On April 12, 2024, the United States Supreme Court decided Sheetz v. County of El Dorado, California, a case involving traffic impact fees and the Takings Clause of the Fifth Amendment. The Court held that the Takings Clause does not distinguish between “legislative” and “administrative” land-use permit conditions, and therefore the Nollan/Dolan requirements of “essential nexus” and “rough proportionality” still apply. This change in the law means that permit fees enacted to a fee schedule—such as traffic impact fees—that were previously assumed to be constitutional can now be challenged under the Takings Clause.

As a general matter, the Takings Clause prohibits the taking of private property for public use without just compensation. This includes conditions on land use permits. For example, where a development may substantially increase local traffic, the permitting jurisdiction can condition a building permit on transferring land to widen the road around a development.

A different set of Takings Clause rules apply when a permit condition is unrelated to the government’s land use interests. Under the Supreme Court’s Nollan/Dolan decisions, a permit condition must have (1) an “essential nexus” to the government’s land-use interest, and (2) “rough proportionality” to the development’s impact on the land use interest. “Rough proportionality” means that the condition does not require a landowner to give up more than necessary to mitigate harms from new development. The Nollan/Dolan test applies both to giving up land and monetary “exactions” such as permit fees.

Despite the clarity of Nollan and Dolan when applied to administrative exactions (i.e., site-specific permit conditions), state courts have disagreed on whether those limits extend to legislative exactions. As the name suggests, legislative exactions are fees assessed by legislation, such as a fee schedule or rate table. Some state courts, including the Washington Supreme Court in City of Olympia v. Drebick, 156 Wn.2d 289 (2006), reasoned that the Nollan/Dolan limits apply only to administrative exactions, and that legislative exactions administered under a fee schedule on a “broad class of property owners” were not subject to a Takings Clause analysis at all.

In Sheetz, the U.S. Supreme Court agreed to address this conflict among state courts. George Sheetz applied for a permit to build a single-family house and paid under protest a traffic impact fee of around $23,000. The fee was not specific to Sheetz’s project. Sheetz then filed suit, arguing that the traffic impact fee was an unlawful “exaction” under Nollan/Dolan.

The U.S. Supreme Court agreed and held that under the Takings Clause there is no difference between “legislative” and “administrative” exactions. The unanimous court wrote that “there is no basis for affording property rights less protection in the hands of legislators than administrators.” Thus, the county must analyze Sheetz’s traffic impact fee for “essential nexus” and “rough proportionality.”

Importantly, the court declined to address exactly how Nollan/Dolan applies to legislative exactions. The court remanded the case back to California courts to decide “whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development.” This means that it remains an open question whether impact fees pursuant to a fee schedule must be tailored in the same way as an individualized permit fee. The court appears divided on that issue. On one hand, Justice Gorsuch wrote that all exactions, whether legislative or administrative, should receive the same treatment. Justice Kavanaugh similarly wrote that the Court did not specifically address the individualization issue. On the other hand, Justice Sotomayor wrote separately, arguing that impact fees may not qualify as a taking at all, which would avoid the Nollan/Dolan analysis altogether. Therefore, it seems as though the U.S. Supreme Court, though unanimous in ruling that legislative and administrative exactions are both subject to a Nollan/Dolan analysis, disagrees on the scope of its application.

Developers in Washington can now argue that impact fees are unconstitutional takings under Nollan/Dolan. After Sheetz, the only question that remains is to what extent the Takings Clause applies to impact fees.

Sheetz also leaves the Washington Supreme Court’s decision in Drebick open to challenge. In that case, a developer argued that the Growth Management Act’s (GMA) requirement that local governments ensure adequate facilities for new growth incorporates the Nollan/Dolan test for “essential nexus” and “rough proportionality.” A divided State Supreme Court rejected this interpretation, instead holding that the GMA allows local governments to assess fees based on location and service area. The majority reasoned that at the time, the U.S. Supreme Court had not applied the Nollan/Dolan test to legislative exactions. Therefore, in the majority’s view, the legislature could not have intended to have the GMA apply Nollan/Dolan to legislative exactions like impact fees. In contrast, the dissent argued that the GMA’s language showed an intent to incorporate the Nollan/Dolan standard, for instance by requiring exactions to be “reasonably related to” the new development – the same language Nollan used in reference to its “essential nexus” requirement. Therefore, the dissent would have held that impact fees assessed under the GMA require analysis under Nollan/Dolan.

Although Drebick is not a Takings Clause case, the analytical foundations of Drebick are precarious after Sheetz. Because Drebick held that impact fees could be assessed based on the zoning and location of a proposed development, it is the type of legislative exaction challenged in Sheetz. Sheetz now requires that legislative exactions be subject to Nollan/Dolan, as the dissent advocated for in Drebick. This means that impact fees under the Growth Management Act can be challenged as unconstitutional takings if they do not meet Nollan/Dolan’s “essential nexus” and “rough proportionality” requirements.

The only question for the Washington Supreme Court to answer is the one left open by the U.S. Supreme Court: to what extent does the Nollan/Dolan analysis apply, and how specifically tailored does a traffic impact fee need to be to survive under the Takings Clause?

In sum, Sheetz opened the door to state-level challenges to local traffic impact fees under the Takings Clause. Prior interpretations of impact fees by the Washington Supreme Court are now subject to more scrutiny, and the exact scope of analysis is an open question in Washington State. For developers, this provides an opportunity to challenge the imposition of broad traffic impact fees, and argue for a more project-specific analysis, which could result in thousands of dollars of saved permitting costs.

If you have any questions regarding the Sheetz decision or its effect on impact fees in Washington, please contact Chris Pierce-Wright in our Tacoma office at cpiercewright@dfpblaw.com.