“Impact fees” and related charges on new development to offset growth-related expenses were the subject of a recent US Supreme Court case. Maryland governments use impact fees and similar levies in multiple cases — do our counties need to worry about this California case creating a ripple effect in far-away Maryland? (Spoiler: no, not really, we’re pretty by-the-book here already)
The public finance community was engaged when the United States Supreme Court took up a California case regarding local governments’ use of “impact fees” as a means to support infrastructure and services needed for an increasing population — with stakeholders wondering if it might reach bold new views on limitations on local taxation authority. Last week’s decision in the case Sheetz v. County of El Dorado, California, seemingly opened this area for further taxpayer challenge, as the court disagreed with the state court rulings and allowed the taxpayer a venue to protest the application of impact fees in his case. However – the ruling is, in effect, relatively narrow and is unlikely to create dramatic changes in a state like Maryland, where state law and case law both already afford many of the protections being raised in the Sheetz case from California.
What is the Sheetz Case and Ruling About?
The general fact pattern and set up for the case are laid out in the decision’s syllabus:
As a condition of receiving a residential building permit, petitioner George Sheetz was required by the County of El Dorado to pay a $23,420 traffic impact fee. The fee was part of a “General Plan” enacted by the County’s Board of Supervisors to address increasing demand for public services spurred by new development. The fee amount was not based on the costs of traffic impacts specifically attributable to Sheetz’s particular project, but rather was assessed according to a rate schedule that took into account the type of development and its location within the County. Sheetz paid the fee under protest and obtained the permit. He later sought relief in state court, claiming that conditioning the building permit on the payment of a traffic impact fee constituted an unlawful “exaction” of money in violation of the Takings Clause. In Sheetz’s view, the Court’s decisions in Nollan v. California Coastal Comm’n, 483 U. S. 825, and Dolan v. City of Tigard, 512 U. S. 374, required the County to make an individualized determination that the fee imposed on him was necessary to offset traffic congestion attributable to his project.
Alongside the broader issue of specific versus general implementation of impact fees and similar levies, the case also differentiated between those authorized by a legislative body versus those authorized merely by the permit-granting entity and whether they were subject to the same degree of legal scrutiny.
In essence, it was this element of the case that yielded a unanimous finding from the justices, who, with multiple opinions, agreed with the conclusion to vacate the state court rulings and to allow the property owner (Sheetz) to pursue a legal challenge of the impact fees as assessed by the county. In this respect, the finding was far more narrow than the last high-profile local taxation case arising from the Supreme Court, the 2023 case Tyler v. Hennepin County, which limited tax collection procedures in effect in multiple states on a “takings” violation.
Sources for more information: SCOTUSblog on Sheetz v. County of El Dorado, California
A Maryland subject matter expert, Paul Tiburzi, Senior Counsel at DLA Piper, offered these observations directly to Conduit Street:
The Supreme Court’s recent unanimous decision in Sheetz v. County of Eldorado is a significant one for local governments because the Court extended the prior Takings analysis in the Nollan and Dolan line of cases to legislative as well as administrative land use permit conditions. Under the Nollan and Dolan cases impact fees and other “ exactions” must have (1) an “essential nexus” to the government’s land use interest and (2) those exactions must have “rough proportionality” to the development’s impact on the land use interest. For the first time in Sheetz, the Supreme Court applied these requirements to legislatively prescribed monetary fees- as well as to administrative actions by a local government.
The still-definitive analysis of impact fees in Maryland is hosted on the University of Baltimore Law Review site, authored by Tiburzi: “Impact Fees In Maryland” by Paul A. Tiburzi (ubalt.edu)
How Are Maryland Impact Fees Different?
Many Maryland jurisdictions employ impact fees as a tool to help offset costs of growth-related infrastructure and public services – most notably roadway construction and school buildings. In various counties, they are either labeled as an “Impact Fee” or often a “Development Excise Tax.” However, the styling does not necessarily fully guide the overall limits on their use or calculation.
A 2004 Opinion of the Attorney General (89 Op. Att’y Gen. 212) regarding municipalities’ ability to levy comparable fees triggered a clear recitation of the state of the law in Maryland in this area – effectively still in force today, 20 years later:
The phrase “impact fee” is used to describe a fee that is tied to the approvals required for a new development and that is in addition to ordinary fees for required permits. 71 Opinions of the Attorney General 214, 215 (1986). Impact fees are imposed to offset the cost of infrastructure or public facilities necessary to support new development. See Tiburzi, Impact Fees in Maryland, 17 U. Balt. L. Rev. 502 (1988). In principle, an impact fee reflects the proportionate share of the capital cost of providing a certain service to individual dwelling units or other consuming units that begin using that service for the first time. Id. at 503. From a municipal finance perspective, there are two advantages to impact fees: First, the cost of improvements is shifted from existing taxpayers or customers to those responsible for new development; second, revenue is collected before improvements are constructed, rather than afterward. Id. at 502-3. Payment of an impact fee may be a condition precedent to certain action by municipal officials — i.e., issuance of a building permit or approval of a subdivision plat.
The essential question about limitations of an impact fee (specifically whether their imposition represents a regulatory condition or a broad-based tax requiring specific authority) was spelled out fairly clearly in a 1990 Maryland case, Eastern Diversified v. Montgomery Cty by itself citing and elaborating on an earlier precedential case:
In evaluating whether a development impact fee is a regulatory charge or a tax, “the purpose of the enactment governs rather than the legislative label.” Campbell, supra, 289 Md. at 305, 424 A.2d 738. In Theatrical Corp. v. Brennan, supra, 180 Md. at 381-82, 24 A.2d 911, we set forth the criteria for determining whether a governmental charge is a fee (regulatory measure) or a tax (revenue measure) as follows:
“[W]hether a particular Act is primarily a revenue measure or a regulatory measure is important, because different rules of construction apply. A regulatory measure may produce revenue, but in such a case the amount must be reasonable and have some definite relation to the purpose of the Act. A revenue measure, on the other hand, may also provide for regulation, but if the raising of revenue is the primary purpose, the amount of the tax is not reviewable by the courts. There is no set rule by which it can be determined in which category a particular Act primarily belongs. In general, it may be said that when it appears from the Act itself that revenue is its main objective, and the amount of the tax supports that theory, the enactment is a revenue measure. ‘In general, * * * where the fee is imposed for the purpose of regulation, and the statute requires compliance with certain conditions in addition to the payment of the prescribed sum, such sum is a license proper, imposed by virtue of the police power; but where it is exacted solely for revenue purposes and its payment give[s] the right to carry on the business without any further conditions, it is a tax’ 33 Am.Jur., Licenses, Paragraph 19, page 340.”
In Maryland, a “fee” must bear a demonstrable relationship to the actual costs triggered by the building and development. A more broad-based “tax” allows for more latitude in its imposition, but must be enacted with authority from a proper governing body – the General Assembly for those jurisdictions without home rule powers covering this matter, or by the local governing body through an explicit granting of that authority by the State.
Where Does That Leave Maryland? We’re Still Basically Doing This Correctly.
So, the Sheetz case may change political processes, and legal dockets, in California and other states that may have allowed the creation of similar fees through administrative agencies, who may have blurred the lines between fees and taxes. Still, in Maryland – most of these matters have been settled for years, in the same direction as the current Supreme Court has generally deemed appropriate.
This article is part of MACo’s Deep Dive series, where expert analysts explore and explain the top county issues of the day. A new article is added each week – read all of MACo’s Deep Dives.
