Supreme Court Rules Certain Impact Fees Unconstitutional

A recent Supreme Court ruling in Sheetz v. County of El Dorado makes it clear that impact fees adopted by a legislative body may work as an unconstitutional taking of property.

The Issue:

This case revolved around a $23,000 "traffic impact fee" imposed on Mr. Sheetz in relation to a building permit for a single-family home. The fee, enacted by county ordinance, was intended to help offset the costs associated with an $800 million road improvement plan.

Legal Precedent and Criteria for Unconstitutional Taking

Although some prior lower court rulings had exempted legislative acts from challenges on the basis of unconstitutional taking, the Supreme Court found there to be no justification for such an exemption. Instead, impact fees (and presumably other similar fees such as application fees) can be an unconstitutional taking unless they both:

1. Have “an essential nexus” to the government’s land-use interest (i.e. the government is acting to further its stated purpose); and
2. Are “proportionate” to the development’s impact on the interest. In the case of a traffic impact fee, to use the Sheetz example, a court would consider whether the fee was going to a need directly or indirectly exacerbated by the development, and whether the fee represented a reasonable share of the cost.

While the Supreme Court did not apply the now clarified test to El Dorado County’s impact fee, the writing is on the wall that it does not meet these tests.

Maine statute already requires that impact fees meet the proportionality test, and we have also always advised that impact fees, application fees, and even permitting conditions should meet the tests laid out in Sheetz. This decision therefore hasn’t caused a dramatic shift in the way we think about such fees and conditions.

Key Takeaway:

In layman’s terms, impact fees, application fees and permitting conditions should meet the “smell test.” If the fee or condition feels exorbitant, extortive, or like it unfairly distributes a burden, it is probably also unconstitutional. Municipalities cannot just look to impact fees on new development to fund the cost of services that benefit all residents.

If you have questions about this decision, or any other municipal matters, please feel free to contact one of our Municipal Law and Finance attorneys.