Allison Reynolds and Emily Schimelpfenig | Ahead of Schedule
In a typical permitting process, the local government may place certain conditions on issuing a building permit to further a legitimate public purpose. While the local government has “substantial authority to regulate land use,” its regulation cannot violate the U.S. Constitution’s Fifth Amendment. The Fifth Amendment, in relevant part, states “nor shall private property be taken for public use, without just compensation” (the “Takings Clause”). Past Takings Clause cases addressed permit conditions imposed on an individual and ad hoc basis, called “administrative exactions.” In the 2024 case Sheetz v. County of El Dorado, 601 U.S. 267 (2024), the U.S. Supreme Court (“Court”) had its first opportunity to discuss “legislative exactions.” Legislative exactions occur when the government, through a legislative code change process, imposes fees for certain public services or impacts on a generally applicable basis.
In Sheetz, George Sheetz, the plaintiff, sought a residential building permit to build a home on his property in El Dorado County, California (“County”). The County imposed a $23,420 traffic impact fee as a condition of approval. The traffic impact fee was part of the County’s “General Plan” for addressing increasing demand for public services. The fee was a legislative exaction because rather than determining the traffic impacts specifically attributable to Mr. Sheetz’s proposed development, the County assessed the fee according to a rate schedule that applied generally to all actions in certain areas and categories. Mr. Sheetz paid the fee in protest and then brought a claim for unlawful exaction in California state court. The case ended in California’s highest court, which decided the case on a technicality and concluded that the Takings Clause only applies to administrative exactions, not legislative exactions.
Mr. Sheetz appealed to the U.S. Supreme Court, and in a rare unanimous decision, the Court disagreed and overturned California’s decision, finding that the Takings Clause protects property owners under both legislative and administrative land use actions.
Citing pre-colonial and colonial history regarding legislative takings which were common at the time the Constitution was written and its own prior decisions, the Supreme Court concluded that the U.S. Constitution “does not limit the Takings Clause to a particular branch of government”; rather, “permit conditions imposed by the legislature and other branches stand on equal footing.” Id. at 276-77.
Unfortunately for real estate and land use practitioners, the Supreme Court did not address the more interesting questions, including “whether the permit condition would be a compensable taking if imposed outside the permitting context,” id. at 280-81 (Sotomayor, J., concurring), or whether a fee that is applied to a particular class of people or properties based on a formula (like the traffic impact fee or system development charges) is an unlawful taking, id. at 282 (Gorsuch, J., concurring). Finally, the Court explicitly declined to address whether an exaction on a class of properties must evaluate the impacts that a development has on the government’s interest at a high level of specificity when the fee is imposed through a legislative action or if a formula is good enough in that context. Id. at 284 (Kavanaugh, J., concurring).
Sheetz clarifies that even legislative programs that set forth fee structures can be a taking; local governments can no longer rely on this technicality to avoid analyzing if their exactions against property owners are a taking that requires compensation. However, Sheetz did not determine that the County’s traffic impact fee program was unconstitutional and did not void legislative exactions generally. Those questions will continue to be resolved on a case-by-case basis.
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