Supreme Court ruling against exorbitant government fees seen as victory for property rights

The United States Supreme Court unanimously ruled against exorbitant government fees in a case that centered on one California retiree forced to pay a flat-rate $23,000 “traffic impact fee” for the construction of a single small home to raise his grandson in.

This ruling combined earlier rulings on government permitting fees, which must both have “essential nexus” — related to the government interest from having the fee — and be “roughly proportional” to the impact from the action the fee is targeting, with the addition that fees created by legislatures are not exempt from these requirements.

“Today’s ruling is a major victory for property rights, and a step in the right direction toward removing barriers to housing,” said Brian Hodges, senior attorney at Pacific Legal Foundation, which served as co-counsel on the case. “We are thrilled with the Supreme Court’s decision and will continue fighting to protect property rights and make the process for building new homes more fair.”

In California, because local governments tend to exhaust their property tax revenues on ongoing expenses, they use development fees to fund new projects. With flat-rate single family home development impact fees costing up to $157,000, it’s possible for an impact fee to cost more than construction.

Despite sky-high demand for housing and a 4.5 million home shortage in California, housing production is plummeting, with housing permits down 45% in 2023 compared to 2022 due to higher interest rates. By opening up exorbitant development fees to lawsuits, this ruling could help spur more housing construction in the long-term by making it more affordable to build.

California’s Supreme Court had ruled in favor of El Dorado County, which levied the fee on the basis that the fee was created through the legislature, not a bureaucratic action, and thus was exempt from the nexus and proportionality doctrines. The U.S. Supreme Court vacated that ruling and remanded it back to the state court to decide whether or not the $23,000 fee is constitutional under the new framework clarifying legislature-created fees are still subject to the tests.

In a separate opinion Justice Brett Kavanaugh clarified that this ruling ”does not address or prohibit the common government practice of imposing permit conditions, such as impact fees, on new developments through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.”