Land development often comes with certain externalities. For instance, a new housing development may increase traffic on the roads surrounding the development, increase the number of children served by the area schools, or increase the demand on public utilities in the area. To deal with that, the locality in which new development is located may be required to incur costs, like the costs of expanding the roads in the area to accommodate the new traffic or building new schools to educate the increased population. Some localities impose permit fees or other conditions on developers to pay for these external costs arising from their developments.
The Supreme Court has previously ruled that fees and conditions imposed administratively by locality staff on permits for new developments can constitute a taking if the fees and conditions are unrelated to the locality’s land-use interests. Thus, to survive scrutiny, permit conditions must have an essential nexus to the government’s land-use interest and be roughly proportional to the development’s impact on that interest. A city’s staff can therefore condition a permit on the developer dedicating land to accommodate the widening of a road to address increased traffic congestion caused by the development. The city could not condition a permit on the developer allowing city staff to use the community pool in the new development for free or on the developer dedicating land across town to address traffic congestion not caused by the development.
While the rules for individualized permit conditions imposed administratively are clearly established, the rules for conditions imposed on a larger number of owners through legislation has been murkier. In Sheetz v. County of El Dorado, 601 U.S. 267 (2024), the Supreme Court provided a clear answer that the same rules apply regardless of the method by which conditions are imposed.
The locality in the case, the County of El Dorado, is a rural area in California on the Nevada border. The county has faced significant population growth in recent years. To address the demand for public services caused by that growth, the county’s board of supervisors legislatively enacted a “General Plan” that required developers to pay a traffic impact fee before a building permit would be issued. The fees were used to improve the county’s road system. The amount of the fee was set using a fee schedule which takes into account various factors concerning the property and proposed project, but the amount of the fee was not tailored to the costs of road projects necessary to accommodate traffic attributable to the project.
George Sheetz was a landowner in the county who planned on building a house on his land. He applied for a building permit, but the county demanded that he pay a traffic impact fee of $23,420, as determined by the fee schedule in the General Plan. Mr. Sheetz paid the fee under protest, then brought suit in California state courts claiming that the fee was improper under Supreme Court precedent applicable to administratively imposed fees. The California state courts held that the precedents applied only to permit conditions imposed administratively in individual cases and not to conditions, like the fee at issue, imposed on a broad class of owners through legislation. The Supreme Court granted review to resolve the question of whether the Takings Clause recognizes a distinction between permit conditions imposed administratively and those imposed legislatively. The Court held that no such distinction existed.
The Court noted that nothing in the text of the Takings Clause, historical practice, or the Court’s precedent supports drawing such a distinction. The text itself does not limit the Taking’s Clause’s application to any particular branch of the government. History demonstrates that the traditional way governments exercised their eminent domain power was via statutory enactments, which indicates that no exemption for legislative takings would be recognized. Finally, the Court’s precedents are rife with examples of the same tests applying to legislative enactments and takings that allegedly occurred through other means.
Ultimately, the county abandoned the argument that the conditions at issue were not subject to review under the standard applicable to administrative conditions. The Court therefore vacated the judgment of the state courts and remanded for further proceedings to determine whether the fees imposed were valid under the test outlined above.
Justice Sotomayor filed a concurring opinion in which Justice Jackson joined. Justice Sotomayor noted that, before the nexus and rough proportionality test can be applied, the antecedent question of whether the condition would have been a compensable taking if imposed outside the permitting process must be answered in the affirmative. Justice Sotomayor noted that the Court did not resolve the antecedent question of whether the traffic impact fee would have been a compensable taking if imposed outside the permitting process in this case. With that understanding, Justice Sotomayor concurred in the Court’s opinion.
Practically speaking, the case means that the lawyers defending these kinds of legislatively imposed conditions will no longer have an easy defense and will instead be required to engage in the more fact-intensive inquiry under the nexus and rough proportionality tests.
Matt Hull is a Pender & Coward attorney focusing his practice on eminent domain/right of way, local government, and waterfront law matters.
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