U.S. Supreme Court Strikes Down Impact Fees – Santa Rosa Should Pay Attention

May 22, 2024 - Blog by

The Pensacola News Journal recently published the following opinion piece written by Steve Moorhead, Moorhead Law Group’s founding partner:

On April 12, 2024, the United States Supreme Court handed down a ruling in Sheetz v. County of El Dorado that will shape impact fee practices across the country.

In the realm of land use law, Sheetz v. County of El Dorado stands as a beacon of property rights advocacy and a catalyst for reforming impact fee practices. This landmark case not only affirmed the rights of property owners but also sparked a crucial dialogue about the fairness and legality of impact fees.

At its core, the case centered on the Sheetz family’s right to develop their land in accordance with local zoning regulations by obtaining a permit for a single-family home. Eldorado County is a fast-growing community, and its governing body sought to impose hefty impact fees aimed at mitigating the infrastructural impacts as a condition for approval of a permit.

Writing for a unanimous Court, Justice Barret’s opinion relied upon the Takings Clause of the Fifth Amendment and held there can be no taking of property without just compensation. The Court ruled that the conditioning of a permit upon the payment of the impact fee constituted a “taking.” Counties have broad power to regulate land use. But those regulations can go too far, particularly, when conditions are placed on the issuance of a permit. The Court stated, “when the government withholds or conditions a building permit for reasons unrelated to its legitimate land-use interests, those actions amount to extortion. The Court upheld a two-part test. First, the impact fee (the condition) must have an “essential nexus to the government’s land use… not leveraging its permitting monopoly to exact private property without paying for it.” Second, the fee must have “rough proportionality to the development’s impact on the land-use interest.”

Closer to home, impact fees imposed by Santa Rosa County were challenged in 2020 by the Home Builders Association of West Florida and others. There, the Circuit Court, in a decision upheld by the First District Court of Appeal, struck the fees as being an unconstitutional tax. Florida has adopted a test similar to the one the U.S. Supreme Court based its decision upon. Under the Florida Constitution, impact fees must satisfy the “dual rational nexus” test. The impact fee must offset needs that are attributed to the new development and the fees collected must be earmarked for the “substantial benefit of” the new development’s residents.

Northwest Florida is a paradise, and it is natural for citizens of the community to ask that development pay for itself. However, the new homebuyer is not at fault for the failure of government to provide infrastructure to meet the growing demand with the increase in the tax base that the development creates. In the last 10 years, Santa Rosa County’s receipts from ad valorem taxation have gone from $46 million to $90 million. In the last five years, over $40 million has been generated by the half cent sales tax. These taxes are paid by property owners and those making purchases in the county. The impact fee proposed by the county will be paid by only those purchasing new homes. By comparison, the current impact fee is projected to generate only $3-4 million. Impact fees are expensive to create, they must be based upon costly studies and are often subject to litigation given the disfavor by the courts. Given the minimal relative revenue and the costs associated with the fee, in our view, the juice isn’t worth the squeeze.