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By Adrian Reyna
May 6, 2024
The United States Supreme Court (“SCOTUS”), in a unanimous decision, recently held in the case of Sheetz v. County of El Dorado that the analysis historically applied to administratively imposed fees as conditions on the issuance of building permits also applies to such fees that are imposed legislatively. Though Sheetz leaves some uncertainty in its wake for the future of project level-impact fees, the case may not necessarily translate to a drastic change in the current landscape with regard to such fees.
Facts of Sheetz
In Sheetz, George Sheetz and his wife applied to construct a prefabricated house on their El Dorado County parcel. As a condition to the issuance of the permit, El Dorado County required Sheetz to pay $23,420 as a “traffic impact fee.” This fee was not based on the cost specifically attributable to Sheetz’ project, but was instead calculated using a rate schedule under the County’s General Plan, which takes into account the type and location of the development to determine the fee. Because the County Board of Supervisors is a state legislative body, their adoption of the General Plan was a legislative act.
Sheetz paid the traffic impact fee under protest, and later brought suit in state court, arguing that conditioning the permit on the payment of this traffic impact fee was an unlawful exaction of money in violation of the Fifth Amendment Takings Clause. Sheetz argued that the County was required to conduct an individualized assessment of the impact of his project on traffic in accordance with the two-pronged test set out in the cases of Nollan v. California Coastal Commission, and Dolan v. City of Tigard. This test, commonly known as the “Nollan/Dolan test,” requires permit conditions to have both an “essential nexus” to the government’s land use interest and a “rough proportionality” to the development’s impact on that interest to pass constitutional muster under the Fifth Amendment.
The trial court rejected Sheetz’ argument and the California Court of Appeal affirmed, holding that the Nollan/Dolan test applies only to permit conditions imposed by administrative agencies “on an individual and discretionary basis,” not legislatively prescribed monetary fees imposed on a broad class of property owners as was the case here. The Court of Appeal maintained that, rather than being subject to the heightened Nollan/Dolan standard, the traffic impact fee challenged by Sheetz need only satisfy, and did ultimately satisfy, the deferential “reasonable relationship” standard as provided in California’s Mitigation Fee Act, which governs the imposition of fees as a condition of approval for development projects. After the California Supreme Court denied review, the United States Supreme Court granted certiorari to answer the question of whether the Takings Clause differentiates between legislative and administrative permit conditions.
SCOTUS’ Holding and Analysis
SCOTUS held that the Takings Clause, and therefore the Nollan/Dolan test, applies to legislatively imposed permit conditions as well as administratively imposed permit conditions. The Court analyzed the text of both the Fifth Amendment Takings Clause and the text of the Fourteenth Amendment (which incorporates the Fifth Amendment against the States), and pointed out that neither provides for different treatment for permit conditions imposed by legislatures. In addition, the Court identified that colonial and post-Revolution governments historically exercised the power of eminent domain through legislation to show the lack of historical support for the exemption of legislation from Fifth Amendment scrutiny. Finally, the Court analyzed its jurisprudence in other takings contexts, such as physical takings and regulatory takings, in addition to precedent in the context of other types of unconstitutional conditions, to establish that legislation has been scrutinized in the same manner as administrative acts. In vacating and remanding the trial court’s decision, SCOTUS left other issues, including whether the fee itself was valid, for the state courts to decide.
The Impact of Sheetz
At first blush, Sheetz may appear to have quite an impact on the constitutional validity of mitigation fees. However, Sheetz’ narrow holding and questions it left unresolved mean that from a practical standpoint, the immediate impact of the decision is more limited.
Notably, SCOTUS explicitly qualified that the opinion did not address any of the other issues surrounding the traffic impact fees in question, “including whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.” In his concurring opinion, Justice Gorsuch emphasized that nothing about Sheetz supports such a difference in the degree of scrutiny to be applied between conditions imposed on a large class of properties and conditions imposed on a few properties. Gorsuch pointed out that Sheetz simply held that the Nollan/Dolan test applies to both legislative and administrative acts, and the Nollan/Dolan test does not make any distinction between whether the permit condition was imposed on a wide scale or a small one. However, Justice Kavanaugh, joined by Justice Kagan and Justice Jackson, emphasized in his concurring opinion that the Court in Sheetz explicitly declined to answer the question, and stated that no prior decision, including Sheetz, “address[es] or prohibit[s] the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.” Additionally, Justice Sotomayor, joined by Justice Jackson, pointed out in her concurrence that Sheetz did not address a threshold question to the Nollan/Dolan analysis: whether the traffic impact fee at issue would have been a compensable taking if imposed outside the permitting process.
Therefore, although the holding in Sheetz may initially appear to herald a decrease in cost of impact fees, the holding does not necessarily usher in such major changes just yet. Key questions remain unanswered in the wake of Sheetz, including whether current methods of calculating and imposing development impact fees satisfy the Nollan/Dolan test, a question which will need to be answered by state courts in future litigation. The Court in Sheetz declined to definitively address the validity of fees calculated via formulas and imposed broadly onto classes of properties, leaving for future litigation the task of showing whether such fees pass muster under the Nollan/Dolan test. However, the California legislature may need to amend the Mitigation Fee Act to harmonize its requirements with the Nollan/Dolan test in the wake of Sheetz, and the methodology by which agencies conduct impact fee nexus studies may change to account for the more demanding Nollan/Dolan requirements.
If you have any questions regarding the holding in Sheetz, or its potential impact on development, please feel free to contact Neil Hyytinen at nhyytinen@hechtsolberg.com or Adrian Reyna at areyna@hechtsolberg.com.