U.S. Supreme Court decides development impact fee case

The high court sent the case back to the California Court of Appeal for further proceedings

By Sheri Chapman, general counsel

The U.S. Supreme Court on April 12 issued a unanimous decision in Sheetz v. El Dorado County, a case involving development impact fees. The court found that such fees may violate the Fifth Amendment if they do not have an "essential nexus" to the government's land use interest and "rough proportionality" to the development's impact on that interest. It determined that impact fees are not exempt from these requirements merely because they are legislatively enacted.

Cal Cities filed an amicus brief with other local government associations in support of the county. Many cities - particularly in California - rely on these fees to pay for new roads and other public infrastructure and facilities related to new development.

Case background

The legal challenge arose after George Sheetz, an El Dorado County resident, sought a permit to build a small, prefabricated home on his rural residential lot. Sheetz had to pay a $23,420 traffic impact mitigation fee to obtain the permit.

Sheetz paid the fee under protest and then challenged it in state court. He claimed that conditioning the building permit on a traffic impact fee was an unlawful "exaction" - a violation of the Fifth Amendment's Takings Clause. The provision requires public agencies to provide owners with "just compensation" when seizing their property for public use. It also prohibits agencies from imposing unconstitutional conditions on land-use permits.

According to Sheetz, prior federal court decisions required the county's impact fee to have an essential nexus to a government land use purpose and be roughly proportional to the development impacts. He argued the county had to make an individualized determination that the fee amount was necessary to offset traffic congestion caused by his property's development.

A state court rejected the claim, relying on precedent from the California Supreme Court. It found the nexus and rough proportionality requirement only applied to permit conditions imposed on an ad hoc basis - not fees imposed on a broad class of property owners through legislative action. The U.S. Supreme Court granted a review of the case last fall.

What did the Cal Cities brief say?

Cal Cities and other local government associations argued that limiting a new development's contribution to public infrastructure would unfairly burden taxpayers, who already fund the infrastructure. It further explained that impact fees are a critical means to recoup some of the costs associated with the infrastructure. The brief also argued that legislatively enacted development impact fees are not equivalent to eminent domain and thus are not a "taking" under the Fifth Amendment.

Supreme Court decision

The Supreme Court recognized the state's authority to regulate land use and condition a building permit to further a "legitimate police-power purpose." However, it noted that withholding or conditioning a building permit for unrelated reasons amounts to "extortion." The court outlined a two-part test developed through case law to address potential abuse of the permitting process.

"First, the permit conditions must have an 'essential nexus' to the government's land use interest, ensuring that the government is acting to further its stated purpose, not leveraging its permitting monopoly to exact private property without paying for it," wrote Justice Amy Coney Barrett for the court. "Second, permit conditions must have 'rough proportionality' to the development's impact on the land-use interest and may not require a landowner to give up (or pay) more than is necessary to mitigate harms resulting from new development."

The Supreme Court noted that nothing in constitutional text, history, or precedent supported exempting legislatively enacted fees from such review. The court did not determine the validity of the county's impact fee in this case, or the degree of specificity required when tailoring an impact fee. Instead, it sent the case back to the state court for further proceedings.

Members of the Cal Cities City Attorneys Department are meeting to discuss this case and its impacts on cities. Cities with questions about the specific impact of the case should consult their city attorney.

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