On April 12, 2024, the United States Supreme Court decided Sheetz v. El Dorado County, No. 22-1074. Justice Barrett, delivering the opinion of a unanimous court, held that the Takings Clause “does not distinguish between legislative and administrative permit conditions,” but instead “prohibits legislatures and agencies alike from imposing unconstitutional conditions on land-use permits.” The Takings Clause, set forth by the Fifth Amendment to the Constitution, requires that if the United States “takes” property from private owners then it must provide just compensation.
(Skip to the section below “Generation Housing Takeaways” if you are pressed for time!)
In this case, property owner George Sheetz petitioned for a writ of mandate and complaint for declaratory and injunctive relief, challenging a $23,420 traffic impact mitigation fee imposed by El Dorado County, California, as a condition of issuing him a building permit for the construction of a single-family residence. Sheetz argued that the fee violated the California Mitigation Fee Act and was an unconstitutional “taking” in violation of the Takings Clause of the United States Constitution**. The lower courts ruled in favor of the county.
The Supreme Court took up the case to address whether the Nollan/Dolan test for determining whether a fee imposed as a condition for a land-use permit constitutes an unconstitutional taking under the Fifth Amendment applies to both legislative and administrative permit conditions.
The Supreme Court focused on the core principle behind the Takings Clause: the protection of private property rights from government overreach. The Court acknowledged its prior decisions in Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994), which established a two-part test for evaluating fees imposed on land-use permits. This test requires an “essential nexus” between the condition (fee) and the proposed development’s impact, and “rough proportionality” between the amount of the fee and the projected impact.
The crux of the Sheetz case hinged on whether the Nollan/Dolan test applied only to conditions imposed by administrative bodies on a case-by-case basis, or if it also extended to legislatively mandated fees like El Dorado County’s traffic impact fee schedule. The County argued that the Nollan/Dolan test shouldn’t apply to their pre-set fees because they were established legislatively.
The Court, however, disagreed. It reasoned that the Takings Clause itself doesn’t distinguish between the source of the land-use restriction. Whether a condition is imposed by an administrator or mandated by legislation, the potential for an unconstitutional taking still exists. The Court emphasized that property owners facing permit conditions deserve the same level of protection regardless of the source of the restriction.
The Court concluded that the Nollan/Dolan test provides a crucial safeguard against excessive fees that could effectively amount to a taking of private property without just compensation. By requiring an essential nexus and rough proportionality, the test ensures that fees imposed on developers are directly connected to the project’s specific impacts and not simply a revenue-generating measure.
The Court remanded the case to the lower courts consistent with its opinion, meaning the lower court will still have to rule on the actual fee.
Justice Sotomayor concurred, joined by Justice Jackson, arguing that the case could have been decided without reaching the issue of whether the Nollan/Dolan test applies to legislative conditions. Justice Gorsuch concurred, arguing that the state courts erred by relying on a formalistic distinction between legislative and administrative actions. Justice Kavanaugh concurred, joined by Justices Kagan and Jackson, arguing that the decision preserves the state’s broad authority to regulate land use.
**What do permitting fees have to do with the Taking Clause, anyway?
The Takings Clause, found in the Fifth Amendment of the U.S. Constitution, stipulates that private property cannot be taken for public use without just compensation. This clause is traditionally associated with physical or eminent domain takings, but it also extends to regulatory actions by government entities, including zoning and land use regulations.
The U.S. Supreme Court has established standards for determining when land-use regulations become excessive enough to trigger the Takings Clause. This includes evaluating the economic impact of the regulation on the property owner, the extent to which the regulation interferes with distinct investment-backed expectations, and the character of the government action.
When it comes to building permits and fees, the Takings Clause can be relevant in situations where these regulations are so burdensome that they effectively deprive a property owner of all reasonable economic use of their property. This is often referred to as a “regulatory taking.” For instance, if a building permit requirement or fee is excessively high or the conditions attached to the permit are so restrictive that they leave the property owner with no viable economic use of the property, this could constitute a regulatory taking, requiring just compensation.
Even not excessive on their face, building permit fees have a complex relationship with the Takings Clause. While the Takings Clause prevents the government from taking private property without just compensation, building permit fees are a common practice used by municipalities to regulate development. The question becomes: when does a fee cross the line from regulation to a de facto taking?
The Nollan/Dolan Test: Courts use a two-part test established in Supreme Court cases Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994) to analyze fees in the context of the Takings Clause.
- Essential Nexus: There must be a clear connection between the fee and the impact of the proposed development. For example, a fee to cover the cost of additional traffic lights due to a new shopping mall would likely pass this test.
- Rough Proportionality: The amount of the fee should be roughly proportional to the anticipated impact of the development. A fee for traffic mitigation shouldn’t be so high that it essentially prohibits the development from happening.
Generation Housing Takeaways
What does that mean for impact fees and development in general?
In short, it means that jurisdictions are going to have to be very careful in setting broadly sweeping impact fee rate schedules, be prepared to do more 1:1 negotiations with property owners who think that a general rate schedule should not strictly apply to them, and be prepared to defend litigation when they disagree.
In terms of development, this could cut both ways. On the one hand, it could reduce fees or at least ensure there are no unfair and unintended consequences of broad fees structures. On the other hand, anything that can cause government to be risk averse could also cause government to slow down, and slowing down development has the double impact of (1) the slowing itself; and (2) the COST of slowing. Lets hope everyone proceeds with good intentions and solving the housing crisis top of mind as we enter into these uncharted waters!
What does it mean for our current effort, the Right Size Impact Fee Policy?
We applaud the decision as closely aligned with our Right Size Impact Fee policy, we think it bolsters our efforts to advocate for reform of per-door impact fees, which are regressive and just simply nonsensical.
This should provide further incentive to our policymakers to immediately bring fees more closely aligned with size and rather than per-unit. This should immediately reduce risk of litigation from developers currently operating under the existing regressive per-unit fee structures.
Could this be the new tool du jour for NIMBY(s)?
Nope. A property owner holds the cause of action for a takings violation. Not his neighbor.