CASE PREVIEW

George Sheetz in front of the house he built in Placerville, Calif. (Pacific Legal Foundation)

When George Sheetz applied in 2016 to build a single-family home on property that he owned, the California county where he lived required him to pay a “traffic impact mitigation” fee, totaling more than $23,000, before it would issue the permit. The county issued the fee to cover costs that the new construction was likely to cause for the community. Sheetz paid the fee and received the permit, but he also went to court to challenge the constitutionality of the fee. Two state courts upheld the fee, but on Tuesday the Supreme Court will hear oral argument in Sheetz’s case.

This is the latest case in an ongoing battle over property rights. But interest groups on both sides also say that the court’s decision could affect the availability of affordable housing in California and other states.

The case began when Sheetz applied for a permit to construct a 1,854-square-foot manufactured home on a lot that he owns in the city of Placerville, where he and his wife intended to raise their grandson. The County of El Dorado told him that to receive the permit, he would need to pay a $23,420 traffic impact mitigation fee — $2,260 of which went to improvements for Highway 50, which runs through the county, and the rest to improve local roads. Sheetz paid the fee and received the permit one month later. He then went to state court to challenge the constitutionality of the fee.

In Nollan v. California Coastal Commission and Dolan v. City of Tigard, the Supreme Court held that if a government wants to require someone to give up property in exchange for a land-use permit, it must show that such a condition is closely related and roughly proportional to the effects of the proposed land use. Sheetz argued that the Nollan/Dolan test applied to his case as well.

The trial court rejected his argument, and the California Court of Appeals affirmed that decision. Pointing to decisions by the California Supreme Court holding that the Nollan/Dolan requirements only apply to development fees imposed “on an individual and discretionary basis,” the state court explained that the Nollan/Dolan test does not apply to fees – like the traffic impact mitigation fee – authorized by legislation.

Sheetz came to the Supreme Court last year, asking the justices to weigh in.

In his brief on the merits, Sheetz characterizes the traffic impact mitigation fee as an effort by the county to shift the burden of road improvements from taxpayers to the smaller group of developers and property owners who want to build on their land. But the county does not try to determine what effect a particular project will have on traffic, he observes, and it treats all single-family homes as having the same effect – no matter how small they are or where they are located.

There is no reason, Sheetz insists, why the Nollan/Dolan test shouldn’t apply to a case like this one, involving fees for land use. To the contrary, Sheetz notes, those cases also involved permit conditions required by generally applicable laws. Nollan was a challenge to a condition imposed by a California agency, relying on a state law requiring developers seeking to build on the coast to provide public access to the beach. And in Dolan, a property owner seeking to expand her hardware store challenged permit conditions imposed pursuant to a municipal code.

Nor does anything in the Constitution itself carve out an exception for fees extracted pursuant to a law passed by the legislature. Instead, Sheetz emphasized, the takings clause focuses on the act of taking private property for public use without providing proper compensation, regardless of which branch of government is responsible for the taking.

The county pushes back against Sheetz’s characterization of the fee as an end-run around raising taxes. Instead, the county explains, the fee “addresses the burden on roads and highways from increased traffic, while other local governments use similar fees to provide parks, recreation facilities, schools, fire and police departments, and other vital services that growing communities need to thrive.”

The Nollan/Dolan rule, the county contends, bars governments from making an individual land-use permit contingent on the dedication of an interest in the property or its “functional equivalent” without a close connection and rough proportionality. It does not apply, the county argues, to development permit conditions implemented by legislation when, as in this case, the legislation simply sets fees that apply generally to categories of similar properties and does not seek an interest in the property itself.

To the contrary, the county insists, the Supreme Court’s decisions have made clear that governments have broad power to “address the impacts of new development, including by requiring that” property owners bear the costs of their own conduct.

And in Nollan and Dolan, the county points out, there was “no doubt” that the government could not impose the condition it was seeking in exchange for the permit directly. But in Sheetz’s case, the county says, he is simply required to pay a fee, rather than turn over an interest in property, which is not a taking at all.

The county warns that the rule that Sheetz seeks, requiring case-by-case scrutiny of all development fees, would impose a significant administrative burden for state and local governments. Such an “onerous requirement,” the county said, “would cause the development permitting process to grind to a half and leave governments little choice but to abandon impact fees altogether.” And it is particularly unnecessary, the county added, when California law already protects developers and property owners against overreach.

Sheetz retorts that requiring fees extracted pursuant to legislation to be subject to the Nollan/Dolan test would “not frustrate legitimate land-use planning, regulation, or financing of public infrastructure.” At least seven other states have already adopted the rule that he advocates, Sheetz notes, “and there is no evidence that the rule has prevented state and local agencies in those jurisdictions from securing true mitigation for the adverse public impacts caused by the use and development of property.”

Interest groups on both sides of the case tell the justices that their ruling will have implications well beyond Sheetz’s case – and, in particular, for the affordable housing crisis in California. Both a building industry trade association and affordable housing groups supporting Sheetz contend that fees like the one levied on Sheetz are a major factor in the high cost of housing in California, which in turn exacerbates the impact of systemic racism and pushes people to live further inland in areas more susceptible to wildfires. “[R]egulatory costs (mainly consisting of fees and exactions) were recently found to comprise a staggering 40.6% of the total costs of multi-family housing development nationally in 2022,” the California Building Industry Association writes.

On the other hand, groups representing local governments in California counter that applying the Nollan/Dolan rule to fees like the one levied on Sheetz would overlook the “massive” contribution that governments make to provide infrastructure for developers’ projects. And the Lawyers Committee for Civil Rights adds that similar fees, such as affordable housing impact fees, “are powerful tools for addressing the affordable housing crisis and the toll that it exacts on Black households and other people of color.”

This article was originally published at Howe on the Court.