Sheetz v. County of El Dorado: A Victory Against Overbearing Impact Fees

By Chris Rizza, Partner

In case you missed it: Harvest LLP previously published a brief article and summary of the facts of Sheetz v. County of El Dorado that can be found here.

On April 12, 2024, the U.S. Supreme Court handed down a landmark 9-0 decision in Sheetz v. County of El Dorado.? The justices unanimously ruled that certain development impact fees may violate the Fifth Amendment's prohibition on unconstitutional takings of private property if the fees do not have an "essential nexus" to the government's land use interest and "rough proportionality" to the development's impact on that interest. The Court determined that impact fees are not exempt from these requirements merely because they are enacted through legislation – legislation that governmental entities in California and other states have enacted as a way of attempting to skirt the "essential nexus" and "rough proportionality" test.? They further determined that withholding or conditioning a building permit for unrelated reasons amounts to "an out-and-out plan of extortion."???

The case highlights the ongoing tension that can occur between property owners and governmental agencies when it comes to developing real property. While property owners have certain rights to use their land as they see fit, governments also have the authority to impose regulations in the interest of public welfare and community planning.? Fortunately, the Fifth Amendment was drafted, in part, to protect the rights of property owners from the potential abuse of power by the overreaching arms of governmental agencies.?

In Sheetz v. County of El Dorado, Justice Amy Coney Barrett outlined a two-part test to address potential abuse of the permitting process:?

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.?

Justice Amy Coney Barrett goes on to say that "there is no basis for affording property rights less protection in the hands of legislators than administrators. The Takings Clause applies equally to both — which means that it prohibits legislatures and agencies alike from imposing unconstitutional conditions on land-use permits."?

The Supreme Court's ruling will likely have significant implications for both property owners and developers seeking to develop property in areas subject to extensive zoning restrictions.? Developing real property – especially in states like California – is already a difficult, expensive, risky, and time-consuming undertaking, and overbearing impact fees can have a crippling effect on the feasibility of a development.? Left unchecked, impact fees can stifle affordable developments or even kill deals entirely.? Additionally, impact fees that ultimately make their way into the bottom-line of finished developments likely will get passed through to end users in the form of higher sales prices or rentals that make the finished product simply unaffordable.??

The ruling handed down in Sheetz v. County of El Dorado helps to level the playing field for property owners and developers with regard to impact fees. Property owners and developers alike are set to benefit from renewed optimism and hope that jurisdictions will act more reasonably in their land use permitting process and assessment of impact fees. Counties and cities throughout the country will have to reexamine how they calculate impact fees and justify those assessed on new projects.? This case provides a stern warning to government agencies that have previously circumvented constitutional limitations by imposing fees as a general matter through legislation. Going forward, impact fees will need to have a more direct connection to the actual impact created by the proposed development and be proportionally measured – or they may ultimately be held to be unconstitutional should the property owner or developer wish to throw the challenge flag.??

The case will now go back to the California courts.? Stay tuned for further developments and analysis.