SCOTUS going soft on property rights?

By Dave Hunnicutt
Oregon Property Owners Association

The United States Supreme Court issued its most recent property rights opinion in Sheetz v. County of El Dorado.  From the property owner’s perspective, it’s fair to call Sheetz a win, but given the Supreme Court’s more recent property rights opinions, the victory in Sheetz is minor, and may spell a troubling trend for future Supreme Court decisions.

Case background.

The issue in Sheetz was a decision by El Dorado County, a California County, to impose a “traffic impact fee” upon a property owner who wished to obtain a building permit to build a home. George Sheetz owns residential property in El Dorado County. Sheetz applied to the County for a building permit to build a small home on the property.

The County approved Sheetz’ building permit application but demanded that he pay the County a $23,000 “traffic impact fee” (TIF). When a local government demands that a property owner pay a fee or give the government real estate (for sidewalks, for example) in exchange for a discretionary permit like a building permit, the demand is known as an “exaction”. Needless to say, the TIF didn’t sit too well with Sheetz, and who could blame him?

Like most local TIF ordinances, the County’s TIF did not directly measure the impacts (if any) that Sheetz’ new home would have on the need for upgrades to the County’s traffic system. In other words, there was no analysis that the County actually needed to spend $23,000 to make improvements to the County’s traffic system to offset the increase in traffic caused by Sheetz’ new home.

Instead, the County’s TIF calculated the amount of Sheetz’ fee based upon averages of the number of daily car trips that a new house would generate on the County’s roads and the kind of traffic improvements needed to offset new housing developments in the County.  The idea is that new housing would pay for itself.

Exactions explained.

There is nothing unconstitutional about allowing a local government to demand that growth pay for itself, and to refuse to issue a permit to a property owner unless the property owner pay a fee to offset the impacts caused by their proposed development. That’s fine.

Where government steps over the line is when the government holds a property owner hostage by demanding that the property owner not only pay to offset the impacts caused by their own development, but also pay for improvements that the government wants, but doesn’t want to pay for.

For example, assume that a town’s current residents would really like a new public swimming pool, but the city doesn’t have the money to build it, and the current residents won’t raise their taxes to pay for it.  In that situation, it’s unconstitutional for the town to demand that a single property owner pay for the new swimming pool and refuse to provide the property owner with a building permit until they agree to pay for the new pool.

In that situation, the demand to pay a “swimming pool fee” in exchange for a building permit is an unconstitutional exaction. The reason the exaction is unconstitutional is because there really isn’t a relationship between the increased demand on city services caused by a new home and the city’s desire to build a new swimming pool.

Revisiting Dolan – OPOA Legal Center laid the groundwork on exactions law.

In fact, it was OPOA that set the standard for unconstitutional exactions in our landmark Supreme Court case Dolan v. City of Tigard.  In that decision, the Supreme Court held that a city could impose an exaction, but only if the exaction was “roughly proportional” to the impact caused by the proposed development.

What that means is that local governments remain free to demand that a property owner pay a fee for improvements to city infrastructure and other services in exchange for receiving a development permit, but only if that fee is needed to offset an increased demand for city services resulting from the development, and only if the fee is proportional to the impact.

Courts split on whether Dolan applies to legislative action.

Back to Sheetz. The issue here was that El Dorado County really didn’t want to try to prove that their $23,000 TIF was “roughly proportional” to Sheetz’ request to build a small home on his land.  Instead, El Dorado County argued that the “rough proportionality” standard from OPOA’s Dolan case didn’t apply to the County’s TIF, because the County’s TIF was imposed legislatively, and not on an ad-hoc, case by case basis.

According to the County, if a County creates an exaction that applies broadly and is based on a set formula, it is legislative and not subject to any kind of demonstration that the exaction is needed to offset impacts caused by the proposed development.

Applying the County’s logic, if the County adopted an ordinance that said, “we won’t give you a building permit unless you give us a deed to half your property” that would be perfectly constitutional, because the ordinance applies broadly to every property owner in the County and it is based on a set formula.  Sounds crazy, right?

