Supreme Court case about impact fees could affect housing
A dispute between a 72-year-old retiree in Placerville and El Dorado County over a $23,420 building fee got its day before the country's highest court this week in a case with potentially seismic consequences for local government budgets and housing markets across California and the country.
At issue is just how far cities and counties have to go to justify “impact fees”: fees slapped on new construction projects in order to offset the toll new developments take on local infrastructure.
The stakes are especially high in California, where impact fees can tack on hundreds of thousands of dollars to new housing projects that are already among the most expensive to build in the nation.
The plaintiff in this case wants to put new guardrails on those fees. But that would come at a sharp cost: Local governments, restricted by California law from raising property taxes and borrowing funds, disproportionately rely on impact fees to pay for infrastructure like roads and sewer lines.
The justices waded deep into the legal weeds of the case during oral arguments today and seemed alternately frustrated and bemused as they grappled with whether El Dorado County's fee should be treated like the government were seizing a homeowner's property, a simple tax or something in between.
The legal saga began in 2016 when George Sheetz, a retired engineering consultant, built a small manufactured home on a vacant tract in the Sierra foothill city of Placerville. The county stuck Sheetz with the five-figure “impact fee” to fund local roads, highways and bridges. Sheetz paid up, but then sued.
With the backing of a conservative legal nonprofit, the Pacific Legal Foundation, he argued that, contrary to a four-decade old Supreme Court precedent, the county had failed to prove that the fee accurately reflected the wear and tear his small project would likely leave on local roads.
“Everyone loves good roads and schools and public infrastructure, so the government certainly has many tools at its disposal, including taxes to pay for those,” said Paul Beard, Sheetz's attorney, in presenting his case before the court today. “What we're saying is that the government can't select a few… property owners who happen to need a permit at any given time — to select them to bear the burdens of paying for that public infrastructure.”
The lawyer representing the county countered that officials had done the legally required due diligence to justify the fee. But even if they hadn't, they added, fees passed by local elected bodies that apply equally to all applicants — as opposed to one-off exactions levied on a specific development — don't warrant such close judicial scrutiny.
Requiring cities and counties to enact fees only after they've done a thorough, property-specific analysis of the impact a proposed development would have on local roads, for example, “would disrupt if not destroy their ability to fund capital intensive infrastructure necessary to serve new development, bringing such development to a grinding halt,” said Aileen Marie McGrath, the attorney for El Dorado.
With so much potentially at stake, the case has drawn the attention of a wide array of competing interests. Building industry groups, conservative property right defenders and Yes In My Backyard advocates have all filed briefs pleading with the court to force local governments to clear a higher bar before charging for the right to build.
A decision against Sheetz would only encourage “unconstrained exactions on new development, further adding to the crushing costs of housing in California and other jurisdictions that refuse to require governments to show any proportionality between the amount of fees demanded and the alleged impacts of new development,” the California Building Industry Association wrote in its brief from June.
City and county government groups, along with the governments of both the state of California and the United States, have come to El Dorado County's defense.
Many court watchers expect the court's conservative majority to side with the burdened property owner and require the cities and counties to work a bit harder to justify the fees they impose on new home construction. It remains unclear for now just how far such a ruling could go and whether it might place fresh limits on other widely used housing and revenue-raising policies.
“It seems kind of like a nightmare to figure out where the line should be drawn,” Justice Amy Coney Barrett said.
A uniquely California case
Though today's debate took place in the ethereal clouds of abstract constitutional consideration, for California developers, the issue at hand is plenty concrete. As a group, they've spent a generation griping about impact fees.
As of 2015, the average impact fee on a single family home in California was more than quadruple what it was in other states, according to a survey. While such fees were found in a “minority” of jurisdictions outside of California, they were “virtually universal” here.
In a 2018 study from UC Berkeley's Terner Center, impact fees in a survey of California cities ranged from between 6% to 18% of the local median home price.
It's not especially surprising that California cities and counties have come to rely so heavily upon this particular form of financing.
During the high-growth decades of the 1950s and '60s, local governments could easily assume that new development would pay for its own added toll on publicly funded roads and pipes through increased property tax revenue. That changed in 1978, when voters passed Proposition 13, capping local property taxes and muzzling the ability of local governments to borrow or raise new taxes.
That's led to some frustration from El Dorado County and its defenders. If impact fees are intolerable, some have asked, what are the alternatives?
“Unless you want a dirt road and like, you know, bandits out there because we don't have a sheriff, we need to have some level of an assessment done,” said Mark Neuburger, a legislative advocate for the California State Association of Counties. “It's unfortunate when it's a noticeable size of your project, but we live in a modern society and this is just part of the expense of paying for it.”
Sheetz and his supporters contend that these fees aren't justified solely on meeting specific, related infrastructure costs and point to the wide variability in fees from one city to the next — even between neighboring jurisdictions.
As the city of Oakland noted in a recent report, its typical fee on large apartment projects comes out to $39,264 per unit. The neighboring city of Berkeley, sets the tab at $66,594. Across the Bay in San Francisco, the fee is $74,597.
At the more extreme end, the 2018 Terner Center study found that the city of Fremont imposed a singlefamily home impact fee of $157,000.
“You look at places like Fremont and they have these immaculate parks that are funded very significantly by impact fees,” said David Garcia, the center's policy director. “There's a question whether it's reasonable to want to have top notch services and infrastructure, but for that to come on the backs of new residents.”
A fee or `out-and-out' extortion
The origins of this particular debate date back to another legal dispute brought by Californians trying to build a new house.
In the early 1980s, James and Marilyn Nollan, a Ventura County couple, decided to convert their coastal bungalow into a two-story home. The California Coastal Commission, which regulates land use along the state's coastline, issued a construction permit, but only on the condition that the couple give up a slice of their property to allow for a public walkway to the beach.
In 1987, the U.S. Supreme Court ruled that the Coastal Commission had overstepped. If the government wants to take someone's private property in exchange for granting them a landuse permit, there has to be some obvious connection between the property being seized (in this case, a slice of land for a walking path) and the government's purpose in restricting development in the first place (capping a building for the preservation of ocean views), the court held.