The Supreme Court Increases Its Involvement in Local Land Use: The Continuing Sheetz Saga

The U.S. Supreme Court recently vacated and remanded a California state court ruling that upheld a traffic impact fee on a new landowner seeking to build a house in an area that was legislatively designated as needing more road capacity. While this case involves a common state land use tool—impact fees—the Court teed up a broader issue related to the capacity of communities to manage land use at a time when the country is newly coping with extreme weather patterns stressing infrastructure and public welfare. This article will explore the precedential history, discuss how the remand is likely to affect existing and future state land use programs, and provide hints suggesting that future Court rulings could expand federal judicial reach even further into traditional state land use authority. Sheetz v. Cnty. of El Dorado, 601 U.S. 267 (2024).

State and local authorities have long used various land use tools under well-established police powers reserved to states in the Tenth Amendment of the U.S. Constitution. These tools include zoning, impact fees, building codes, user fees, and taxation to finance and manage activities that protect public safety, quality of life, and public welfare. Courts generally uphold local land use requirements developed with comprehensive planning, public engagement, and legislative approval. John R. Nolon, Choosing to Succeed: Land Use Law and ClimateControl 32–37 (2021). During past decades of population growth and shifting development patterns, courts also have upheld state programs to manage additional public land use–related services, e.g., to phase new development, provide drinking water, manage sewage and stormwater, and improve road and other transportation infrastructure. However, with changing regional weather patterns, states now face new land-related impacts. The question is whether courts will uphold these traditional land use tools when utilized to address these new impacts.

After decades of predictable weather patterns, many communities face unprecedented physical stresses, such as flooding, drought, wildfires, and sea level rise. Extreme weather is increasing the complexity and cost of controlling externalities that follow from unfettered individual property usage. Paul Babie, Property, Negligence and the Intergenerational Inequity of Climate Change, 41 Alt. L.J. 179 (2016). As a result, state and local municipalities are revisiting the adequacy of their land use programs and infrastructure and need to figure out how to fund increased costs for building resiliency into infrastructure. William Solecki, Climate Change and U.S. Cities: Vulnerability, Impacts, and Adaptation, in Land and the City 105 (George W. McCarthy et al., eds., 2015).

States overwhelmingly view impact fees as a valid exercise of state police powers emanating from general zoning authority or specific enabling legislation. Nearly all states have some impact fee authority to generate revenue for capital projects to service new development. Early impact fees funded water and sewage construction and then evolved to other non-utility programs such as roads, parks, and schools. Julian C. Juergensmeyer et al., Land Use Planning and Development Regulatory Law 356 (5th ed. 2023). Impact fees gained popularity in the 1960s and 1970s as a tool to fund infrastructure associated with new development that was not physically at the development site. Many states’ impact fee–enabling legislation specifies the type of infrastructure that can be funded.Arthur C. Nelson et al., Impact Fees: Principles and Practiceof Proportionate Share Development Fees (2009). For example, Tucson assesses a one-time impact fee for roads, parks, police, and fire services under state enabling legislation. Ariz. Rev. Stat. § 9-436.05. Maryland allows counties to impose new development impact fees for schools, transportation, public safety, parks, and water/sewer infrastructure. Md. Land Use Code § 20-501.

Roughly between the 1960s and 1980s, state courts reviewed impact fees under the traditional substantive due process test that turns on whether the government action was reasonably related to legitimate goals and consistent with state enabling statutes, constitutions, local ordinances, and judicial precedent. During this time, the U.S. Supreme Court provided great deference to such legislative determinations and upheld state land use conduct unless it was so irrational as to be “egregious or arbitrary.” City of Cuyahoga Falls v. Buckeye Cmty. Hope Found., 538 U.S. 188, 198 (2003).

Expansion of U.S. Supreme Court Engagement in Land Use Permitting: Nollan, Dolan, and Koontz

This dynamic changed when the U.S. Supreme Court decided a trio of land use cases applying a new constitutional analysis under the Fifth Amendment prohibition of taking property without just compensation, the Takings clause. A Takings clause analysis usually involves an occupation of real property, a physical taking, or a use restriction that deprives an owner of the economically beneficial use of the property. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123, 127 (1978).

