Attention City Attorneys: This alert discusses the recent U.S. Supreme Court decision in George Sheetz v. County of El Dorado, California, 601 U.S. ___, No. 22-1074 (2024) involved the legislative imposition of traffic mitigation fees on new development projects.
A PDF of our analysis below of this case can be seen here, and the Supreme Court opinion can be seen here.
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On April 12, 2024 the United States Supreme Court issued its decision in George Sheetz v. County of El Dorado, California, 601 U.S. ___, No. 22-1074 (2024) (“Sheetz”). The issue presented in Sheetz was whether “legislative” development fees—broadly applied fees established by state or local law imposed on new construction projects—are categorically exempt from heightened scrutiny under the seminal “unconstitutional conditions” takings cases Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994) (“Nollan/Dolan Test”). In a unanimous but narrow decision authored by Justice Barrett, the Court held that no such categorical exemption applies to County-imposed development fees.
Nevertheless, concurring opinions by several Justices suggest that, upon remand, several open questions remain, namely: (1) do the development fees constitute a taking at all, such to invoke Nollan/Dolan; (2) is there a different standard for development fees imposed on wide classes of projects versus fees imposed on specific property parcels; and (3) does the County of El Dorado’s fee schedule meet the Nollan/Dolan Test?
California Statutory Provisions and Lower Court Opinion
At issue in Sheetz was California’s Mitigation Fee Act (Cal. Government Code Section 66000 et seq.) (“Fee Act”) which was originally passed “in response to concerns among developers that local agencies were imposing development fees for purposes unrelated to development projects.” (Sheetz v. County of El Dorado, 84 Cal.App.5th 394, 407 (2022) [internal citation omitted].) The Fee Act thus provides “uniform procedures for local agencies to follow in imposing development fees.” (Id.) For example, agencies are required to identify the purpose of the fee and show a “reasonable relationship” between the fee and type of development project for which the fee is imposed.
Consistent with the Fee Act, in 2006, El Dorado County (“County”) amended its general plan to include a traffic impact mitigation fee program to finance road improvements and the construction of new roads in the County. Under the program, the County imposes a fee on the property owner as a condition to issuing building permits for construction projects.
Mr. Sheetz is a landowner who applied for a building permit to build an 1,800 square foot manufactured home on his property located within the County’s jurisdiction. The County issued the permit on the condition that Mr. Sheetz pay a $23,420 fee. Following the County’s issuance of the permit, the Petitioner challenged the fee and requested a refund.
After the County declined to issue a refund, Mr. Sheetz filed a petition for writ of mandate and complaint in the trial court. After losing in the trial court, he filed an appeal and again lost. Sheetz v. County of El Dorado, 84 Cal.App.5th 394 (2022).
The Supreme Court’s Holding
The question presented to the Supreme Court was a narrow one: “Whether a permit exaction is exempt from the unconstitutional-conditions doctrine as applied in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), simply because it is authorized by legislation.” The Court answered, “No.” That is, the California Court of Appeal erred by failing to apply the Nollan/Dolan test and evaluate whether the County’s traffic mitigation fee held an essential nexus to the project and was roughly proportional to the project’s impacts. The Court reversed and remanded the case back to the California Court of Appeal.
Practical Implications on Remand
Despite finding in favor of Mr. Sheetz, and as underscored by several concurring opinions, the High Court’s ruling leaves several questions to be resolved in state court in this action and in future cases.
For example, as clarified by Justice Sotomayor in her concurrence (joined by Justice Jackson), Nollan/Dolan scrutiny “applies only when the condition at issue would have been a compensable taking if imposed outside the permitting process.” Upon remand, depending on how the issues are framed by the parties, one of the threshold issues for the Court of Appeal to determine will be whether the County’s development fees constitute a taking at all such to trigger Nollan/Dolan. Based on oral argument proceedings for the case, at least a few of the Justices appear skeptical of this point.
Second, to the extent the County’s development fees fall within Nollan/Dolan, the court must then analyze whether the traffic mitigation fees comport with the Nollan/Dolan Test, i.e., whether the fees have an essential nexus to Mr. Sheetz’s project and are roughly proportional to the project’s impacts.
A third issue to be grappled with is whether the size and scope of a development project or class of project impacts the level of judicial scrutiny applied to development fees. In his concurring opinion, Justice Gorsuch emphasized there should be no differentiation in scrutiny of development fees applied to individual development projects vis-à-vis such fees imposed on entire classes of properties. Justice Kavanaugh, joined by Justices Kagan and Jackson, took the opposite view. He wrote that in rendering its decision in Sheetz, the Court did not “address or prohibit the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.” Because the fees at issue in Sheetz were generally applicable to housing projects, it appears at least a few of the Justices would uphold the fees so long as they are based on reasonable formulas and schedules.
Take-away
To ensure compliance with the Nollan/Dolan standard, cities and counties seeking to impose development fees, whether general legislative fees or otherwise, should make express findings about the proportional and reasonable nature of such fees for a particular project.
For more information about this case, land use regulation, or “takings” cases under California or federal law, please contact Norm Dupont (NDupont@Ringbenderlaw.com), Jay Tufano (JTufano@Ringbenderlaw.com,), or Kit Bobko (PBobko@Ringbenderlaw.com).
