U.S. Supreme Court: Takings Clause Applies to Impact Fees on New Development
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U.S. Supreme Court: Takings Clause Applies to Impact Fees on New Development

Brownstein Client Alert, April 17, 2024

The Sheetz v. County of El Dorado decision will create uncertainty in California, Arizona, Nevada, Colorado and many other states as cities, counties, developers and property owners reexamine whether existing impact fee programs could result in an unconstitutional taking

Many states fund the construction of roads, schools, sewers, libraries and other essential infrastructure by collecting impact fees on new development. The amount of the impact fee may be calculated based on the type of development and its location. This municipal financing structure, however, has been premised on an understanding that the Takings Clause of the U.S. Constitution does not apply to impact fees established by legislative action and applied generally to all classes of development.

On April 12, 2024, the Supreme Court of the United States issued a unanimous opinion in Sheetz v. County of El Dorado, California, 601 U.S. ____ (2024) (Sheetz), clarifying that the Takings Clause does apply to legislatively established land-use permit conditions, like development impact fees. The Supreme Court’s decision resolves a split in how state courts viewed this question but stops short of providing a definitive answer on “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.” 

Building a Single-Family Home

The case arose from modest beginnings. George Sheetz and his wife sought a building permit from El Dorado County, California to construct an 1,854 square-foot single-family residence on their property. Several years before, the county had legislatively adopted a traffic impact fee program establishing a fee schedule to account for anticipated road costs, which calculated the fee based on the type and location of new development. The county required Sheetz to pay, as a condition of approving their building permit, a $23,420 traffic impact mitigation fee.

Sheetz paid the fee under protest to obtain his building permit, and then challenged the impact fee as an unconstitutional taking under the U.S. Constitution in California state court. The appellate court rejected the appeal based on California Supreme Court precedent holding that the U.S. Supreme Court’s decisions in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) (Nollan) and Dolan v. City of Tigard, 512 U.S. 374 (1994) (Dolan) do not apply to impact fees when they are generally applied to a broad class of property owners through legislative action. Sheetz appealed to the U.S. Supreme Court.

The Supreme Court’s Opinion

The Supreme Court’s unconstitutional conditions doctrine prohibits the government from requiring a person to relinquish a constitutional right in exchange for a discretionary benefit. In the land-use permitting context, the Nollan and Dolan decisions stand for the principle that a land use permit condition (i.e., an exaction) is constitutional only if there is an “essential nexus” and “rough proportionality” between the government’s demand and the proposed land-use. Prior to Sheetz, the U.S. Supreme Court had not had the opportunity or reason to opine on whether the same standards applied to a broadly applicable legislative mandate like the county’s impact fee program.

By the time the case reached oral argument, however, not even the county maintained that its traffic impact fee program was beyond the reach of Nollan and Dolan. Writing for a unanimous court, Justice Amy Coney Barrett analyzed the constitutional text, history and precedent concerning the tension between the Fifth Amendment’s Takings Clause and the states’ police power to regulate land use (as well as the Fourteenth Amendment, which applies the Takings Clause to the states), and found no basis to exempt legislative actions, like the county’s traffic impact fee, from Takings precedent.

The court limited its opinion and declined to address the parties’ disputes over the validity of the traffic impact fee itself, 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. The appellate judgment was vacated, and the court remanded the case for further proceedings in California state court.

What Happens Now?

The California appellate court will address the questions left for it on remand, including but not limited to “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” under the court’s Nollan/Dolan jurisprudence.

Although the Sheetz opinion left this question unanswered, five of the court’s justices advanced their thoughts in three concurrences to the opinion.

According to Justice Neil Gorsuch, “nothing in Nollan, Dolan, or [the Sheetz] decision supports distinguishing between government actions against the many and the few any more than it supports distinguishing between legislative and administrative actions.” Property rights advocates may read Justice Gorsuch’s concurrence as an invitation to bring project-specific challenges to any classification based conditions.

Yet Justice Brett Kavanaugh, joined by Justices Elena Kagan and Ketanji Brown Jackson, took pains to emphasize that the Supreme Court’s decision does not prohibit 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.”

Justice Sonia Sotomayor, joined by Justice Jackson, pointed out that neither the California appellate court nor the Sheetz Court addressed the predicate question for any unconstitutional conditions claim: whether “the government could not have constitutionally ordered the person asserting the claim to do what it is attempting to pressure that person into doing [via a permit].”

Assessing the Impacts of the Sheetz Decision

The Supreme Court’s decision will affect many states, including but not limited to California, Arizona, Colorado, Nevada and New Jersey. In fact, 18 states and the District of Columbia filed an amicus brief in support of the county, which explains that many states have passed laws to protect property owners and developers from excessive mitigation fees. For example, the California Mitigation Fee Act requires that an impact fee be “reasonably related to the burden caused by the development.” In Colorado, C.R.S. Section 29-20-104.5 requires impact fees to be assessed using a schedule “to defray such impacts directly related to proposed development.”

The Sheetz decision addressed a limited question. What comes next will be a state-by-state, jurisdiction-by-jurisdiction reassessment of whether existing impact fee programs comply with Nollan/Dolan, followed by (or in tandem with) litigation testing those conclusions in court.

We expect this soul-searching by cities and counties in states will give property owners and developers an additional avenue for dialogue to ensure that impact fees comply with the Constitution. In affected states, for public agencies and developers alike, the coming months will be filled with uncertainty.

The Supreme Court’s Upcoming Decisions

The Sheetz case is the first to be decided of three major constitutional challenges to government regulatory authority on the court’s docket for the 2023-24 term. Forthcoming decisions in Loper Bright Enterprises v. Raimondo, concerning the foundational administrative law principle espoused in Chevron v. Natural Resources Defense Council that requires courts to defer to agencies’ reasonable interpretations of the statutes which they administer (see the Brownstein alert here), and SEC v. Jarkesy, challenging the long-established power of administrative agencies to issue civil penalties, are still to come.

For further information on the Sheetz decision and how it may affect the land use process in your jurisdiction, please contact Brownstein.

This document is intended to provide you with general information regarding the Supreme Court's decision in Sheetz v. County of El Dorado. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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