There was a physical link to a specific land parcel when the Court decided Nollan v. Cal. Coastal Comm’n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). These cases involved conditioning a building permit on granting an easement on the landowner’s properties at issue. In each of these cases, the Court was concerned that the government could impose potential extortionate demands on a landowner by threatening to deny a land use permit. The Court balanced this consideration with upholding state authority precedent to require landowners to internalize negative externalities on the public for land usage conduct, which is the hallmark of responsible land use policy. See Vill. of Euclid v. Amber Realty Co., 272 U.S. 365 (1926). In deciding Nollan and Dolan, the Court examined whether the permitting officials’ demands would be considered a taking outside of the permitting framework, e.g., simply enacting zoning, taxes, and fees. If that action could not happen independently, it is probably a taking, and the government would need to establish an “essential nexus” and “rough proportionality” between the required property dedication and the effects of the proposed land use.

The Court completed its often-cited trio of land takings cases when it went beyond real property to one including a monetary extraction component during a parcel-specific permit negotiation in Koontz v. St. Johns River Water Mgmt. Dist., 570 U.S. 595 (2013). In Koontz the permit official presented options to the landowner, all of which included restricting the building area to protect wetlands on the landowner’s site. One offered option allowed an increased building area if the landowner would pay to preserve other wetlands not on the property site. Because of the inclusion of a monetary fee option, the Court’s taking finding was based on a “special application” of the unconstitutional conditions doctrine. The Court reasoned that the application of that doctrine would prevent permit authorities from avoiding Nollan and Dolan by substituting a monetary extraction for real property. The unconstitutional conditions doctrine prevents pressuring a person to forgo a constitutional right when that person applies for a permit. The Court explained:

The fulcrum this case turns on is the direct link between the government’s demand and a specific parcel of real property. Because of that direct link, this case implicates the central concern of Nollan and Dolan: the risk that the government may use its substantial power and discretion in land-use permitting to pursue government ends that lack an essential nexus and rough proportionality to the effects of the proposed new use of this specific property, thereby diminishing without justification the value of the property.

Id. at 614.

In expanding the Takings clause analysis, Justice Alito reaffirmed the Nollan and Dolan balancing approach of preventing extortionate demands on the landowner while still enabling authorities to insist that applicants bear the full costs to internalize the negative externalities of their conduct. Id. at 605. The Court emphasized that its decision would not affect the ability of the government to impose property taxes, fees, and similar laws and regulations that may impose financial burdens on landowners. Id. at 615.

However, four dissenting justices, including Justices Kagan and Sotomayor, expressed concern that mere payment of money threatens an array of common land use programs to heightened constitutional scrutiny and diminished “necessary predictability” for communities, as required in Eastern Enterprise v. Apfel, 524 U.S. 498, 542 (1998). The dissent concluded that the majority in Koontz “turns a broad array of local land-use regulations into federal constitutional questions. It deprives state and local governments of the flexibility they need to enhance their communities—to ensure environmentally sound and economically productive development. It places courts smack in the middle of the most everyday local government activity.” Koontz, 570 U.S. at 635–36 (Kagan, J., dissenting). Ultimately, the Koontz Court found a taking and remanded the case to determine whether the monetary extraction met the Nollan “essential nexus” and Dolan “rough proportionality” tests.

All three cases, Nollan, Dolan, and Koontz (herein referred as NDK) arose in adjudicatory settings affecting a specific landowner negotiating a permit. In NDK the Court clarified its concern for coercion by noting the different burden of persuasion involved in adjudicatory decisions and legislative classifications. Chief Justice Rehnquist wrote in Dolan that the burden is on a challenger to prove the invalidity of a generally applicable law, but where an adjudicative decision is made, the burden switches to the government. Dolan, 512 U.S. at 391, n.8. Where landowners must bargain individually, the safeguards of the open legislative process are lost, and the possibility arises that individuals may be compelled to give more than their fair share. I. Resnik, Note, The Distinction Between Legislative and Adjudicative Decisions in Dolan v. City of Tigard, 75 N.Y.U. L. Rev. 242 (2000).

Since NDK, the U.S. Supreme Court standard for review under the Takings clause continues to require a relationship to a specific property circumstance where the government could leverage the permit applicant seeking a building permit to acquiesce to the government-imposed conditions.

Expansion of Supreme Court Engagement into State Police Powers: The Sheetz Case

The Sheetz case involves an El Dorado County traffic impact mitigation fee. El Dorado County is a largely rural county in California experiencing considerable population growth. Between 2004 and 2012, county officials enacted legislation imposing set fees for designated new development areas to fund related increased road capacity. The county established eight zones for single-family residential housing with fees ranging from $13,330 to $35,740, related to their different traffic impacts. In December 2013, Mr. Sheetz bought property within a remote zone identified with limited road infrastructure and public services. In 2016, Sheetz applied for a permit to construct an 1,854-square-foot house that included a $23,420 impact fee. In protest, Sheetz paid the building permit charge and sued.

