In 2024, in what was heralded as a big win for developers in California, the U.S. Supreme Court upended decades of California precedent and held that legislatively enacted development impact fees must satisfy the "essential nexus" and "rough proportionality" tests established in Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374. Sheetz v. County of El Dorado (2024) 601 U.S. 267. But the Supreme Court did not decide whether the legislatively enacted fee program at issue in Sheetz actually failed to comply with Nollan/Dolan. Instead, it remanded that issue back to the California courts so that they could address that issue in the first instance. After supplemental briefing and additional oral argument, the California Court of Appeal has again rejected Mr. Sheetz's takings challenge, holding in a published opinion that the County of El Dorado's legislatively enacted fees satisfy Nollan/Dolan.
As you may recall, this litigation started after Sheetz applied for a permit to construct a single manufactured home in El Dorado County, and the County conditioned approval of that permit on the payment of nearly $24,000 in traffic impact mitigation fees pursuant to a fee program the County adopted under its general plan. Sheetz challenged the fee's constitutionality, arguing that because the fee was established for a class of development (single-family homes) and not calculated based on the impacts of his specific project, the fee failed to satisfy the essential nexus and rough proportionality tests established in Nollan/Dolan. The California trial court and California Court of Appeal rejected Sheetz's argument, holding, consistent with longstanding California Supreme Court precedent, that the legislatively enacted fees were not subject to Nollan/Dolan scrutiny. As noted above, the Supreme Court reversed, holding that legislatively enacted fees do have to satisfy Nollan/Dolan.
On remand, both the County and Sheetz stipulated that the facts were undisputed and that the Court of Appeal could resolve the issues in the first instance after some additional briefing. In the supplemental briefing Sheetz argued that the County was required to undertake a project specific analysis, looking at the specific impact of his project on traffic and imposing a roughly proportional fee based solely on that impact. The County argued that its fee study and other supporting documentation demonstrated an essential nexus and rough proportionality between the traffic impact fee and the traffic anticipated by the residential development category associated with Sheetz's development (single-family residential). The County also argued that the fee was not subject to Nollan/Dolan, picking up on a potential argument presented in a concurring opinion authored by Justice Sotomayor.
While the California Court of Appeal rejected the County's argument that the fee was not subject to Nollan/Dolan, it did hand the County and public agencies in general, a major victory, finding in a published opinion that the legislatively enacted fee satisfied Nollan/Dolan. As to the Nolan requirement that there be an essential nexus between a legitimate governmental interest and the permit condition, the Court of Appeal found "little difficulty in concluding that an 'essential nexus' exists between the County's legitimate interest in reducing traffic congestion from new development and the permit condition requiring Sheetz to pay a fee to mitigate or offset the traffic impacts from his proposed development project." Having found the Nollan test satisfied, the Court of Appeal then moved to the Dolan test of rough proportionality.
On the issue of rough proportionality, the Court of Appeal explained:
In the context of a generally applicable impact fee imposed by a legislative body on specific types of new development (e.g., single-family residential, commercial) through formulas or schedules (as here), the Dolan standard logically requires a reviewing court to determine whether the amount of the fee is sufficiently tailored–i.e., roughly proportional (or proportionally related) in nature and extent–to the overall impact the specific type of development has on the government's land-use interest.
The Court of Appeal's opinion also established a burden-shifting regime for purposes of rough proportionality, stating that the "the County has the burden of demonstrating the required degree of connection--'rough proportionality'--between the challenged land-use exaction and burden or projected social costs/public impacts of Sheetz's proposed project." If the County satisfies this initial burden, the burden then shifts to the property owner to demonstrate that the fee is invalid because it "bears no reasonable relationship to the cost of the public facility or portion of the public facility attributable to his development project."
After reciting the history behind the County's development of the fee program--essentially the use of technical reports based on traffic demand modeling to establish a fee schedule for particular types of development--the Court of Appeal found that the County had satisfied its initial burden by establishing "a factually sustainable proportionality between the effects of new development on traffic congestion and the amount of the challenged impact fee." As a result, the burden then shifted to Sheetz. And the Court of Appeal found that "Sheetz failed to establish that the fee is invalid because the amount ($23,420) bears no reasonable relationship to the cost of the public facility or portion of the public facility attributable to his development project."
No doubt, public agencies are now collectively breathing a huge sigh of relief, as the California Court of Appeal has confirmed that legislatively enacted fees can satisfy Nollan/Dolan, and it also expressly rejected the argument that the Fifth Amendment to the U.S. Constitution requires an individualized or project-specific determination of essential nexus and rough proportionality in all instances. But public agencies may want to hold off on celebrating the County of El Dorado's victory for the time being, as one can expect that Sheetz will appeal the decision to the California Supreme Court. And if things don't go his way there, then he will likely file another petition with the U.S. Supreme Court and see if he can get the Supreme Court to hear the same case a second time (an incredibly rare occurrence).
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