El Dorado County Imposes Impact Fees for Development
To address increased traffic congestion resulting from population growth, El Dorado County added a provision to its General Plan that required developers to pay a "traffic impact fee" (TIM fee) as a condition of receiving a building permit. George Sheetz and his wife felt the brunt of this TIM fee first-hand when they decided to build a single-family home on their property within the County. As a condition to approving the Sheetz's permit application, the County charged them a TIM fee of $23,420. Sheetz paid the fee under protest and obtained the permit. But after the County ignored Sheetz's request for a refund, Sheetz filed a lawsuit against the County to challenge the validity of the TIM fee.
Sheetz argued that the TIM fee was an unlawful "exaction" of money in violation of the Federal Takings Clause. More specifically, Sheetz argued the "essential nexus" and "rough proportionality" standards set forth in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) ("Nollan") and Dolan v. City of Tigard, 512 U.S. 374 (1994) ("Dolan") (commonly referred to as "the Nollan/Dolan test") required the County to make an individualized determination that the fee amount ($23,420) was necessary to offset the traffic congestion attributable to Sheetz's specific development. According to Sheetz, the County's TIM fee failed that test.
The Court of Appeal Rules in Favor of the County but the SCOTUS Vacates That Decision
In 2022, after the trial court rejected Sheetz's claim, the Court of Appeal affirmed and held that the challenged TIM fee did not violate the takings clause as a matter of law. The Court of Appeal held that "the requirements of Nollan and Dolan did not apply where (as here) the challenged impact fee was a legislatively imposed permit condition that generally applied to a broad class of permit applicants through formulas or schedules that assessed the impact of entire classes of development (e.g., single-family residential, commercial)." Sheetz v. County of El Dorado, 2025 WL 2116363, *2 (July 29, 2025). Instead, the Court of Appeal held that the Nollan/Dolan test only applied to "an impact fee that targeted a particular development and was imposed on an ad hoc and discretionary basis upon an individual permit applicant through administrative action (i.e., government agency action)." Id. (citing Sheetz v. County of El Dorado, 84 Cal.App.5th 394, 410, 414 (2022)).
After the California Supreme Court denied review, the U.S. Supreme Court granted certiorari to resolve a split among the state courts on the question of whether the requirements of Nollan/Dolan applied to legislatively imposed permit conditions—like the TIM fee—as it does to administratively imposed permit conditions. Sheetz v. County of El Dorado, California, 601 U.S. 267, 273 (2024). In an opinion written by Justice Barrett, the Supreme Court unanimously held that it does and "[n]othing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules." Id. at 276. In reaching that conclusion, the Supreme Court vacated the federal takings analysis of the Court of Appeal's 2022 decision and remanded the matter for further proceedings.
The Court of Appeal Applies the Nollan/Dolan Test and Again Rules That the TIM Fee Is Not a Taking
The upshot of the Supreme Court's decision was that the Court of Appeal now had to subject the TIM fee to the Nollan/Dolan test. On July 29, 2025, the Court of Appeal held that the "TIM fee does not constitute an unlawful monetary exaction under the Nollan/Dolan test" and that "[t]he legislatively formulated generally applicable impact fee is not an unconstitutional condition imposed on land use in violation of the Fifth Amendment's takings clause." Sheetz v. County of El Dorado, 2025 WL 2116363, *2 (July 29, 2025). As the Court of Appeal explained, under the Nollan/Dolan test, the government may condition approval of a land-use permit so long as there is an "essential nexus" and "rough proportionality" between the condition the government imposes and the social cost of the property owner's development proposal.
"The 'essential nexus' component of the Nollan/Dolan test comes from Nollan, supra, 483 U.S. 825, 107 S.Ct. 3141. It asks "whether there is an 'essential nexus' or logical connection between the government's legitimate state interest and the permit condition." Sheetz v. County of El Dorado, 2025 WL 2116363, *10 (July 29, 2025). The Court of Appeal had "little difficulty" finding an "essential nexus" between the TIM fee and a government interest, holding that "the record reflects that the challenged permit condition (TIM fee) substantially advances the County's legitimate government interest in reducing traffic congestion generated by new development." Sheetz, 2025 WL 2116363 at *11-12.
"The 'rough proportionality' component of the Nollan/Dolan test comes from Dolan, supra, 512 U.S. 374, 114 S.Ct. 2309. It requires a court to determine whether the degree of the land-use exaction demanded by the government's permit condition 'bears the required relationship to the projected impact of [the landowner's] proposed development." Sheetz, 2025 WL 2116363 at *13 (citing Dolan, 512 U.S. at 388). To satisfy this standard, "the permit condition (e.g. impact fee) must have 'rough proportionality' to the proposed development's impact or burden on the government's land-use interest (here, traffic congestion), and must not require a landowner to give up (here, pay) more than is necessary to mitigate the harm (social costs) resulting from the new development." Sheetz, 2025 WL 2116363 at *29 (citing Sheetz, 601 U.S. at 275-276).
The Court of Appeal concluded that "the County met its initial burden to demonstrate that it used a valid method for imposing the TIM fee, one that established a reasonable relationship between the fee charged and the projected burdens (i.e., social costs or public impacts) of Sheetz's development of a single-family home..." Sheetz, 2025 WL 2116363 at *21. For example, "[i]n establishing the fee schedules for each class (i.e., type) of new development in a particular geographic zone, the County identified the existing level of traffic flow on public roadway segments, assessed the degree to which projected population and employment growth from new development would impact that flow of traffic on those roadway segments over a 20-year period, and estimated the resources needed to complete infrastructure projects that would accommodate the new traffic patterns from new development to ensure compliance with the traffic flow standards set forth in the General Plan." Id. Moreover, "[t]he amount of the fee imposed on a specific type of development was based on a travel demand forecasting model, which determined the traffic contribution (vehicle trips) from each type of new development in a particular geographical zone as to each roadway segment that was projected to have a traffic flow that did not meet the standards established in the General Plan." Id.
Thus, the Court of Appeal applied the Nollan/Dolan test and reached the same conclusion that it had three years prior—the County's fee condition for the issuance of a permit does not constitute a taking under the Fifth Amendment.
Takeway for Developers
The Supreme Court's 2024 decision to apply the Nollan/Dolan test to legislatively imposed permit conditions provided developers with another tool to challenge development fees like the County of El Dorado's TIM fee. While that tool remains available, the Court of Appeal's decision last week provides a blueprint for how counties and cities may limit its impact. If the governmental entity does the necessary legwork to establish that its fees are grounded in sufficient studies, models, and analysis, and that the fee is tethered to such analyses, the recent Sheetz opinion suggests that such fees may be upheld.
Nevertheless, the Supreme Court's 2024 Sheetz decision provides a pathway for developers to challenge development fees and permit conditions. Smart local governments will look at the steps the County of El Dorado took to support its TIM fee, and try to emulate them. But litigation over development fees will continue, particularly regarding whether such fees can pass the "rough proportionality" component of the Nollan/Dolan test, which will necessarily be a factual inquiry and will now be decided on a case-by-case basis.
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