Update re: Local Governments Urge U.S. Supreme Court Not To Ignore “Givings” When Considering Unconstitutional “Takings”
May 13, 2024Supreme Court Ruling in Sheets v. County of El Dorado
On April 12, 2024, the U.S. Supreme Court issued its decision in Sheetz v. County of El Dorado. As explained further in SMW’s article previewing the case (see below), the dispute involved whether the heightened takings analysis set forth in Nollan v. California Coastal Commission and Dolan v. City of Tigard applies to legislatively imposed development impact fees. Writing for a unanimous Court, Justice Barrett explained that the Nollan/Dolan standard does apply to such fees. Disagreeing with the California Court of Appeal, the Court held that the Constitution’s “Takings Clause does not distinguish between legislative and administrative permit conditions,” and thus there is no basis for limiting Nollan and Dolan “only to permit conditions imposed on an ad hoc basis by administrators.” The Court remanded the case to the California state courts for further proceedings.
But the Sheetz decision is perhaps most notable for the issues it did not resolve. As Justice Kavanaugh highlighted in a brief concurring opinion joined by Justices Kagan and Jackson, the Court expressly did not address whether “a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.” Accordingly, the decision leaves undisturbed local governments’ widespread practice of using “reasonable formulas or schedules” to impose impacts fees on classes of new developement. Additionally, as Justice Sotomayor explained in a concurring opinion joined by Justice Jackson, the Court also did not reach the “threshold question” of whether the imposition of the development impact fee even amounts to a “taking” of property in the first place. Because the Nollan/Dolan framework applies only to government actions that would constitute a per se taking if imposed outside of the permitting context, the Sheetz decision may be of little lasting import if the Court ultimately holds that development impact fees do not effect a taking. The California Court of Appeal will be tasked with reconciling these disparate views in adopting a framework for judicial review of legislative development impact fees.
Original Article, January 2024:
On January 9, the U.S. Supreme Court heard oral argument in Sheetz v. County of El Dorado, a case with major implications for local governments’ ability to recoup the costs of providing necessary infrastructure to private development projects. The case arose when Petitioner George Sheetz applied to the County for a permit to build a new private residence. The County—like other local governments throughout the country—imposes a “traffic impact mitigation fee” on new development projects. The fee seeks to recover from developers only the portion of the road improvement costs that are necessary to offset the impacts reasonably attributable to the new development. Accordingly, the fee for each project is calculated based on a legislatively enacted schedule, which takes into account the size and type of the project, as well as an estimate of the road improvements needed to serve all future growth in the County.
The County conditioned its issuance of Sheetz’s building permit on his payment of the impact fee. Sheetz then challenged the fee in California state court on various state and federal law grounds, but the state courts sided with the County.
Before the U.S. Supreme Court, Sheetz now argues that the County’s fee program runs afoul of the Court’s earlier decisions in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). Nollan and Dolan provide that when a local government conditions its approval of a new development project on the developer’s ad hoc dedication of a property interest, there must be an “essential nexus” and “rough proportionality” between the dedication sought and the project’s impacts. Otherwise, the local government’s demand violates the “unconstitutional-conditions” doctrine and the Fifth Amendment’s bar on uncompensated “takings.” However, the U.S. Supreme Court has never held that the heightened level of judicial scrutiny from Nollan and Dolan applies to generally applicable, legislatively enacted impact fees, such as the County’s traffic impact mitigation fee.
An amicus brief filed by Shute, Mihaly & Weinberger on behalf of the California State Association of Counties, League of California Cities, and California Special Districts Association offers a new perspective on why the Supreme Court should reject Sheetz’s invitation to extend Nollan and Dolan to legislative impact fees. In short, local governments already give to private developers all the existing infrastructure and services that their projects need in the form of roads, sewers, schools, water treatment, emergency response, public transit, parks, and myriad other amenities. It is well documented that the cost to local governments of providing this infrastructure—and the added value that private developers reap from it—far outpaces the amounts local governments ever recover from developers themselves through taxes and impact fees.
The amicus brief cited numerous examples. In San Francisco, development of the multi-billion-dollar, taxpayer-funded Transbay Transit Center Project is projected to increase the value of private properties within a 0.75-mile radius of the Project by an estimated $3.9 billion—a 5% premium on those properties’ baseline values. And, in the City of Los Angeles in Fiscal Year 2013-2014, the development impact fees that the City collected from developers ultimately offset only 1.7% of the City’s capital improvement expenditures and less than 0.1% of the City’s overall spending.
The end result, as explained in the amicus brief, is that private developers benefit significantly and disproportionately from “givings” that are funded by the average taxpayer. These uncompensated givings implicate the exact same fairness and justice concerns that have been at the core of the Supreme Court’s takings jurisprudence for more than six decades. Just as the Takings Clause does not allow a small number of individuals to be saddled with economic burdens that should be shared among the public as a whole, the brief argued, the Constitution cannot condone private developers continuing to leverage infrastructure that is funded by the general public for their exclusive benefit.
Extending Nollan and Dolan’s “essential nexus” and “rough proportionality” tests to legislative impact fees would only aggravate this givings problem by making it even harder for local governments to charge private developers for the infrastructure they capitalize upon.
The local government associations’ amicus brief offered the Supreme Court a different doctrinal path to analyzing legislative impact fees. Instead of expanding the Nollan and Dolan doctrine, the brief argued, the Court should revive its earlier focus on the principle of “average reciprocity of advantage.” As summarized in the California Supreme Court’s seminal decision in San Remo Hotel v. City & County of San Francisco, 27 Cal.4th 643 (2002), this principle rejects the notion that there must be “a precise balance of burdens and benefits accruing to property from a single law, or [] an exact equality of burdens among all property owners.” Instead, it recognizes that “all . . . participants in a democratic society” enjoy an “interlocking system of benefits, economic and noneconomic,” with “each also being called upon from time to time to sacrifice some advantage, economic or noneconomic, for the common good.” Unlike heightened means-ends scrutiny under Nollan and Dolan, this principle of average reciprocity of advantage affords appropriate deference to the economic policymaking of popularly elected legislatures.
A decision in Sheetz is expected in the summer of 2024. In the meantime, local governments must brace for the possibility that funding essential infrastructure may soon become even more difficult.
For more information about how your local government can navigate the adoption and administration of development impact fees, or to discuss the local government associations’ amicus brief in Sheetz, contact Andrew Schwartz, Matt Zinn, and Ryan Gallagher, the authors of the brief.