Government officials have been placed on notice by the U.S. Supreme Court (SCOTUS) concerning undue impact fees.
Before this most recent court ruling, if you wanted to build your family home, there was the possibility that impact mitigation fees could require you to pay thousands of dollars to local governments for the mere privilege of acquiring the proper permit. This fee was a preset figure by the legislature who believed they were exempt from proving the fees they were charging were reasonable. However, SCOTUS held in a unanimous decision on April 12 that conditions placed on building permits are subject to heightened scrutiny and that fees must match the public’s goals.
In January of 2024, the Court heard oral arguments in Sheetz v. El Dorado County. Despite this case originating in California, the legal impacts will be felt nationwide. The individual who brought this case, George Sheetz, argued that these impact mitigation fees violate the long-standing unconstitutional conditions doctrine, which, in sum, states the government cannot place a condition of receiving a public benefit on releasing a constitutional right.
The Fifth Amendment to the U.S. Constitution provides more than the commonly known right to remain silent—it is also where a limit on the government’s ability to take property without justly compensating the property owner can be found. This case arose because Mr. Sheetz wanted to use his land located in El Dorado County to its highest utility by building a home where he and his family could reside.
Sheetz sought a residential building permit from the defendant county, and while they obliged by providing a permit, it was on the condition he pay $23,420—a fee set by the state legislature to compensate for the alleged burdens the new construction would have on the county’s traffic levels.
Mr. Sheetz paid the fee yet sought to actively fight what he argues is an unconstitutional taking. His position was clearly stated in his writ of mandate: "Mr. Sheetz ‘construction of one manufactured house on his property did not cause public impacts that justify imposition of the $23,420 fee demanded by and paid to the County.”
SCOTUS precedent, Nollan and Dollan, established the “essential nexus” and “rough proportionality” requirements between a permit fee imposed by a government body and the impact on the public. This means government bodies charging these types of fees should be required to prove the connection between the costs the individual homebuilder is incurring and what exactly the public is being compensated for.
After all, how does a county know a home will impact the public to an exact dollar amount? Especially, when counties are not addressing individual building plans and are setting fee schedules based on the homebuilder’s proposed square footage and location.
These “impact fees” that Sheetz encountered are intended to mitigate the negative consequences of building in highly populated and wealthy areas. Proponents of the fees believe it to be a vital regulation tool to fund infrastructure such as schools, parks, libraries, etc. However, the impact fees, sometimes known as “exaction fees,” quickly became a contested subject under the Fifth Amendment because builders, architects, and developers believed this to be an unduly burdensome barrier to performing work.
The California Building Industry Assoc. and the National Assoc. of Home Builders filed a brief in support of Sheetz because “The decision would approve the imposition of 'the full cost' of county-wide improvements solely on applicants for new building permits…”
California is not the only place this practice has drawn controversy. Wyoming’s impact fee schedules have also received backlash. Jackson and Teton counties have recently been scrutinized for their cost of building new homes and businesses. For instance, to build a 4,000-square-foot home in either of these quickly populating counties, the homebuilders incur $31,000 in fees demanded by the county. Due to Sheetz’s success, these fees cannot be imposed unless the government can prove that this individual Wyoming resident’s building plan has a direct $31,000 impact on the public.
SCOTUS provided a narrow opinion. Justice Barrett, the author of the opinion said, “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.”
This holding leaves other arguments Sheetz raised, unanswered, such as the validity of the fees and whether the counties duties to impose fees alter if the fee is charged to a class of development or an individual parcel of property. The concurring opinions in this case by Justices Sotomayor, Gorsuch, and Kavanaugh highlight the questions left unanswered. The remaining issues on appeal were sent back to the state court to decide.
While questions remain, Sheetz secured a win for property owners and builders across the country—counties are now subject to the two-part fairness test for the fees that they are imposing in the name of the public good.
The impact for all from this ruling is the protection of important constitutional rights.