Not according to quite a few state courts. In fact, since the Dolan decision was decided in 1994, a number of state appellate courts have held that the Dolan “rough proportionality” standard doesn’t apply to legislative exactions, and only applies to exactions made on an individualized and discretionary basis.

What’s worse, Oregon was one of those courts. In 2002, in Rogers Machinery v. City of Tigard, the Oregon Court of Appeals held that Dolan did not apply to the Washington County TIF, which was very similar to the TIF issued in Sheetz.  OPOA represented Rogers Machinery in that case, and although we appealed the court’s decision to the US Supreme Court, the Court did not take review. Today, the Rogers Machinery decision would be much different.

SCOTUS delivers win for property owners – sort of.

It did not take the Court long in Sheetz to hold that Dolan applied equally to legislative exactions or exactions imposed on a discretionary basis.  In other words, the Court made it clear that a TIF ordinance like El Dorado County’s (or the Washington County TIF from Rogers Machinery) are now subject to the “rough proportionality” test, meaning that the County (or city) is going to have to show that the amount of the TIF is needed to offset the impact resulting from the development.

So far, so good.  But that’s where the good portion of Sheetz ends, and the bad portion begins.

The Sheetz decision was written by Justice Amy Coney Barrett, one of the newest justices.  When a Supreme Court opinion is issued, commentators and the media often tend to highlight only the portions of the decision that make their particular point, while ignoring the rest.

This is certainly the case with Sheetz, with commentators hailing the Court’s decision as “groundbreaking” or “significant”. Unfortunately, that just isn’t true.

Always read the fine print.

Understanding the full impact of Sheetz requires a complete reading of Justice Barrett’s opinion. And the “fine print” of the opinion isn’t helpful.  Toward the end of the opinion, Justice Barrett writes:

“We do not address the parties’ other disputes over the validity of the traffic impact fee, including 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. The California Court of Appeal did not consider this point—or any of the parties’ other nuanced arguments—because it proceeded from the erroneous premise that legislative permit conditions are categorically exempt from the requirements of Nollan and Dolan. Whether the parties’ other arguments are preserved and how they bear on Sheetz’s legal challenge are for the state courts to consider in the first instance.”

What does this paragraph mean?  What it means is that the Court’s only holding in Sheetz is that the Dolan “rough proportionality” test applies to both legislative exactions and ad-hoc, individualized exactions. OK fine – that’s a far better outcome than what courts in many states were doing, but it hardly resolves the issue for property owners.

In fact, nearly every exaction ordinance (legislative or individualized) is nuanced and individualized to some extent.  This includes the El Dorado County TIF in Sheetz and the Washington County TIF in Rogers Machinery.

In other words, and using the language from Justice Barrett’s paragraph above, most exaction ordinances create a “permit condition imposed on a class of properties”. The California Court of Appeals in Sheetz did not consider this argument, or as Justice Barrett notes “any of the parties’ other nuanced arguments” about the validity of the El Dorado County TIF. Consequently, the Court sent the case back to the California Court of Appeals to resolve those arguments.

Property owners must still fight an uphill battle.

This all means that even though George Sheetz “won” at the Supreme Court, he won a single battle in a much longer war, and it is not at all clear whether he (and other property owners in the same position) will ultimately prevail in the long run.

The Court’s decision is even more troubling in light of a concurring opinion written by Justice Brett Kavanaugh.  Justice Kavanaugh’s concurring opinion makes it clear that although he agrees with the outcome, it needs to be clear to the public that the Court is not issuing an opinion on whether the El Dorado TIF in Sheetz, or any other similar TIF, which encompasses virtually all exaction ordinances whether related to traffic or otherwise, actually satisfies the “rough proportionality” requirement of Dolan.

That makes the Sheetz decision very narrow, and not particularly useful. Worse, it means that two of the Court’s newest and youngest justices may not be particularly strong on the Takings Clause, which hasn’t been a problem for most of the older justices (Alito, Thomas, Roberts, Gorsuch).

Bottom line: For property rights advocates relying on Justices Barrett and Kavanaugh in the future, we should be nervous, even though we technically “won” in Sheetz. This was simply not a great decision for property owners.