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| 4 minutes read

Local Development Fees Could Face Heightened Constitutional Scrutiny

George Sheetz did what many property owners do. He sought a development permit from his county government to build a single-family home in Placerville, California. In response, the County of El Dorado did what many counties do. It informed Mr. Sheetz that issuance of his permit was conditioned on payment of a traffic impact mitigation fee. The fee was authorized by the county’s general plan. The general plan included a comprehensive fee schedule that set rates based on the location of the project (there were eight geographic zones) and the type of project (i.e. single-family residential, multi-family residential, general commercial). Based on the location of Mr. Sheetz property and his plan to build a single-family home, his fee, under the schedule, was $23,420.

Sheetz paid the fee in protest and sued the county in state court on grounds, among others, that the exaction was an unconstitutional condition under Nollan v. Cal. Coastal Com., 483 U.S. 825 (1987),  and Dolan v. City of Tigard, 512 U.S. 374 (1994). In other words, the exaction allegedly required Sheetz to relinquish his constitutional right to just compensation for the government’s exercise of its eminent domain powers. In his view, the monetary exaction was a taking under the Fifth Amendment of the U.S. Constitution (“private property [shall not] be taken for public use without just compensation”) made applicable to the States through the Fourteenth Amendment. So, the demand by the county that he pay the exaction as a condition of obtaining his development permit was unconstitutional. The trial court ruled in favor of the county. On appeal, the California Court of Appeal, Third District, also ruled in favor of the county. Sheetz sought review by the California Supreme Court, which denied review. He then sought review by the U.S. Supreme Court.

The Court heard oral arguments earlier this month in a Sheetz v. County of El Dorado, California (No. 22-1074). The Court’s decision in that case could dramatically change local and state governments’ ability to exact generally applicable development fees through legislation. Such legislation is commonplace, and it is used to collect funds for a range of public services such roads, sewage systems, and schools. Unlike project-specific fees that local governments assess against a property owner to address project-specific impacts, these laws are not project-specific and typically apply to property owners based on the type of development (i.e. residential, commercial, or industrial) and the type of area (i.e., low density, medium density, or high density). Because these laws are similar to laws taxing property or making assessments against it, courts have reviewed their constitutionality under a rational basis test. In other words, if the government has a legitimate state interest and the tax or assessment is rationally related to that interest, the law is constitutional. Now, depending on the Court’s decision in Sheetz, courts might apply a heightened standard under the Takings Clause of the Fifth Amendment of the U.S. Constitution.   

If Mr. Sheetz prevails, legislative exactions would be “takings” under the constitution, entitled to just compensation, even though they do not involve the taking of any real property interest. To pass constitutional muster, under the petitioner’s proposed rule, these takings would be subject to a parcel-specific, individual test to determine whether the proposed fee has an “essential nexus” with the alleged harm caused by a challenger’s property and whether the fee is “roughly proportional” to that parcel-specific harm. The nexus and rough proportionality tests are currently the constitutional tests for an exaction imposed by a local government on a specific project as a condition for the property owner to be granted a development permit under the cases of Nollan, Dolan, and Koontz v. St. Johns River Water Mngmt., 570 U.S. 595 (2013). Mr. Sheetz argues that the nexus and rough proportionality test under Nollan, Dolan, and Koontz, should apply to a generally applicable development fee that is required for new development by county or state legislation. 

While that test might give property owners protection from a potentially coercive development requirement intended to force the owner to pay a fee or not get her building permit, it might also damage a local government’s ability to raise funds for infrastructure needs that arise from new development.   

Adoption of the Nolan/Dolan to legislative exactions would also be a huge sea change in takings law. This could significantly disrupt local governments across the country that routinely pass legislation to authorize user and impact fees, monetary exactions that are not directly related to a real property interest. Prior U.S. Supreme Court cases have held that heightened constitutional scrutiny is not required for such fees. Koontz, one of the main cases Mr. Sheetz relies on, stated that its decision “does not affect the ability of governments to impose property taxes, user fees, and similar laws and regulations that may impose financial burdens on property owners.” Another important case in the area of land use regulations, Agins v. City of Tiburon, 447 U.S. 255 (1980), holds that “[t]he application of a general zoning law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests, … or denies an owner economically viable use of his land. 

A decision in Sheetz is expected later this year. If questions and comments from the Chief Justice and the Associate Justices at oral argument are any indication of how they will vote, there did not appear to be five votes for holding that the essential nexus and rough proportionality tests under Nollan, Dolan, and Koontz apply to all legislative exactions. Indeed, none of the Nine expressed confidence in the workability of such rule, and there was not consensus on whether there was even a taking in Sheetz. Still, a sweeping decision for Mr. Sheetz would be a natural progression of the line of cases giving property owners takings claims when real property isn’t even at issue.   

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eminent domain, takings clause, development fees, condemnation