Supreme Court Curbs Power of Local Governments to Impose Permitting Fees

The unanimous decision finds a California county’s development fees unconstitutional.
Supreme Court Curbs Power of Local Governments to Impose Permitting Fees
Associate Justice Amy Coney Barrett stands during a group photo of the Justices at the Supreme Court in Washington on April 23, 2021. (Erin Schaff/AFP via Getty Images)
Matthew Vadum

The Supreme Court ruled unanimously on April 12 that a California county violated a landowner’s rights when it demanded upwards of $23,000 in development impact fees.

The ruling curbs the power of governments to use the permitting process to force property owners to pay large development fees and is one in a series of decisions in recent years by the Court in favor of private property rights.

Justice Amy Coney Barrett wrote the Court’s opinion in Sheetz v. County of El Dorado, finding that the unconstitutional conditions doctrine precludes the fees.

The doctrine forbids unrelated fees from being attached to permission to move forward with construction on private land.

In the case, homeowner George Sheetz, represented by Pacific Legal Foundation, sued El Dorado County, California, claiming it violated his rights under the Fifth Amendment’s takings clause and the 14th Amendment.

The Fifth Amendment states that “private property [shall not] be taken for public use, without just compensation.”

The 14th Amendment says that no state shall “deprive any person of life, liberty, or property, without due process of law.”

In 2016, Mr. Sheetz purchased a vacant lot, intending to build a small, manufactured home in which he and his wife would live in retirement.

But when he sought a building permit from the county, he was told he would have to pay a so-called traffic impact fee of $23,420.

The county informed Mr. Sheetz that he was required to pay the fee because of legislation that aimed to shift the cost of addressing existing and future road deficiencies onto new development.

His lawyers argued this meant that the fee was imposed without any evidence tying the construction project to any specific public costs or impacts.

The fee financing the unrelated road improvements bore neither an “essential nexus” nor “rough proportionality” to whatever local impact his construction project would result in, according to Mr. Sheetz’s petition to the Supreme Court.

He said the fee was an unconstitutional “exaction” according to the Supreme Court precedents of Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994).

An exaction is a condition for development imposed on a developer to offset the costs of the project to a local government. It is similar to an impact fee, which is a direct payment made to a municipality in place of conditions being imposed on the development.

Mr. Sheetz paid the fee under protest and sued for a refund, arguing the fee was an unconstitutional permit condition under the Supreme Court’s 2013 ruling in Koontz v. St. Johns River Water Management District.

Justice Barrett wrote in the new opinion that the California Court of Appeal rejected Mr. Sheetz’s argument, “because the traffic impact fee was imposed by legislation, and, according to the court, Nollan and Dolan apply only to permit conditions imposed on an ad hoc basis by administrators.

“That is incorrect. The Takings Clause [of the U.S. Constitution] does not distinguish between legislative and administrative permit conditions,” the justice wrote.

“Nothing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules,” and the text of the Constitution itself is not limited to a specific branch of government.

Both the clause and the 14th Amendment, which applies the clause to the states through the doctrine of incorporation, do not “single out legislative acts for special treatment,” Justice Barrett wrote.

The 14th Amendment limits the authority of each state “as an undivided whole,” so there is “no textual justification for saying that the existence or the scope of a State’s power to expropriate private property without just compensation varies according to the branch of government effecting the expropriation.”

The Supreme Court vacated the judgment of the California Court of Appeal and remanded the case “for further proceedings not inconsistent with this opinion.”

Three separate opinions concurring in the Supreme Court’s decision were filed by various justices.

Justice Sonia Sotomayor filed a concurring opinion, which Justice Ketanji Brown Jackson joined.

Justice Sotomayor wrote that the Supreme Court failed to resolve the issue of whether the traffic impact fee Mr. Sheetz was forced to pay would constitute a compensable taking if imposed “outside the permitting process.”

She implied that the issue of any takings liability only applies in this case if the fee was imposed outside of the permitting context.

“The California Court of Appeal did not consider that question and the Court does not resolve it. … With this understanding, I join the Court’s opinion.”

Justice Neil Gorsuch filed his own concurring opinion.

In his opinion, the justice stated that takings clause standards should not shift based on whether the regulation being challenged applies narrowly or broadly.

“The Court notes but does not address a separate question: whether the Nollan/Dolan test operates differently when an alleged taking affects a ‘class of properties’ rather than ‘a particular development’ ... But how could it? … Nothing about that test depends whether the government imposes the challenged condition on a large class of properties or a single tract or something in between.”

Justice Brett Kavanaugh also filed a concurring opinion, which was joined by Justice Elena Kagan and Justice Jackson.

In that opinion, Justice Kavanaugh suggested there may be issues surrounding the takings clause that the Supreme Court may have to revisit in the future.

The court has not decided 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.”

Nor does the court’s new opinion “address or prohibit” the commonplace government practice of imposing permit conditions, including impact fees, on new developments through formulas or schedules that evaluate the impact of classes of development, instead of the impact of specific parcels of property, he wrote.