Sheetz argued generally that his house was modest and that the impact fee unfairly shifted the infrastructure financing burden onto the designated new development. Sheetz asserted the fee violated state law, as well as the Takings clause, and that his imposed building permit charge should be reviewed under the NDK special application of the unconstitutional conditions doctrine. Therefore, Sheetz’s argument continued, the county had to make an individualized determination that there was an “essential nexus” and “rough proportionality” between the traffic impacts attributable to his house and road improvements. But the trial court did not undertake the NDK analysis and instead applied the traditional substantive due process analysis that courts use for reviewing land use tools like impact fees. The trial court found Sheetz did not produce evidence that the fee was arbitrary, and the county met its burden for establishing the impact fee and reasonable relationship between the fee and the road improvements.

The California appellate courts also declined to apply the special Takings clause analysis, explaining that NDK was limited to discretionary (potentially coercive) permit exactions in individual landowner circumstances. Rather, Sheetz involved legislatively mandated development fee classifications typical of traditional police power land use programs. Sheetz v. Cnty. of El Dorado, 84 Cal. App. 5th 394, 403 (2022). As the California trial court noted, Sheetz simply chose to buy property for a house in a legislatively predetermined rural impact fee zone.

Sheetz sought Supreme Court review on whether a permit-related extraction is exempt from the unconstitutional conditions doctrine simply because it is allowed by legislation. Framing the issue as “authorized by legislation” is overbroad as legislation always underlies permitting decisions. In addition, this question ignores that the foundation for any unconstitutional conditions claim is the potential government leverage on a permit applicant to relinquish a constitutional right, not the existence of legislation. Koontz, 570 U.S. at 612. During oral argument, Justice Gorsuch hinted that the justices agreed there is no general “legislative” exception to the Takings clause. The attorney for El Dorado County conceded that point as well. Tr. of Oral Argument at 52–55, Sheetz v. Cnty. of El Dorado (Jan. 9, 2024), No. 22-1074. The framing of the legislative exemption question may have convinced the Court to accept review.

Yet Chief Justice Roberts raised the threshold question as to whether Sheetz even posed a Takings clause issue, as it did not involve a specifically negotiated property circumstance, as there was in NDK. Nevertheless, the justices had little discussion about whether there was a taking. Justice Barrett posed a hypothetical related to previous Court reasoning that there would not be a taking if the county had imposed a special assessment fee on Sheetz after the building permit had been issued. The petitioner’s attorney conceded that such would not be a taking under the Nollan/Dolan test. Id. at 42. Questioning then turned to whether a classification-mandated fee was an unconstitutional conditions situation like Koontz where the Court found a coercive impact on an individual negotiating for a permit. The Court noted many similar state legislative funding tools (e.g., fees, assessments, and taxes) on property classes have already been roundly upheld on constitutional due process and equal protection grounds. Justices Sotomayor, Barrett, and Jackson queried whether the case was simply the well-recognized right of local authorities to impose fees to manage and finance legitimate public purposes.

Development interest organizations filed briefs in support of the Supreme Court’s Sheetz review generally opposing the imposition of impact fees on new development and proposing alternatives to lower new housing costs. See generally Sheetz v. Cnty. of El Dorado, Docket No. 22-1074. Whereas the California trial court found that the county met its burden for establishing the impact fee and the reasonable relationship between the fee and the road improvements, no amici in Sheetz challenged the factual relationship between the impact fee amount and the state-determined road capacity costs. Contrary to development-interest amici, the American Planning Association detailed how the Court’s decision could have negative implications for land use planning and development financing.

Unlike in the Koontz remand, the Court’s April 12, 2024, Sheetz decision did not discuss whether there was a taking. Rather, the justices unanimously ruled on the narrow issue presented for review, holding that there is no general Takings clause exemption for legislatively enacted land use permit circumstances. The Court vacated the California ruling, reasoning that it was based on an erroneous premise that legislation setting fees for property classifications was categorically exempt from NDK analysis. The Court remanded the proceedings to the California courts to analyze and determine whether the legislative program and impact fee was a taking that would also pass the heightened Takings clause analysis.

While the Court unanimously agreed on the narrow legislative exemption issue, four justices wrote concurring opinions that clarified unanswered questions for the California courts to resolve. Like Justice Roberts’ opening question during oral argument, Justices Sotomayor and Jackson emphasized the threshold taking question, i.e., whether the permit condition would be a compensable taking if imposed outside the permitting context. Justice Kavanaugh, with whom Justices Kagan and Jackson joined, underscored the unanswered question as to whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permanent condition that targets a particular development.

