In April 2024, the U.S. Supreme Court issued a decision in a case that involved a challenge to a local traffic impact fee.  To address traffic congestion, El Dorado County, California, requires developers to pay a traffic impact fee as a condition of receiving a building permit. The County uses proceeds from the fees to fund improvements to its road system.  The fee amount is determined by a rate schedule, which takes into account the type of development (commercial, residential, etc.) and its location within the County, but is not based on the impacts “specifically attributable to the particular (development) project.”  The plaintiff in the case, Sheetz, is a property owner who was building a house on the property and challenged the fee on the grounds that it violated the Fifth Amendment to the United States Constitution, which generally prohibits taking private property for a public use without paying for it. 

Sheetz relied on a number of Supreme Court cases, including Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994) to argue that there was not a “nexus” between the fee and his project, and that the fee was not “roughly proportionate” to the traffic impacts of his project.  In response, the County argued that because the fee was legislatively adopted and applied equally to all property in the county, it was not subject to the rules in Nollan and Dolan.  The California courts agreed with the county and Sheetz appealed the decision to the U.S. Supreme Court.  The Supreme Court agreed with Sheetz and reversed the California court’s decision, concluding that there is nothing about the fact that a fee is legislatively adopted that insulates it from a challenge under the Fifth Amendment.  According to the Supreme Court, the lower court “proceeded from the erroneous premise that legislative permit conditions are categorically exempt from the requirements of Nollan and Dolan.”  Accordingly, the Supreme Court remanded the case back to California to review the parties’ arguments under Nollan and Dolan.

Significantly, the Supreme Court did not decide that legislatively enacted impact fees are unconstitutional.  According to the court: “We do not address the parties’ other disputes over the validity of the traffic impact fee, including 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.”  The Supreme Court thus expressly declined to address whether an impact fee that is imposed generally on a class of properties (e.g., single-family dwellings or commercial development) violates Nollan and Dolan, and indicated that the same degree of analysis may not be required as is the case for conditions of approval that apply only to a single development.

As a result, the impact of the case at this point is fairly minimal.  Undoubtedly, some will claim that the decision means impact fees such as system development charges (SDCs) are unconstitutional, but that is simply not the case.  The Supreme Court expressly declined to address whether these fees are unconstitutional, or to even set a standard they need to meet to pass constitutional muster.  Instead, the Court sent the case back to the lower courts to answer that question.  It is also important to note that the constitutional requirements of Nollan and Dolan do not apply in circumstances that involve a fee in return for a service, such as building permit and inspection fees, or utility fees that are not charged as a pre-condition to development.  Those types of fees and charges likely remain unaffected by the decision in Sheetz.

Following the decision in Sheetz, cities and counties that charge SDCs or impact fees such as transportation impact fees should pay close attention to the methodology that supports the fee to ensure it complies with Nollan and Dolan - i.e., that there is a “nexus” between the fee and the types of projects to which the fee applies, and that the fee is “roughly proportionate” to the impacts the types of projects in question have on the applicable systems benefitted by the fee.

Please do not hesitate to contact the attorneys in our office if you have any questions about the application of the Sheetz decision to fees imposed by your jurisdiction.