When George Sheetz planned to build an 1800-square-foot manufactured home on his California property, he could hardly have thought his routine permit request would end up at the U.S. Supreme Court. But when the County of El Dorado required Mr. Sheetz to pay $23,420 to mitigate for purported impacts of his modest new home on state and local roads, he sued. California courts rejected his claim that the permit fee, or "exaction," was an unconstitutional taking. The Supreme Court recently granted Mr. Sheetz's cert petition and may use his appeal to resolve a split of authority concerning legislative development conditions and the Fifth Amendment.
The fundamental principle to be heard by the Court is whether development fees and other conditions imposed by a legislative body should be exempt from the prohibition against government imposition of unconstitutional conditions. For years, the Court's rulings in Nollan v. Cal. Coastal Commission and Dolan v. City of Tigard established the framework for constitutional challenges to development conditions. Such conditions must have a "nexus" and "rough proportionality" between the government's demand and the perceived harm the development causes. However, since those rulings many courts have exempted legislatively established fees and exactions from application of the Nollan/Dolan doctrine.
The flimsy rationale for this judicially imposed exemption appears to be that generally applicable legislation is subject to the ordinary restraints of the democratic political process. Using more common terms, if a legislature imposes egregious development fees, voters could "kick the bums out!" In reality, as our national land use and zoning practice bears out, local officials impose ever-increasing fees on developers to address traffic and other infrastructure concerns, instead of passing general tax increases on all citizens. Developers make an easy target and a convenient scapegoat.
In the past 20 years, state and federal courts around the country have begun to question this legislative taking exemption. For instance, the Sixth Circuit recently rejected the City of Nashville's attempt to force a homebuilder to "pay for a sidewalk that he may well never use," as it is "2.5 miles away from his project." Knight v. Metro. Gov't of Nashville & Davidson County. Numerous industry groups supporting Mr. Sheetz's cert petition pointed out a significant split in judicial authority over whether to apply the takings doctrine to legislative actions, as well as many academic analyses questioning the exemption.
How might the Supreme Court resolve this split? In his 2021 opinion in Cedar Point Nursery v. Hassid, Chief Justice Roberts offers some clues. In part, he wrote: "[t]he essential question… is whether the government has physically taken property for itself or someone else—by whatever means—or has instead restricted a property owner's ability to use his own property." In other words, courts should look at what the exaction does, rather than how it was imposed or who imposed it.
If the Supreme Court determines there is no such legislative exemption allowed in determining whether an exaction is an unconstitutional taking, then it will send the Sheetz case back to the trial court to determine whether the fee imposed has a nexus and a rough proportionality to the purported impact associated with the development of Mr. Sheetz's single-family home. This may result in municipalities being required to provide proper justification for fee increases that may be challenged in the future by developers and property owners when such justification is deemed to be lacking.
The Court's decision and, in particular, the scope of the opinion could have wide-ranging impacts on local land use and development processes throughout the country. Standard legislative "proffers" and development conditions are common in many jurisdictions and play a critical role in outlining the cost and viability of new development projects. While some developers and property owners may welcome a change in the way that development costs are mandated, a Supreme Court decision that either invalidates or calls into question the legality of these proffer regimes could create havoc at the local level and would only add additional uncertainty to a real estate development market that is struggling to navigate a difficult economic climate.