Does Sheetz Open the Door to Expand the Unconstitutional Conditions Doctrine?

Apparently, the justices could neither agree on whether there was a taking, nor the basis for any such finding; thus, the remand. While the Court did not expressly expand its NDK taking analysis, the Court’s decision not to apply the Sheetz facts to the previous NDK precedent presents legal uncertainty as to its future willingness to expand the unconstitutional conditions doctrine. The Sheetz facts are far different than the physical property occupations in the NDK cases. It was because Koontz included a monetary component with a lesser physical land restriction that the Court relied on the unconstitutional conditions doctrine. In Sheetz, there is no physical land restriction. The Court could have found that the county could have permissibly imposed the fee outside the permit process; thus, no taking.

Moreover, the Court could have found that the facts in Sheetz lacked the underlying foundation for applying the unconstitutional conditions doctrine, i.e., the government threatening to deny a permit unless an applicant acquiesces to certain conditions. The Koontz case involved a specific landowner potentially subjected to coercion in applying for and negotiating permit conditions, thus triggering the unconstitutional conditions doctrine. There are no similar circumstances in Sheetz. Sheetz bought property already subject to a set impact fee and then sought a building permit. While the majority emphasized it was a “small” house and a “substantial” impact fee, there was no discussion on how Mr. Sheetz was subject to a coercive situation for his choice to buy this property and apply for a building permit in an area already subject to a set fee.

The Court’s reluctance to apply the Sheetz facts to past NDK precedent hints at its heightened interest in landowner rights and expectations, in this case at the expense of local funding decisions. Future Court decisions may provide more clarity on how it will balance strong state police power authority precedent with landowner rights, especially when the cost of additional infrastructure to support new development is expensive. There are many traffic impact fee programs based on the relationship between the geographical classification of houses and road infrastructure capacity. There are also similar state programs that impose new development impact fees for infrastructure managing stormwater/flooding, supplying drinking water, collecting/treating wastewater, etc. The Court’s indecisive remand will create uncertainty in many state and local communities that have elected to impose additional costs on new development to manage land use and provide services while benefiting the landowner with adequate infrastructure. Already states are reassessing existing land use programs in anticipation of similar lawsuits. Within a week of the Sheetz decision, the Maryland Association of Counties provided a legal analysis for those counties with new development impact fees. See Michael Sanderson, SCOTUS Rules on Local Impact Fees—Any MD Fallout?, Md. Ass’n of Counties (Apr. 17, 2024).

Such potential lawsuits around the now more uncertain contours of the NDK analysis are not the only challenge facing local land use management resources. Changing weather and population patterns are also stressing the adequacy of urban infrastructure.

Existing land use programs and infrastructure evolved over decades of predictable weather patterns. Only in recent years have atmospheric levels of greenhouse gases topped predicted levels, causing noticeable extreme weather patterns affecting infrastructure and public welfare. States now face circumstances including newly affected areas at risk for flooding, sea level rise, and wildfires; reduced water supply and other natural resource scarcities; need for multijurisdictional regional solutions; and increased costs for resilient infrastructure. Communities will expect local officials to quickly address new circumstances with adjusted land use activity, including zoning, building codes, and capital projects (with associated funding options).

The Court’s willingness to scrutinize legislative formulas seemingly now somewhere beyond the contours of the NDK precedent seems to shift the balance from traditional state land use authority toward more unfettered landowner rights. Property rights groups are already taking advantage of this legal uncertainty to further expand the unconditional conditions doctrine. Within a week of the Sheetz decision, the Liberty Justice Center filed a lawsuit on behalf of a farmer seeking to remove an existing wetland conservation easement on newly purchased farm acreage. Unlike the Sheetz monetary impact fee to obtain a permit, the farmer seeks to overturn a federal statute that requires wetland preservation in exchange for receiving federal benefits. The plaintiff asserts this claim as a taking under the unconstitutional conditions doctrine. See CTM Holdings, LLC v. U.S. Dep’t of Agric. (N.D. Iowa, filed Apr. 16, 2024).

As in the past, land use planning and associated legislation will innovate and evolve; however, the need for rapid action to address fast-changing weather circumstances and population dynamics differs from historical land use changes. This elevates the potential consequences this Court’s remand “uncertainty” may have on state and local land use management and financing capacity. Rather than building on the NDK precedent lineage reasoning, this Court seems more willing to engage in community decisions while looking for a legal basis to elevate its preference for further favoring landowner rights. New lawsuits in different states are likely to yield other cases involving the unconstitutional conditions doctrine for U.S. Supreme Court review, and potentially more clarity on balancing landowner rights with land use authorities.