Supreme Court Rules that Legislation Does Not Protect Improper Impact Fees

Following a unanimous decision handed down by the U.S. Supreme Court today, California home owners, builders and developers may now challenge improper local impact fees for housing development even if the fees are authorized by legislation.

The decision is a major victory for the home owner involved in the case as well as home builders and developers, especially in California. NAHB and the California Building Industry Association (CBIA) submitted two amicus briefs in the case supporting the home owner.

The case, Sheetz v. El Dorado County, involved George Sheetz, a California resident who in 2016 applied for a permit to build an 1,800-square-foot manufactured home on a residential-zoned lot he owned. The county imposed a $23,420 “traffic mitigation fee” on the permit. Sheetz protested the fee but ultimately paid it, and then immediately sued the county arguing the fee was improper.

At state court, Sheetz argued that the fee was not closely connected to or proportional to the actual impact his new residence would have on the roads, key tests laid out by precedent in two prior Supreme Court cases (commonly called the Nollan/Dolan test). The county countered that the test does not apply because the impact fee was authorized by legislation — from the county council in this case — rather than by bureaucracy.

A small number of state courts, including California’s, have carved out legal exceptions to the proportionality test if the fees in question are authorized by a legislative body, as opposed to simply a permitting board or other administrative office. El Dorado County argued that this arrangement protected the fees from challenges under the Takings Clause of the Fifth Amendment. The California state court sided with the county and Sheetz appealed to the Supreme Court.

NAHB and CBIA wrote in their amicus briefs that the Supreme Court has an opportunity to “make clear that there is no such ‘loophole’ in the prohibition against governmental demands for unconstitutional conditions.” An improper taking is improper even if approved by legislation.

All nine Supreme Court Justices agreed, with Justice Amy Coney Barrett writing the unanimous opinion. Justice Barrett wrote, “there is no basis for affording property rights less protection in the hands of legislators than administrators. The Takings Clause applies equally to both — which means that it prohibits legislatures and agencies alike from imposing unconstitutional conditions on land-use permits.”

The narrow ruling kicked the case back down to lower courts to decide if Sheetz’s $23,420 fee was a taking, and thus, improper. It did not resolve larger questions about the way permitting and impact fees are calculated and structured. It did, however, provide an avenue for home owners, builders and developers to invoke the Takings Clause in challenges to impact fees in states where the fees are authorized by legislation.

The case may have a significant long-term impact on permitting fees for home development. NAHB will closely monitor fallout from the case and communicate directly with members.