Property and business owners interact with government regulations in a wide variety of settings. The Framers of the Constitution recognized that government actions, particularly those of state and local governments, would be an inevitable aspect of self-government but imposed some limitations on how that power could be exercised so that critical personal and community interests would be preserved.

A recent U.S. Supreme Court decision clarified one of these requirements.

The case involved a local government in California which imposed a nearly $24,000 impact mitigation fee on a homeowner as a condition of receiving a building permit for a single-family home. The city argued the fee was needed to reduce the impact of the new home on traffic in the area.

The homeowner challenged the fee as unconstitutional. Specifically, he argued that the fee constituted a “taking” of his property under the Fifth Amendment because it was unrelated to the actual impact his home would have on traffic. The lower court said the Fifth Amendment limitations the homeowner invoked only applied to the actions of administrative agencies and that since the fee here was imposed by elected officials, he was out of luck.

The U.S. Supreme Court, by contrast, ruled unanimously in favor of the homeowner. The basic holding is that the Takings Clause of the Fifth Amendment “does not distinguish between legislative and administrative permit conditions.” The basic rule the Court majority identified is: “When the government wants to take private property to build roads, courthouses, or other public projects, it must compensate the owner at fair market value.” This requirement does not mean the state cannot engage in land-use planning, just that it cannot “withhold[] or condition[] a building permit for reasons unrelated to its land-use interests.” To do so would allow governments to use its “permitting monopoly to exact private property without paying for it.” So, a permit condition must be related to “the government’s land-use interest” and be proportional to “the development’s impact on the land-use interest.”

Here, the California Court of Appeals had not assessed these requirements because it believed they did not apply to the actions of legislative bodies. The Supreme Court pointed out that the text of the Fifth Amendment does not specify application only to one branch of government, that historically only legislatures had power to take property, and that previous court decisions don’t support a distinction between administrative and legislative actions. Thus, “there is no basis for affording property rights less protection in the hands of legislators than administrators.”

The Supreme Court thus vacated the earlier decision of the California Court of Appeals so the trial court will have to revisit the case relying on the Supreme Court’s description of the constitutional principles.

Although this decision directly impacts only one homeowner, the principles apply to all government entities that may impose permit conditions or impact fees. These can certainly be imposed but they must be (1) justified by a government interest and (2) be proportional to the effect of the development’s impact on that interest.

Presumably, state attorneys general and municipal attorneys will help the governments they advise be aware of these requirements and legislators will carefully ensure that they make land-use decisions consistent with them so that the constitutional rights of property owners will be protected.

Utah’s Legislature has enacted legislation to require this protection in the decision to impose impact fees. This is a wise approach.

A Sutherland Institute issues brief from March of this year found that housing affordability and accessibility are the top concerns for likely voters in Utah. Thus, land use questions are likely to remain at the forefront of public discussions in coming years. The Court’s decision helpfully clarifies some constitutional limits on how these discussions will proceed. Thus, its decision offers a welcome protection.