David Rand:
George Sheetz spent 50 years in construction, half a century. He knows how permits works. He knows the process of building a building. He knows red tape. You’d figure that out of anyone, out of anyone in the entire state of California, he’d know how to navigate a system and get a fair shake.
So when he was ready to retire, he did what many Americans dream of. He bought a piece of land, 10 acres in El Dorado County, near Lake Tahoe. El Dorado County, if you don’t know your history, this is where the gold rush started. This is where men crossed an entire continent to stake a claim and build something with their own hands.
A slice of Americana after working hard for 50 years under that California sun. He cleaned it up himself and he worked it with his hands. He fell in love with the process. He wasn’t asking for much. A modest manufactured home, 1,800 square feet, a place to grow old with his wife and raise their grandson.
He bought a prefabricated home specifically to save money, cut every corner he could. He did the work himself as much as he was able. And then he walked into a county permit office and they told him the permit to start building would cost $23,420.
23 grand for a traffic impact mitigation fee. For roads. Roads. Roads George Sheetz had nothing to do with. He was moving there. Roads that had problems long before he ever showed up. Problems caused by commercial developments and retail centers already in the area.
George said, you people are crazy. And they essentially said, well, you pay up or you don’t get to build. So he paid it. Under protest, but he paid it. Because he didn’t have a choice.
And that’s how it works when the government has you over a barrel. You either surrender the money or you surrender your dreams. This is wrong. It’s extortion. The government can’t charge you a ransom to use your own property, right?
In America, the land of the free, the home of the brave. George Sheetz isn’t some hedge fund developer trying to build a mega complex. He’s a retired construction worker who wanted a prefabricated budget house on his own land.
George’s story is bad enough on its own, but what keeps me up at night is what it says about everyone else what’s not seen. What do most people do when faced with fees like this? I suspect they just pay the money, extravagant or not. And worse, maybe many are walking away without building their American dream at all.
And that’s a part that no one really talks about. For every George Sheetz who fought back, I suspect there are thousands who just gave up, who looked at the fee, looked at the savings and walked away from the land they already owned and the life they were trying to build.
The American dream isn’t dead. It’s just being blocked by rules and fees and barriers that have nothing to do with safety and everything to do with government budgets, treating every guy who wants to build a house like an ATM.
Earlier, I had the opportunity to interview Dearson. He’s an attorney at the Pacific Legal Foundation, and he was on the team that took the Sheetz case all the way to the Supreme Court. I want to understand what happened in the courtroom and where the law stands now and what this means for every American.
We’re going to get into the interview in a minute, but please, if you can. If you want a way to help the show for free, just like this post, wherever you’re watching. Just take a minute and like it. I won’t watch. Just do it real quick for me. It would be very helpful. Thank you.
David Rand:
David, welcome.
David Dearson:
Thanks very much, David. Glad to be here.
Rand:
Yeah. So before we get into the case, I want you to tell people about yourself and about the Pacific Legal Foundation and what you guys do broadly.
Dearson:
Yeah, thanks very much. I’m David Dearson. I’m an attorney at the Pacific Legal Foundation. I’ve been there since I graduated law school in 2018. It was my first job out of law school. I started out in the headquarter office down in Sacramento. Now I work remotely from my home in Chapel Hill, North Carolina.
Pacific Legal Foundation is a nonprofit public interest law firm. We’ve been around since the early 1970s. We’ve been around for over 50 years. And although we are headquartered in Sacramento, we do have a national presence. So we take cases all over the country at the local, state and federal level.
And essentially, we sue the government to defend people’s constitutional rights. We have several issue areas that we work in. Although a flagship issue, the kind of central focus for us is and has always been property rights. But we do do work in equal protection, economic liberty, in administrative state, which is like forcing the government to play by its own rules.
And we have a, you know, I’m very proud to report that we have a strong track record at the United States Supreme Court with over 18 wins, probably more than that by my last count and a couple of decisions that we’re waiting on right now. So hopefully we’ll keep pushing that number up.
Rand:
So I wanted to hear how you found George. And did you come to him? Did he come to you? Like what’s the origin story with how he got connected to Pacific Legal Foundation?
Dearson:
Yeah, well, actually, George was referred to us through an attorney that we work very closely with in California. Fantastic land use and constitutional rights attorney who actually used to work for Pacific Legal Foundation a little bit before my time. His name is Paul Beard. He’s very active in California land use.
And so when it looked clear that this case was going up to the United States Supreme Court, he brought us on board to work with him.
Rand:
Well, here’s what I keep thinking about with this case as I was researching and looking at it and just getting frustrated by the whole story from the very beginning was that, I mean, George is the guy who should have been able to navigate this, right?
All this time in his career in construction, he knows the system in California better than almost anyone probably with all that experience. And yet he still needed a national law firm to fight this whole scenario. So what does that tell you about what the average person is up against when it comes to these impact fees?
