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U.S. Supreme Court: Legislative Impact Fees Can Be Unconstitutional Exactions Too

Last week, the United States Supreme Court issued its opinion in Sheetz v. County of El Dorado, California, in which the Court held that for the purpose of a takings claim there is no distinction in whether permit conditions are imposed on a development through the legislative process or administratively on a project-by-project basis. While the case presents a relatively limited holding, it is now settled that regardless of the process by which a government imposes an impact fee, it must share an essential nexus with the government’s stated purpose and be roughly proportional to offset a development’s impacts on that purpose.

The Takings Clause of the Fifth Amendment to the U.S. Constitution prohibits the government from taking private property “for public use, without just compensation.” Under its earlier decisions in Nollan v. California Coastal Commission, Dolan v. City of Tigard, and Koontz v. St. John’s River Water Management, the Court placed limits on a government’s ability to demand payment or impose conditions on an ad hoc basis in connection with a land use approval process. Those cases all concerned individualized demands and conditions crafted and imposed in the context of specific applications. That left a question: did the Nollan/Dolan analysis apply to demands and conditions resulting from a legislatively adopted requirement, like an impact fee?

Sheetz addressed and delivered a narrow answer to that question: yes.

George Sheetz and his wife applied for a building permit to construct a prefabricated home on their property. Pursuant to the County’s General Plan, which was adopted by the County Board of Supervisors through the legislative process, the County required Sheetz to pay a “traffic impact fee” to secure a building permit. The rate schedule set forth in the General Plan assessed Sheetz an astonishing $23,420, based on the location of the property within the County and the type of development. Sheetz paid this fee in protest to obtain the building permit and subsequently challenged the fee in state court, contending that this impact fee violated the Takings Clause. The state courts rejected Sheetz’s claim. They reasoned that because this traffic impact fee was imposed by legislative action, the tests in Nollan and Dolan did not apply. The U.S. Supreme Court granted certiorari to resolve a split among state courts on this issue.

In a unanimous opinion issued by Justice Barrett, the Court reversed the state court ruling and held that the tests in Nollan and Dolan apply to analyzing whether a permit condition constitutes a taking irrespective of whether the condition originates from legislative or executive action. By reviewing the history, context, and application of the Takings Clause, the Court determined the analysis should not be focused on the type of governmental action, but rather on whether or not it meets the requirements of an uncompensated taking. Exercising proper, if regrettable, restraint, the Court stopped after answering the narrow question presented and remanded the case to the state court to determine whether the traffic impact fee violated the Takings Clause.

Because the Nollan/Dolan test emerged from ad hoc demands, the Court’s narrow opinion leaves questions about how the same test will apply to legislated requirements. For example, must a formulaic impact fee be roughly proportional to the impacts of all development required to pay the fee? Or on average? Or with respect to the specific project against which the fee is assessed? The opinion left these questions for another day.

Several justices, however, in their concurring opinions touched on these issues.

Justice Gorsuch, writing alone, took the more demanding position. In his view, a legislative exaction must satisfy the Nollan/Dolan test with respect to the individual project affected. So, conceivably, an impact fee that correctly addresses development impacts on the whole or on average could still fail as applied to a particular property. This would of course create substantial litigation risk for local governments because the constitutionality of every impact fee would be determined on a case-by-case basis.

In what appeared to be a response to Gorsuch’s concurrence, Justice Kavanaugh, joined by Justices Kagan and Jackson, highlighted that the Court’s opinion did not decide 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.” He reiterated that nothing in the opinion should be read as prohibiting “longstanding government practice” of imposing impact fees “based on reasonable formulas or schedules that assess the impact of classes of development.”

Justice Sotomayor, joined by Justice Jackson, stated that before analyzing any takings claim under the Nollan/Dolan test, a threshold question should be asked of whether the condition would be considered a taking outside such context. It was unclear to her whether the facts in Sheetz implicated the Takings Clause at all.

It remains to be seen where a majority of the Court will end up on these questions, and in the near term, Sheetz will no doubt increase litigation concerning the amount and type of impact fees on developments nationwide. Wherever the case law may lead, those fees and other conditions will remain important tools for local governments to offset costs of development, so long as those governments respect constitutional limits that protect landowners’ private property rights.