The U.S. Supreme Court has struck down California’s unique rule – embedded in the Mitigation Fee Act – that exactions and impact fees don’t have to be “roughly proportional” to the impact of the new development project under consideration if they are imposed as part of a general plan policy or other program-level effort.

But now the question becomes whether the way California jurisdictions actually calculate those program-level fees is specific enough to meet the “rough proportionality” rule – and that question will be determined by California courts. Some have said this will inevitably lead to lower impact fees. Given the history of impact and mitigation in California, however, it seems more likely that it will simply lead to the use of a more sophisticated methodology in nexus studies that justify the fees. Cities and counties in California aren’t likely to give up impact fee revenue that easily.

The Supreme Court ruling came in Sheetz v. El Dorado County, a case from El Dorado County where a contractor named George Sheetz sued after being required to pay $23,000 in traffic impact fees in order to get a permit to build an 1,800-square-foot manufactured home outside of Placerville. The court essentially eliminated the rule under California law that exactions must have a “reasonable relationship” to the project at hand and replaced it with the “rough proportionality” rule.

Actually, the Supreme Court did away with the “reasonable relationship” rule 30 years ago in Dolan v. City of Tigard. In that case, then-Chief Justice William Rehnquist explicitly rejected the “reasonable relatlonship” rule, saying: “We think a term such as ‘rough proportionality’ best encapsulates what we hold to be the requirement of the Fifth Amendment. No precise mathematical calculation is required, but the city 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.”

Along with the “rational nexus” rule from the 1987 case of Nollan v. California Coastal Commission – the idea that an exaction must have a “rational nexus” to the impact a development project has – Dolan led to the so-called Nollan/Dolan rule that an exaction must have both a nexus and rough proportionality in order to be constitutional.

But California took a different route – not for individual projects but for impact fees and other exactions that are enacted as part of a general plan or other programmatic effort and therefore are applicable to all applicants. To this day, the Mitigation Fee Act requires a “reasonable relationship” but not “rough proportionality”.

As a result, most programmatic impact fee programs don’t use an “individualized determination”. Instead, they simply calculate the overall cost of the impact created all the new development called for in the general plan and basically divide that by the amount of development. Different land uses are often assumed to have different impacts and the math is adjusted accordingly.

To understand this better, let’s walk through how George Sheetz wound up paying $23,000 in traffic impact fees for an 1,800-square-foot prefab house.

El Dorado County established its traffic impact fee system after adopting a general plan update in 2004. The general plan was adopted after several years of bruising battles over new development in the county and the likely impact it would have on traffic both on Highway 50, the main highway through the county, and local roads. The intent was to make sure new development paid its “fair share” of the cost of improving and expanding the road system. (It’s worth noting that most of El Dorado County is located either inside El Dorado National Forest or in the jurisdiction of the Tahoe Regional Planning Agency, so the county’s growth battles were mostly confined to unincorporated areas in exurban Sacramento areas. Sheetz’s house is in an unincorporated area eight miles east of Placerville.)

Although the fee system has changed over the years – as have the rates – the fundamentals have remained the same. First the county identifies all the road and transit improvements required in the foreseeable future and allocates the costs to deficient conditions (which new development cannot legally pay for) and new development (the basis for the fees). The project list, with the new development share broken out, can be found here. It identifies some $350 million in transportation improvements, with about $70 million allocated to new development. The county also assumes that a certain amount of the new development cost will be covered by grant funding.

The “new development” share of the transportation is based on an assumed level of new development, originally contained in the general plan and perodically updated.

To translate that into fees for individual projects, the county engages then uses various traffic studies to identify how many vehicle trips different land uses are likely to generate. And in a series of complicated calculations that compares the fee for various land uses compared to the fee for a single-family house. This is known as an “equivalent dwelling unit,” or EDU. For example, a single-family home of less than 1,000 square feet must pay approximately 82% of the fee that a typical single-family home pays, while a commercial building must pay 155% of the single-family cost for each 1,000 square feet of space. In addition, El Dorado County creates separate fees for three different zones based on geography. (All this, along with the resulting fees, is laid out here.)

But here’s the thing: The fees are not based on the specific impact of a particular project on the road system. They’re based on the assumption that all the development called for in the general plan will be built and that each development project will pay its fair share of the resulting cost based on the assumed number of vehicle trips for that land use.

As the county’s most recently updated traffic impact fee study, prepared by DKS and others, explains: “EDUs … reflect the average number of ‘new trips’ generated by each land use type.” (Emphasis added.) In other words, it’s not an “individualized determination”. It’s an average.

Most program-level impact fee calculations in California follow the same formula. For example, the Western Riverside Council of Government’s Transformation Uniform Mitigation Fee, or TUMF, uses an almost identical “fair share” methodology. (WRCOG’s 2017 nexus study can be found here.)

So is that good enough? We don’t know yet. The U.S. Supreme Court did not decide whether the fee that George Sheetz paid El Dorado County was unconstitutionally high. All the court said was that you have to use rough proportionality as the standard instead of reasonable relationship. Now it’s up to the California courts to use the apply the rough proportionality standard to George Sheetz’s situation.

It's entirely possible that El Dorado County will argue in court that the methodology the county uses – again, a rough average of the impact that a typical development project will have – constitute “rough proportionality”. And California courts may well buy the argument. But it will be tough to get around Rehnquist’s call in Dolan for an “individualized determination”.

But how do you make an “individualized determination” for the impact every single development project allowed under a general plan that requires a program of transportation improvements based on lots of development projects over a long period of time? Do you have to postpone the actual impact analysis down until a project is proposed? That would seem to be the opposite of the direction that most California jurisdictions seem to want to go in, which is to resolve things at the plan level rather than the project level.

And what difference would that make in determining the fees? After all, an individual traffic impact analysis will almost certainly be based on the same assumptions about the number of vehicle trips and the cost of new transportation improvements that would be used at the plan level.

In all likelihood, if El Dorado County ultimately loses Sheetz back in the California courts the nexus consultants and the lawyers will come up with some way of slicing and dicing land uses and their impacts more specifically than they do now. The result will probably be more work for nexus consultants. Whether it will also result in lower impact fees remains to be seen.

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You can also learn more about the Sheetz case and the exactions landscape by taking Bill Fulton's one-hour course here. This course is eligible for AICP CM credit.