The Supreme Court should curb the power of governments to use the permitting process to force property owners to pay large development fees, the court heard on Jan. 9.
In the case, homeowner George Sheetz is suing El Dorado County, California, claiming the county violated his rights under the Fifth Amendment’s takings clause and the 14th Amendment.
The Fifth Amendment states that “private property [shall not] be taken for public use, without just compensation.” The 14th Amendment states that no state shall “deprive any person of life, liberty, or property, without due process of law.”
In 2016, Mr. Sheetz purchased a vacant lot, intending to build a small, manufactured home in which he and his wife would live in retirement. But when he sought a building permit from the county, he was told he would have to pay a so-called traffic impact fee of $23,420.
The county informed Mr. Sheetz that he was required to pay the fee because of legislation that aimed to shift the cost of addressing existing and future road deficiencies onto new development. This means, his lawyers argue, that the fee was imposed without any evidence tying the construction project to any specific public costs or impacts.
The fee financing the unrelated road improvements bore neither an “essential nexus” nor “rough proportionality” to whatever local impact his construction project would result in, according to Mr. Sheetz’s petition.
He said the fee was an unconstitutional “exaction” according to the Supreme Court precedents of Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994). An exaction is a condition for development imposed on a developer to offset the costs of the development to a local government. An exaction is similar to an impact fee, which is a direct payment made to a municipality in place of conditions being imposed on the development.
Mr. Sheetz paid the fee under protest and sued for a refund, arguing the fee was an unconstitutional permit condition under the Supreme Court’s 2013 ruling in Koontz v. St. Johns River Water Management District.
According to Pacific Legal Foundation (PLF), which is part of Mr. Sheetz’s legal team, “the government cannot weaponize the permitting process to extort more land or money from property owners than is needed to pay for the identified public impact of the proposed building project.”
But a state court ruled against him, finding the required fee was authorized by legislation. The California Court of Appeal and the California Supreme Court also ruled against him.
“Holding building permits hostage in exchange for exorbitant fees is extortion, plain and simple, whether it’s done at the permit desk or city hall,” PLF senior attorney Brian Hodges previously said.
“Local governments cannot use the cover of legislation to skirt the Fifth Amendment’s prohibition against taking private property without just compensation.”
Paul Beard, an attorney for Mr. Sheetz, said at the Jan. 9 oral argument that El Dorado County “refused to give George Sheetz a permit to build a home unless he paid a substantial fee to finance public road improvements.”
“That’s the same improper leveraging that led to this court’s rule in Nollan, Dolan, and Koontz that all permit exactions should be subject to heightened scrutiny.
The court needs “to ensure that the government is not committing a taking in the guise of the police power to mitigate for land use impacts.”
Not overturning the lower court’s decision “would just invite the government to monetize across the country all of their permit exactions and to preset legislative fees in order to escape heightened review.”
“All permit exactions, whether monetary or otherwise, generally applicable or ad hoc, should be subject to Nollan and Dolan to ensure the government doesn’t take more than it is entitled to under its police power to mitigate for land use impacts,” Mr. Beard said.
County attorney Aileen McGrath told the justices that the county is one of many across the nation that “charges a fee to developers to address the impacts of new development using a predetermined schedule.”
The fee at issue here “does not pay for road improvements generally. It pays for only those improvements necessary to alleviate increased traffic from new development.”
For centuries the Supreme Court has held that “governments can charge fees to property owners, such as special assessments to fund public improvements and user fees to fund government services.”
These fees “are not takings” under the Fifth Amendment, she said.
To go against the court’s prior rulings “would have dire consequences for land use planning” and “would disrupt, if not destroy, [local governments’] ability to fund capital-intensive infrastructure necessary to serve new development, bringing such development to a grinding halt.”
The county’s impact fee is not subject to Nollan and Dolan because it was “imposed by the legislature subject to an array of state law requirements and applies to all similar new development in the county based on the legislature’s finding that new development creates the need for and will benefit from the road improvements the fee will fund,” Ms. McGrath said.
Justice Samuel Alito told Ms. McGrath that she had misinterpreted the Nollan and Dolan precedents.
Justice Neil Gorsuch implied the Supreme Court could rule in favor of Mr. Sheetz but let lower courts deal with the more complex issues in the case.
“What would be wrong with allowing both sides to go back and make their arguments, recognizing that Nollan and Dolan does apply to some legislative enactments, and then … you can go back to the courts below and talk about whether this is a tax, whether it’s a user fee, or whether it isn’t, but that there’s just no categorical exemption from legislative enactments? What would be wrong with that holding today?”
Ms. McGrath replied, saying, “Our position is that the most straightforward way for the court to resolve this case is to say that the fee that the county charged here is indistinguishable from property taxes, special assessments, and user fees as this court has always defined them.”
The Supreme Court is expected to issue a ruling in the case by June.
