The United States Supreme Court has made a unanimous ruling against exorbitant government fees. The case revolved around a California retiree who was required to pay a hefty $23,000 “traffic impact fee” for the construction of a single small home, where he intended to raise his grandson. The court deemed this fee to be excessive and unjust.
The recent ruling has consolidated previous rulings on government permitting fees. These fees must meet two criteria: they must have an “essential nexus” to the government’s interest in imposing the fee, and they must be “roughly proportional” to the impact of the action being targeted by the fee. Importantly, the ruling clarifies that fees established by legislatures are not exempt from these requirements.
According to Brian Hodges, a senior attorney at the Pacific Legal Foundation, the recent ruling is a significant win for property rights and a positive move towards eliminating obstacles to housing. Hodges, who served as co-counsel on the case, expressed his excitement about the Supreme Court’s decision and emphasized the ongoing commitment to safeguarding property rights and ensuring a fairer process for constructing new homes.
In California, local governments often rely on development fees to finance new projects since their property tax revenues are typically allocated for ongoing expenses. These development impact fees for single-family home construction can reach up to $157,000, sometimes even exceeding the actual construction costs.
Despite the high demand for housing and the shortage of 4.5 million homes in California, housing production is declining. In 2023, housing permits have decreased by 45% compared to 2022, mainly due to higher interest rates. However, this ruling has the potential to encourage more housing construction in the long run by allowing lawsuits against excessive development fees. This could make building more affordable.
The California Supreme Court had sided with El Dorado County, upholding the fee it had imposed. The court based its decision on the grounds that the fee was established through legislation rather than bureaucratic action, and therefore, was not subject to the nexus and proportionality doctrines. However, the U.S. Supreme Court overturned this ruling and sent the case back to the state court. The state court now needs to determine whether the $23,000 fee complies with the constitution under the newly clarified framework, which states that fees created by the legislature are still subject to certain tests.
Justice Brett Kavanaugh, in a separate opinion, made it clear that this ruling does not prevent the government from imposing permit conditions, such as impact fees, on new developments. However, these conditions should be based on reasonable formulas or schedules that assess the impact of classes of development, rather than the impact of specific parcels of property.
