Takings Clause Applies to Development Impact Fees

The United States Supreme Court issued a ruling in Sheetz v. County of El Dorado (U.S. Supreme Court, No. 22-1074) on Friday, April 12, 2024. The Court’s ruling subjects Development Impact Fees (DIF) adopted by cities and other local agencies to the “Nollan/Dolan” test outlined in two seminal U.S. Supreme Court cases Nollan v. California Coastal Commission and Dolan v. City of Tigard, confirming that the test applies to both administrative and legislative land use actions.  Essentially this means that both the enactment of DIF and the imposition of DIF on a project will be subject to Nollan/Dolan’s two-part test.  This test provides that permit conditions must have: (1) 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 just compensation; and (2) “rough proportionality” to the development’s impact on the land-use interest, so as not to require a landowner to pay more than is necessary to mitigate harms resulting from new development.

Pursuant to the Supreme Court’s decision, the Nollan/Dolan test applies regardless of whether the condition requires the landowner to give up property or pay a monetary exaction. The Court, however, does not address whether a permit condition imposed on a class of properties (e.g., imposition of DIF) must be tailored with the same degree of specificity as a permit condition that targets a particular development.

The case originated when El Dorado County resident George Sheetz sued the County over a $24,320 traffic impact fee for a small manufactured home that he installed on vacant land. Sheetz claimed that conditioning the building permit on the payment of the fee constituted an unlawful “exaction” of money in violation of the Takings Clause of the United States Constitution. He argued that Nollan/Dolan required the County to make an individualized determination that the fee amount was necessary to offset traffic congestion attributable to his project.  The lower court and the Court of Appeal affirmed on the basis that the Nollan/Dolan test applied only to permit conditions imposed on an individual and discretionary basis.  The U.S. Supreme Court reversed noting that the Takings Clause applies to both legislative and administrative permit conditions in the land use context. The Appeals Court did not examine the El Dorado transportation fee study under Nollan/Dolan because it was not warranted under its decision.  As a result, when the Supreme Court reversed the Appeals Court, it remanded the case back to the trial court to examine the sufficiency of the fee study, among others.

Due to the potential importance and impact of this case on current and future development projects, DIF and other legislative property-related fee enactments, we recommend that local agencies consult their legal counsel on the effect of this case on the particular agency and circumstances.