The California Supreme Court recently upheld the Environmental Impact Report (“EIR”) for the Long Range Development Plan (“LRDP”) for the University of California Berkeley (“UC Berkeley”) and a controversial housing project at a site known as People’s Park. In so doing, it applied the principle that “no matter how important its original purpose, [CEQA] remains a legislative act, subject to legislative limitation and legislative amendment.”

The Court’s ruling in Make UC a Good Neighbor v. Regents of the University of California involved a challenge brought by project opponents against UC Berkeley’s EIR for its LRDP and a specific housing project at People’s Park. The LRDP is a broad plan for UC Berkeley’s long-term physical development, including land use designations, the location of buildings, and infrastructure systems. It plans for the addition of 11,730 new student beds to accommodate long-term enrollment projections. The People’s Park housing project would develop 1,113 student beds, 1.7 acres of open landscape, and 125 affordable and supportive housing beds for lower income or formerly homeless individuals not affiliated with UC Berkeley.

Project opponents argued that the EIR failed to consider environmental impacts from “social noise” (i.e., vocal noise generated by students at parties or walking late at night), and that the EIR failed to adequately consider alternative locations other than People’s Park for the housing project. Although the trial court ruled in favor of UC Berkeley, the Court of Appeal agreed with project opponents on those two issues.

After the California Supreme Court granted review, but before oral arguments in the case, the California Legislature passed Assembly Bill (“AB”) 1307, which amended CEQA by adding two sections to the Public Resources Code: (1) section 21085, which provides that noise generated by project occupants and their guests is not a significant effect on the environment under CEQA for “residential projects”; and (2) section 21085.2, which provides that institutes of public higher education, in an EIR for a residential or mixed-use housing project, are not required to consider alternatives to the location of a proposed project if certain requirements are met.[1]

Project opponents conceded that under AB 1307, the EIR was not required to analyze social noise from or potential alternative locations to development at People’s Park. The Court confirmed that in mandamus proceedings (such as CEQA actions), “a reviewing court applies the law that is current at the time of judgment in the reviewing court.” The project opponents, however, argued that their LRDP social noise claim remained viable because AB 1307 exempted only “residential projects,” and the LRDP is not a “residential project” within the statute’s meaning. The project opponents also asked the Court to consider their alternative locations argument with respect to potential future LRDP projects.

The Court rejected both of these arguments. The Court interpreted the undefined term “residential project” broadly in holding that the EIR was not required to analyze social noise impacts of either the People’s Park housing project or the broader LRDP. The Court considered the statute’s purpose, legislative history, and public policy to discern its meaning and concluded that it was “clear” that section 21085 “should be interpreted broadly enough” to apply to the aspects of the LRDP at issue.

The Court also declined to consider the project opponents’ alternative locations argument with respect to potential future housing projects that were not before the Court.

The California Supreme Court’s decision gives UC Berkeley the green light to finally move forward with the student housing project at People’s Park, and also reaffirms principles of statutory construction and that courts should apply the law in effect at the time of their ruling. In addition, its broad interpretation of “residential project” means that not only specific projects, but also residential components of long-term planning efforts, should not be required to analyze social noise as an environmental effect under CEQA.

 

[1] These requirements are that the project must: (1) be located on a site that is no more than five acres and be substantially surrounded by qualified urban uses; and (2) have already been evaluated in the EIR for the most recent LRDP for the applicable campus.

On April 12, 2024, the United States Supreme Court issued an opinion that may significantly affect how development impact fees are assessed in California. In Sheetz v. County of El Dorado,[1] the Court unanimously held that legislatively imposed permit conditions are subject to the same constitutional test – informally referred to as the “Nollan/Dolan” test – as administratively adopted permit conditions. Under this test, permit conditions must have “an essential nexus” to the government’s land use interest and a “rough proportionality” to the development’s impact on the land use interest.

Prior to Sheetz, when a local government imposed an exaction through legislative action (such as development impact fees adopted and imposed under the Mitigation Fee Act), it did not need to satisfy the tests established under Nollan v. California Coastal Commission[2] and Dolan v. City of Tigard.[3] As a practical matter, this meant that legislatively adopted fees received very little scrutiny when applicants challenged them in court. Although the Sheetz opinion is narrowly crafted, it provides new opportunities to challenge and to negotiate over impact fees and other legislatively adopted exactions.

Coblentz Patch Duffy & Bass LLP submitted an amicus brief on behalf of the Bay Area Council in support of the petitioner’s claims, explaining that the lack of a judicial check on impact fees has resulted in some excessively high fees and extreme variation in fees by jurisdiction, particularly in the Bay Area.

