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Impact Fees at the Supreme Court: How Far Must Government Go to Justify the Fees on a Case-by-Case Basis?



On January 9th of this year, the United States Supreme Court heard oral argument in Sheetz v. El Dorado County on an important issue related to impact fees imposed on development. Under existing law, if government requires an owner to pay a fee in exchange for a development permit, this can be an unconstitutional takings if there is no “nexus,” (e.g., connection) between the fee and an impact of the development, or if the fee is not roughly proportional to the impact (e.g., the amount of the fee exceeds a development’s impact). For instance, if a city requires a developer to pay a fee for a new traffic signal, through which the development will send no trips, then there would be no nexus between the fee and the impact. In addition, if the fee is a million dollars but there are only two trips from the development traveling through the intersection, the fee would not be roughly proportionate to the impact of the development.

The question before the Supreme Court is whether an impact fee authorized by legislation, as opposed to a fee imposed on an individual case-by-case basis, is subject to the heightened scrutiny under the Takings Clause, in that government must justify the impact fee authorized by an ordinance in each case before it is imposed on specific developments.

In this case, George Sheetz, a resident of California, applied for a permit for a single manufactured home in 2016. El Dorado County conditioned approval of the permit in part on the payment of nearly $24,000 in traffic impact mitigation fees authorized by a local ordinance. Sheetz challenged the fee’s constitutionality and urged the state court to apply the tests laid out in United States Supreme Court cases Nollan v. California Coastal Commission and Dolan v. City of Tigard, Oregon, which held that if the government withholds a land use permit in exchange for property, the government must show that this condition on a particular development is both closely related and roughly proportional to the impact of the proposed development. 

The California state courts declined to follow the Nollan/Dolan framework, viewed as more favorable to property owners, because, they reasoned, it does not apply to legislative enactments, such as the imposition of traffic mitigation fees. On appeal to the United States Supreme Court, the justices debated at length over what the exact question was before them, and, more importantly, whether legislative enactments are subject to or exempt from the Nollan/Dolan framework.

Chief Justice Roberts questioned whether the imposition of fees interferes with an “identifiable property interest.” Though, notably, this ignores the Koontz v. St. Johns River Water

Management District case, which held that the imposition of fees as a condition for a land use permit (that is, when the government is exacting money rather than land), the government must satisfy the Nollan/Dolan analysis. The distinction, there, may be that the fee in Koontz was ad hoc and not imposed under an ordinance. The Supreme Court has also recognized that certain kinds of legislation, such as property taxes, special assessments, or user fees, are categorically exempt from Nollan/Dolan, and government is not required to justify these taxes or fees on a case-by-case basis. These fees may be challenged under tests more favorable to government, such as whether the fees bear a rational relationship to the objectives government is trying to achieve.

Sheetz argued that whether the “exaction” was carried out through legislation or on an individual basis should not matter—the exaction should be subject to the same standard to protect a property owner from an uncompensated taking. Justice Kavanaugh appeared to agree, questioning whether allowing this impact fee to stand would allow local governments to take advantage of a “loophole” and charge exorbitant fees that are “obviously being used to fund improvements in the other part of the county,” rather than mitigate an impact of a particular development.

The County maintained that the traffic impact mitigation fee was not a property interest and that any heightened review of legislative enactments must be performed on a “programmatic basis” rather than case-by-case.

Whatever the decision, it is not clear what impact it will have in Washington State given its impact fee statute in chapter 82.02 RCW. The legislature has already mandated that local government, under adopted impact fee ordinances, may only impose fees that are proportionate to new development’s impact on system-wide public improvements necessary to serve growth. While this determination is done at the ordinance level, property owners retain the right to contest individual impact fees imposed on their developments. Local ordinances must allow the local governments to adjust the standard impact fee at the time the fee is imposed to consider unusual circumstances in specific cases to ensure that impact fees are imposed fairly. Local ordinances must also include a provision for calculating the amount of the fee to be imposed on a particular development that permits consideration of studies and data submitted by the developer to adjust the amount of the fee.

Stay tuned for the Supreme Court’s decision by this summer.

This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.

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