News & Resources

U.S. Supreme Court Holds “Nollan/Dolan” Constitutional Test Applies to Legislatively Imposed Impact Fees

Apr 18, 2024 | Legal Developments and News

During DWK’s “Navigating Developer Fees in 2024” Webinar held in March, we highlighted a 2022 California Court of Appeal decision involving impact fees that was, at that time, under review by the United States Supreme Court. (Sheetz v. County of El Dorado, 84 Cal. App. 5th 394.)  The Sheetz case involves the assessment of a traffic impact fee by the County of El Dorado (“County”) as a condition of issuing a building permit pursuant to the Mitigation Fee Act (Gov. Code, § 66000, et seq).  The California Court of Appeal concluded that the “Nollan/Dolan” test, which requires a public entity to show that a fee bears an “essential nexus” and a “rough proportionality” to the expected impacts of development, did not apply to fees imposed on a broad class of property owners through legislative action.

However, on April 12, 2024, the U.S. Supreme Court overturned the California Court of Appeal ruling and unanimously held that the Nollan/Dolan test applies, even if the fee is imposed pursuant to legislation. (Sheetz v. County of El Dorado (2024) 601 U.S. ___ (No. 22-1074, 2024 Term).)  Leaving the key question unresolved as to whether the fee imposed satisfied the Nollan/Dolan test, the Supreme Court returned the matter back to the California Court of Appeal for further proceedings consistent with its ruling, stating “[w]e do not address …  whether a permit condition assessed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.”  (Sheetz, slip op. at 10-11.)

Because Sheetz concerns a fee imposed under the Mitigation Fee Act, we will continue to monitor this case as it may have future implications for the levy of school impact fees imposed on categories of development.

Background

George Sheetz, a resident of the County, sought a building permit to construct a small manufactured home on his property.  As a condition of receiving a building permit, the County assessed a traffic impact fee of $23,420.  Sheetz paid under protest and ultimately sued the County, claiming, among other things, that the fee constituted an unlawful exaction of money in violation of the Takings Clause of the U.S. Constitution.

The traffic impact fee was part of the County’s General Plan requirements related to funding of road improvements by developers and was based on a rate schedule that took into account the type of project (commercial, residential, and so on), but was not based on an individualized determination that Mr. Sheetz’s specific project contributed to traffic congestion. Sheetz argued that, pursuant to a legal test set forth in two prior U.S. Supreme Court cases – Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374 (the “Nollan/Dolan test”), the County was required to make an individualized determination that the fee amount was necessary to offset traffic congestion attributable to his specific development project. The Nollan/Dolan test has two parts: (1) permit conditions must have an “essential nexus” to the government’s land-use interest, and (2) permit conditions must have “rough proportionality” to the development’s impact on the land-use interest. Sheetz argued that the County’s predetermined fee schedule set forth in the General Plan failed to properly apply this constitutional test.

The trial court and California Court of Appeal rejected Sheetz’s claim. In its underlying opinion, the Court of Appeal asserted that the Nollan/Dolan test applied only to administrative permit conditions imposed on an individual and discretionary basis while legislative actions, such as the County’s adoption of the traffic fee schedule that was imposed on a broad class of property owners, need not satisfy that test. Because state courts are split on whether the Takings Clause recognizes a distinction between legislative and administrative conditions on land use permits, the U.S. Supreme Court granted review.

Decision

The U.S. Supreme Court vacated the decision of the California Court of Appeal, holding that the Court of Appeal erred when it concluded that the Nollan/Dolan test did not apply to legislatively prescribed monetary fees. The Supreme Court reasoned that the Constitution does not limit the Takings Clause to a particular branch of government and does not otherwise distinguish between legislation and other official acts, whether physical takings, regulatory takings, and the unconstitutional conditions doctrine in which the Nollan/Dolan test is rooted.

The Court held that there is no reason to distinguish between permit conditions imposed legislatively or administratively, explaining that the two-part Nollan/Dolan test applies to legislatively imposed permit conditions, as follows:

“First, permit conditions must have an ‘essential nexus’ to the government’s land-use interest. The nexus requirement ensures that the government is acting to further its stated purpose, not leveraging its permitting monopoly to exact private property without paying for it. Second, permit conditions must have ‘rough proportionality’ to the development’s impact on the land-use interest. A permit condition that requires a landowner to give up more than is necessary to mitigate harms resulting from new development has the same potential for abuse as a condition that is unrelated to that purpose.” (Sheetz, slip op. at 6.)

The U.S. Supreme Court ultimately did not address the parties’ related 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 project. The Supreme Court noted that the California Court of Appeal did not consider this point because it proceeded from the incorrect position that legislative permit conditions are categorically exempt from the requirements of Nollan and Dolan. Justice Kavanaugh, joined by Justices Kagan and Jackson in a concurring opinion, took the position that the decision “does not address or prohibit the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property” and that “as is apparent from the fact that today’s decision expressly leaves the question open, no prior decision of this Court has addressed or prohibited that longstanding government practice.” The Court remanded to the California Court of Appeal for further proceedings consistent with the Court’s opinion.

The Take-Away

School districts assess school impact fees on residential and commercial development if such fees are justified in a fee study or school facility needs analysis, among the fulfillment of other statutory requirements set forth in Education Code section 17620, et seq. and Government Code section 66000, et seq. The governing board of a school district adopts fee rates for residential and commercial projects which developers must pay before the local planning jurisdiction may issue a building permit for the project. Like the traffic impact fee that is the subject of Sheetz, when applying the applicable residential or commercial fee rate to a particular project, a school district is not required by the developer fee statutes to analyze the specific impacts on school facilities attributable to that particular development project; rather, the school district assesses a fee on a specific category of the project (i.e., residential or commercial/industrial).

We do not believe that the Sheetz decision has any immediate impact on a school district’s ability to impose school impact fees on residential and commercial development, as long as it does so using a current, well-reasoned and documented fee justification study (for Level 1 fees) and/or a School Facility Needs Analysis (“SFNA”) (for Level 2/3 fees) that closely track the fee justification requirements of the Mitigation Fee Act and establish the required nexus. However, because Sheetz was sent back to the California Court of Appeal for further proceedings consistent with the U.S. Supreme Court’s decision, we think this case is still one to watch. At this time, the key take-away is that this case reiterates the importance of having a current and thorough nexus study justifying the imposition of school impact fees.

DWK can assist your district with any questions you may have in light of this recent court decision and/or in adopting and implementing developer fees. If you have any concerns about your current Fee Justification Study or SFNA, or any other questions regarding developer fees, please do not hesitate to contact a DWK attorney in our BPC practice group or refer to DWK’s recently published 2024 Developer Fee Digest.

RELATED POSTS

The Long-Anticipated Title IX Changes are Here

On April 19, 2024, the U.S. Department of Education released final changes to Title IX of the Education Amendments of 1972 (the law that protects students, faculty, and staff from...

2023 Legislative and Case Law Highlights – K-12 School Districts

2023 Legislative and Case Law Highlights – K-12 School Districts

Countdown to the Bond Part 2 – January 2024

Are You Considering a March or November 2024 Bond Election? Now is the Time to Begin Preparing Your Ballot Measure! Countdown to the Bond is a multi-part series of legal...