Case Background

The County of El Dorado’s Board of Supervisors enacted a traffic impact fee on new construction to finance new roads and the widening of existing roads. Under this program, the traffic impact fee was based on a rate schedule that took into account a project site’s location within the County and construction type. The fee was imposed regardless of a project’s actual impact on roads.

George Sheetz applied for a building permit from the County to construct a modest manufactured house on his property. The County issued a permit for the house on the condition that Mr. Sheetz pay the traffic impact fee in the amount of $23,420. Mr. Sheetz paid the fee under protest.

In 2017, Mr. Sheetz filed an action against the County, seeking a fee refund on the grounds that the traffic impact fee was an unconstitutional condition under the U.S. Supreme Court’s Nollan/Dolan precedent.

In rejecting Mr. Sheetz’s claims, the Court of Appeal held that, “[u]nder California law, only certain development fees are subject to the heightened scrutiny of the Nollan/Dolan test,” including “development fees imposed as a condition of permit approval where such fees are imposed . . . neither generally nor ministerially, but on an individual and discretionary basis.”[4] The Court reasoned that the requirements of Nollan/Dolan do not extend to development fees that broadly apply to property owners through legislative action, as opposed to fees imposed ad hoc on individual permit applications.

The California Supreme Court denied review, but the U.S. Supreme Court granted certiorari to answer the narrow question of whether legislatively adopted exactions are subject to the Nollan/Dolan test.

The Sheetz Decision and Key Takeaways

On the question presented, the unanimous Court was clear: the Takings Clause does not distinguish between legislative and administrative land use permit conditions, meaning that legislatively adopted exactions are subject to the Nollan/Dolan test. The Court stated that nothing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules.

But the Court left open a number of issues and the three concurring opinions suggest that the Justices are not unanimous in their views of several ancillary, unanswered questions. For example, the Court explicitly did not address whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development. Justice Gorsuch’s concurring opinion took issue with the Court’s failure to reach this issue, stating that an “individualized determination” is required regardless of whether the fee impacts a class of properties or a particular development.[5] Justice Kavanaugh, joined by Justices Kagan and Jackson, disagreed in a concurring opinion emphasizing that the Court did not address the common government practice of imposing impact fees and other permit conditions through “reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels or property.”[6] In a third concurring opinion, Justice Sotomayor, joined by Justice Jackson, stated that the trigger for Nolan/Dollan scrutiny is “whether the permit condition would be a compensable taking if imposed outside the permitting context.”[7] This may suggest that at least two Justices believe there might be an entirely different way to view impact fees, potentially outside of the takings jurisprudence.

Immediate and Long-Term Implications of Sheetz

Despite the open questions, Sheetz gives developers new options to challenge and negotiate over fees. Ever since the California Supreme Court in San Remo Hotel L.P. v. San Francisco[8] exempted legislatively adopted impact fees from the Nollan/Dolan test, local jurisdictions have had a powerful argument to rebuff fee challenges. With Sheetz, local jurisdictions have lost that tool. At the very least, we expect an uptick in impact fee litigation with greater success by developers. We also believe local jurisdictions will be more open to negotiation over impact fees as applied to individual projects.

California courts will now address some of the questions that the Justices left unanswered, and we expect this area will remain dynamic as new cases are decided. In fact, Sheetz itself lives on as the Court of Appeal is now considering how to apply the Supreme Court’s decision. We will be watching carefully as the courts confront the remaining open issues.

We do not expect that a large number of local jurisdictions will immediately revamp their existing fee programs. But as new fees are proposed or updated nexus studies are prepared, we anticipate that resulting fee programs will be tailored so that the fee imposed more closely matches the impact of the development. While Sheetz did not mark the end of impact fees (as some had predicted could happen with a more sweeping opinion), it likely will eventually result in fees that are more “proportional” to the impact.

For projects already struggling to pencil due to stubbornly high construction costs and interest rates, impact fees – sometimes reaching into six figures per unit – can pose additional barriers. As developers try to find ways to make projects viable, the Sheetz decision creates a stronger basis for revisiting impact fees that may be disproportionate to a project’s actual impacts.

 

[1] (2024) 601 U.S. 267.

[2] (1987) 483 U.S. 825.

[3] (1994) 512 U.S. 374.

[4] Sheetz v. County of El Dorado (2022) 84 Cal.App.5th 394, 406 (internal citations omitted), vacated and remanded by the U.S. Supreme Court.

[5] Sheetz v. County of El Dorado, supra, 601 U.S. at p. 283 (conc. opn. of Gorsuch, J.).

[6] Id. at p. 284 (conc. opn. of Kavanaugh, J.).

[7] Id. at p. 280–281 (conc. opn. of Sotomayor, J.).

[8] (2002) 27 Cal.4th 643.