Glen C. Hansen is of counsel for the Renne Public Law Group. He can be reached at ghansen@publiclawgroup.com.

Over the summer, the U.S. Supreme Court put an end to a decade-long legal saga involving development impact fees — for now. The case, Sheetz v. County of El Dorado, focused on whether a property owner had to pay a traffic mitigation fee to the county before building a home. Although the California Court of Appeal’s final opinion was de-published, it still provides valuable insights for cities seeking to adopt a defensible impact fee schedule — an issue that will certainly come before the courts again.

Case background

The case centered on a $23,420 traffic mitigation fee. After paying the fee in 2016, George Sheetz challenged the fee in the trial court. He argued that it violated the Fifth Amendment’s takings clause, which blocks the government from taking private property for public use without just compensation. The case eventually made its way to the U.S. Supreme Court.

In 2024, the U.S. Supreme Court held that the county’s mitigation fees were not exempt from the two-part test under Nollan v. California Coastal Commission and Dolan v. City of Tigard just because a Legislature imposed the fees. Under the Nollan/Dolan test, conditions included in permits must (1) have an essential nexus to the government‘s legitimate land use interest, and (2) must be roughly proportional to the public harms caused by the new development.

The U.S. Supreme Court sent the case back to the California Court of Appeal for further proceedings, which issued a second opinion that addressed several issues the U.S. Supreme Court did not consider. That opinion was later de-published by the California Supreme Court, meaning it cannot be cited or relied on in future cases. In 2026, Sheetz brought the case to the U.S. Supreme Court again, which declined to review it a second time.

Cities should be careful about what they use impact fees to address

In the second opinion, the Court of Appeal held that the county’s impact fee satisfied the “essential nexus” prong of the Nollan/Dolan test. The court found that there was a “logical connection” between the fee imposed on new residential development and a legitimate interest in minimizing traffic congestion caused by that new development.

Standardized impact fees programs that could be vulnerable under the “essential nexus” prong are those that seek to address public problems that:

• Are not legitimate for local governments to handle.
• Predate the development on which the fee is imposed.
• Are not caused by the new development.

Cities could possibly expect challenges to impact fees that address such things as a lack of below-market-rate homes or public art. 

Categories of fees in a standardized schedule should be specifically tailored

The Court of Appeal also addressed whether the takings clause prohibits permit conditions, such as impact fees, on applicants based on reasonable formulas that assess the impact of entire classes of development rather than the impact of a specific development. Property rights groups argued that only a parcel-specific analysis of the development impacts can pass muster under Nollan/Dolan.

The Court of Appeal disagreed with the plaintiffs, as did U.S. Justice Brett Kavanaugh’s concurrence in Sheetz. Nevertheless, cities should tailor the categories of fees within a standardized fee schedule to the development impacts they seek to mitigate. The rough proportionality test requires that “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.” 

Strict compliance with the Mitigation Fee Act should satisfy Nollan/Dolan

In its first decision, the Court of Appeal held that the county complied with the reasonable relationship test for legislative exactions in California’s Mitigation Fee Act. The petitioner did not challenge that holding but instead argued that compliance with the law was insufficient under Nollan/Dolan.

While the Court of Appeal did not directly answer that question in the opinion, it explained that the rough proportionality requirement in Dolan involves the same requirements applied under the reasonable relationship test for legislatively imposed exactions in the Mitigation Fee Act. Thus, careful and strict compliance with the act’s reasonable relationship test should satisfy the Nollan/Dolan test.

To comply with both the Mitigation Fee Act and Nollan/Dolan, cities should do the following:

• Determine the reasonable relationship between the proposed use of an impact fee and the type of development on which the fee is imposed.
• Determine the reasonable relationship between the proposed use of an impact fee and the need for the public facility it would fund. 
• Use a valid methodology, based on technical analysis and expert reports, that establishes a reasonable connection between the amount of the impact fee imposed on a class or type of development and the impacts of that development.
• Make legitimate efforts to quantify the findings and make reasonable, particularized projections to show that the impact fees are related to the nature and extent of the proposed development’s impact. There must be some evidence relating to the methodology used and the function of the impact fee. Precise mathematical calculations are not required, but conclusory statements of general impact will not be sufficient.
• Determine that the factual findings made when adopting the impact fee establish that the impact fee is proportional to the nature and scope of the development(s)’ public impact.
• Robustly document the methodology used, supporting technical reports and analysis, and legislative findings before the city council adopts the fee program.

Going forward, cities can expect to see more federal constitutional challenges to fee programs that seek to mitigate the impacts of new development. However, adherence to the criteria outlined above will help create a legislative record that could either dissuade such litigation or better position cities to defend against such challenges.