Court Holds That County’s Traffic Mitigation Fee Was Valid Under the California Mitigation Fee Act and Did Not Violate the Takings Clause of the Fifth Amendment

California’s Court of Appeal for the Third District recently held that El Dorado County’s imposition of a Traffic Impact Mitigation Fee (TIM) as a condition of approval for a residential building permit was valid under the California Mitigation Fee Act and did not violate the takings clause of the Fifth Amendment (Sheetz v. County of El Dorado, No. C093682, 3d. District, October 19, 2022).

In reaching its decision, the court reiterated longstanding California judicial authority establishing that local agencies may impose impact fees to offset the impacts of new development under the Mitigation Fee Act.

This case also confirms that legislatively-adopted impact fees imposed as a condition of approval for a land-use permit are subject to the Mitigation Fee Act’s “reasonable relationship” requirement, which requires the local agency to demonstrate that there is a reasonable relationship, in both intended use and amount, between a project’s impact and the fee imposed. By contrast, development fees imposed on an ad-hoc, individual, discretionary basis are subject to heightened judicial scrutiny under the Nollan/Dolan test discussed below.

Here, the County adopted the TIM to fund street construction to mitigate traffic impacts from new development. Consequently, the court reviewed the TIM under the “reasonable relationship” requirement after rejecting petitioner’s argument that heightened scrutiny should apply. The court determined that the County had established a reasonable relationship between the TIM’s amount and the residential project’s impacts, and held that the petitioner had failed to demonstrate that the TIM was arbitrary, entirely lacking in evidentiary support, or otherwise invalid.

Petitioner challenged the County’s traffic impact fee

In 2006, the County amended its General Plan to include the TIM and authorize the County to impose the TIM as a building permit condition of approval to mitigate traffic impacts from new development by funding new, and widening existing, state and local roads. The amount of the TIM was calculated formulaically based on a project’s location and type (e.g., single-family residential, multi-family residential, general commercial), and in assessing the fee, the County did not make any individualized determinations regarding a particular project’s traffic impacts on state and local roads.

In July 2016, petitioner George Sheetz applied for a building permit to construct a 1,854 square foot single-family manufactured home on his property in Placerville. The County issued the permit condition upon payment of the TIM for $23,420, calculated based on the location and proposed residential use of Sheetz’s property.

In June 2017, Sheetz filed a petition for writ of mandate and a complaint for declaratory relief, alleging, among other causes of action, that: the TIM was invalid; the TIM violated the California Mitigation Fee Act because there was no reasonable relationship between the fee amount and the cost of the road improvements specifically attributable to his development project; and the TIM violated the Fifth Amendment’s takings clause because the County failed to make an individualized determination that an “essential nexus” and “rough proportionality” existed between the project’s traffic impacts and the need for road improvements. The trial court sustained the County’s demurrer to the declaratory relief causes of action and denied the petition for writ of mandate.

Sheetz appealed, arguing that the TIM’s imposition amounted to a takings claim under the “unconstitutional conditions doctrine” and violated the Mitigation Fee Act. The court of appeal affirmed the trial court’s holding and found no error.

The County used a valid method for imposing the fee based on a reasonable relationship between the fee amount and the traffic impact of Sheetz’s development.

Sheetz claimed that that the TIM amounted to an unlawful taking of property in violation of the “unconstitutional conditions doctrine,” under which the government may not ask a person to give up a constitutional right (such as the right to receive just compensation when property is taken for public use) in exchange for a project approval or building permit if the condition of approval has little or no relationship to the development project.

To assess such takings claims in the context of land-use permit exactions, courts apply the holdings from three Supreme Court cases: Nollan v. California Coastal Comm’n (1987) 483 U.S. 825 (Nollan), Dolan v. City of Tigard (1994) 512 U.S. 374 (Dolan), and Koontz v. St. Johns River Water Management Dist. (2013) 570 U.S. 595 (Koontz). Nollan requires an “essential nexus” between the “government’s legitimate state interest and the exaction imposed.” Dolan requires a “rough proportionality” between the exaction and the projected impact of the proposed development. “No precise mathematical calculation is required, but the [government] must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” Together, the Nollan and Dolan requirements are referred to as the Nollan/Dolan test.

In Koontz, the Supreme Court extended the Nollan/Dolan test to monetary exactions where a property owner applies for a permit, and the government imposes an ad hoc monetary exaction as a substitute for the property owner’s dedication of real property to mitigate an impact of the proposed project.

In California, however, courts have long held that the Nollan/Dolan test’s individualized determination and heightened scrutiny do not apply to legislatively-adopted fees such as the TIM. Instead, the Nollan/Dolan test applies to fees that are imposed on an individual and discretionary basis. Moreover, the court of appeal explained that Koontz did not require application of the Nollan/Dolan test to the TIM because “Koontz involved an adjudicative, individual and discretionary land-use determination,” and fees like the TIM are imposed pursuant to a legislatively authorized fee program that apply countywide to new development projects. Consequently, the TIM was only subject to the Mitigation Fee Act’s “reasonable relationship” requirement.

Sheetz also claimed that the County had violated the Mitigation Fee Act because there was no “reasonable relationship” between the public impacts of Sheetz’s residential development and the need for improvements to state and local roads, and because the County failed to analyze specific traffic impacts resulting from Sheetz’s project before imposing the fee. In rejecting these claims, the court explained that the Mitigation Fee Act provides that a local agency may satisfy the reasonable relationship requirement through “quasi-legislative decisions to impose development impact fees on a class of development projects” rather than case-by-case decisions to impose a fee on a particular development project. (See Gov. Code § 66001(a).) An agency is only required to demonstrate that development contributes to the need for public facilities, and that the agency’s imposition of fees will reasonably defray the impacts to those facilities.

The court proceeded to explain that the General Plan amendment was adopted to include the TIM, and the TIM was based on a detailed memorandum from the Department of Transportation explaining the purpose of the fee and the use to which the fee would be put. The methodology used to calculate the fee rate for each category of development accounted for multiple factors, including projected increases in average daily vehicle trips from each type of new development based on published data in the Institute of Transportation Engineers Trip Generation Manual, 7^thEdition. The court thus concluded that the County used a valid method for imposing the TIM and had established a reasonable relationship between the fee amount and Sheetz’s development project. The TIM was therefore not arbitrary, entirely lacking in evidentiary support, or otherwise invalid under the deferential standard for legislatively-adopted impact fees under the Mitigation Fee Act.

Implications

This case continues the line of cases distinguishing between general, legislatively-adopted impact fees and individualized, project-specific impact fees, and reiterates that when reviewing an agency’s application of legislatively-adopted fees to a project, courts are deferential to agencies and typically uphold an agency’s action unless it was “arbitrary, capricious or entirely lacking in evidentiary support.”