingly. Id at 395.014.

Nelson A. C. and J. B. Duncan. 1995. Growth Management Principles and Practices. Planners Press, Chicago, IL.

Porter, D. R. 1996. Profiles in Growth Management: An Assessment of Current Programs and Guidelines for Effective Management. Urban Land Institute, Washington, DC.

Porter, D. R. 1997. Managing Growth in America's Communities. Island Press, Washington, DC.