SCOTUS Moves On Sheetz: Development Impact Fees Imposed By Legislation Must Pass Takings Scrutiny
On April 12, 2024, the United States Supreme Court delivered its highly-anticipated opinion in Sheetz v. County of El Dorado, unanimously holding that fees imposed through legislative action as a condition of property development are subject to scrutiny under the Taking Clause, by application of a test referred to as “Nollan/Dolan” for the cases which they are named.
Development impact fees are fees charged on development projects to mitigate the impact of such projects on public facilities. The Nollan/Dolan test generally requires that exactions have “an essential nexus” to the government’s land use interest, and must have “rough proportionality” to the development’s impact on the land use interest. In the context of development impact fees, the test requires that a government entity conditioning a building permit on payment of a fee make an individualized determination that the fee amount is necessary to offset the impact of the specific development for which a permit is sought. The Nollan/Dolan test previously applied only to permit conditions imposed “on an individual and discretionary basis,” such as fees imposed through administrative action on a case by case basis. Prior to Sheetz, when a local government imposed a fee “on a broad class of property owners through legislative action,” such as California development impact fees adopted and imposed under the Mitigation Fee Act, it did not need to satisfy the Nollan/Dolan test.
The Sheetz opinion, now current law, explicitly holds that even fees imposed on a broad class of property owners by legislation must satisfy the Nollan/Dolan test. But, the opinion itself was narrow, and leaves open a vital question: must these fees be tailored with the same degree of specificity as when fees are imposed on a single, particular development? The majority and concurring opinions issued by the Court shed some light on the question, and we expect to see litigation in the near term testing this issue.
A. George Sheetz Wants a Permit; the County Wants Mitigation Fees
George Sheetz wanted to build a house in El Dorado County, California. The County had experienced significant population growth in historically rural areas. To account for the new demand on public services, the County Board of Supervisors took legislative action and adopted a planning document - its General Plan – that requires payment of traffic impact fees, a type of development impact fee, as a condition of receiving a building permit. The amount of the fee is determined by a rate schedule that takes into account the type of development (i.e., residential, commercial, etc. . .) and its location in the County. Based on its General Plan, Sheetz was required to pay a traffic impact fee of $23,240 to fund improvements to the road system. Sheetz sued in California state court, claiming that conditioning the building permit on the payment of the impact fee was subject to the Nollan/Dolan test, and resulted in an unconstitutional taking because the fee was not specifically tailored to address the impacts of his property.
Historically, development impact fees adopted under the California Mitigation Fee Act were considered exempt from scrutiny under the Nollan/Dolan test because they were imposed on a broad class of property owners through legislation. The trial court and California Court of Appeal relied on this historic treatment of development impact fees in California in rejecting Sheetz’s argument. The California Supreme Court denied Sheetz’s petition for review, and the U.S. Supreme Court granted certiorari.
B. Watch Out – Litigation is Forthcoming
In Sheetz, the Supreme Court unanimously held that impact fees are not exempt from the Nollan/Dolan test merely because they are the product of legislative action, stating that “[n]othing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules.”
In applying the Nollan/Dolan test to legislatively-imposed fees, the Court clearly requires that any permit conditions (i.e., payment of development impact fees) have “rough proportionality” to the development’s impact on the land use interest. However, the Court was very careful not to answer many pressing questions. The Court explicitly stated that it would “not address . . . whether a permit condition [i.e., the amount of the fee] imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.”
Whether and how a government can comply with the “rough proportionality” requirement when applying a fee to a broad class of property owners, each with different property characteristics, is uncertain. The Court’s opinion suggests that, perhaps, a fee imposed by legislation that is broadly applicable need not satisfy the same degree of proportionality as a fee administratively imposed on a particular development.
Unfortunately, the concurring opinions only highlight the importance of the question without resolving it. On the one hand, Justice Gorsuch’s concurrence urges that nothing about the takings analysis “depends on whether the government imposes the challenged condition on a large class of properties or a single tract or something in between,” and therefore, the same degree of specificity is required. On the other hand, Justices Kavanaugh, Kagan, and Jackson suggested that less specificity would still pass constitutional muster because the majority opinion does not prohibit local governments from adopting impact fees “through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.”
The question of the degree of specificity necessary to satisfy the “rough proportionality” requirement for impact fees will likely be extensively litigated in the near future. Additionally, depending on how they were adopted, inclusionary housing, commercial linkage fees, and other housing in lieu fees may be impacted by how Sheetz is applied by the courts in the future. In the meantime, as local agencies assess their current and proposed development impact fees, it will be important to consider the impact of Sheetz on those fees and the application to individual projects.
Contact your City Attorney or the BBK authors of this legal alert if you have questions regarding implementing development impact fees.
Disclaimer: BBK Legal Alerts are not intended as legal advice. Additional facts, facts specific to your situation, or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.