Dearson:
Yeah, I mean, it’s just in this case, it’s just a brick wall. I mean, there’s nothing really to navigate. The county says, if you want to build your home, you’ve got to pay us this twenty three thousand dollars.
And by the way, in the state of California, there’s really nothing you can do about that because as far as California courts are concerned, the courts don’t apply any kind of meaningful scrutiny to impact fees that are imposed in county ordinances.
And so when you say meaningful scrutiny, you mean how closely it connects to like a particular service or a particular impact?
Rand:
Yeah, exactly.
Dearson:
So, you know, this case is all about the land use permit exactions doctrine, which is a fancy way to say that when the government tries to get money or property from you as a condition of granting you a land use permit, courts make sure that what they’re asking for from you is related in both kind and extent to some measurable impact that your development is going to have.
But for a long time, there was a kind of loophole recognized in several states, including in California, that said, if these fees are imposed in a county ordinance, rather than kind of imposed on an ad hoc basis by some local administrator, then we’re not going to apply that kind of scrutiny. We’re not going to ask how closely related the fees are to some actual impact that you’re having.
So really, the debate in this case was about whether the executive branch or the administrative branch, really, or a more legislative branch that’s creating county ordinances, if they were still subject to some amount of scrutiny about whether or not the impact fee had anything to do with impact.
Rand:
Right.
Dearson:
Yeah, that’s exactly right. At least, you know, that was what the case was all about when Sheetz first went up to the Supreme Court. Of course, there have been some developments since then. And we’re asking the Supreme Court again to take a second look because the case has changed a little bit since the first time.
Rand:
Hmm. Interesting. We’ll dig into that in a second. I want to get into all the court details. But real quick, before we go there, I want to get a sense for what the impact fees as a problem is.
So your team has published some research on what these fees look like actually across the country. And I wanted to see if you could give me the numbers on that. What does the average American pay for fees before they can even break ground on a new development?
Dearson:
Yeah. So in California, for total impact fees, we’re talking $30,000, which is certainly the highest in the country. You know, you look elsewhere and our data shows more like five to 10, up to 15. On average for most other states, California is certainly an outlier.
And when you talk about traffic impact fees in particular, El Dorado County in this case is an outlier even within California because they’re asking for $23,000 from Mr. Sheetz, which is routine in El Dorado County. But the California average traffic impact fee is something like $6,000. And the national average is about half that.
So what they’re asking for from Mr. Sheetz was an outlier, even in California, where they’re twice as high as they are in the rest of the country.
Rand:
What are they supposed to do with $23,000 that’s so important for one guy, his wife and his dog to move into a pre-manufactured home in that area? What are they going to do with that money?
Dearson:
Well, they’re going to use it to put it in the pool towards the $572 million worth of road improvements that they want to make. And in order to legally impose these fees, they have to make the case that George Sheetz, by building his small, humble home, is going to do $23,000 worth of impact on traffic.
But we know that not even the county really thinks that he’s going to have that impact. Because what they’ve actually done is shift a huge portion of the impact attributable to commercial developments onto residential developments. So essentially, they’re making Mr. Sheetz subsidize the traffic impacts of commercial developments, which are going to have much more impactful traffic effects.
Rand:
Right. We’re thinking like 16 wheelers here going into Walmart have less impact than him in his truck or Subaru or whatever driving up to his spot. Is that really what they’re arguing?
Dearson:
Right. Yeah, well, I mean, sort of. They acknowledge that really the big gas station or, you know, an 11,000 square foot office building, this is an example we like to use in our briefs, an 11,000 square foot office building that’s generating something like 500 additional trips, pays the exact same fee as George Sheetz’ less than 2,000 square foot house, generating a grand total of about nine extra daily trips.
Rand:
Oh, man. So, and I’ve been contending with this and thinking about it, he already pays gas taxes too. Like he has to do this on top of the gas, on top of his vehicle registration, on top of everything, all the other taxes.
How can they not pay for their roads if they have these other developments happening in their county, if they have new companies moving in, and obviously it’s a place with demand to move there? I mean, George wanted to move there. Why don’t gas taxes cover it? Why don’t the vehicle registration? He’s already paying lots of taxes.
Dearson:
Yeah, that’s a great question. And it really gets at the whole point behind the legal doctrine that’s supposed to protect George from having to pay these kinds of impact fees.
Because yeah, the correct way to pay for public goods that benefit the public is through general taxation. But of course, that’s very politically unpopular. It’s much easier politically for municipalities to shift that cost onto people who are coming to them at the permit desk.
There’s a huge power imbalance and an opportunity for what the Supreme Court has twice called extortion. Because when you need some benefit from the government, they say your money or your permit, you’ve got no choice.
Meanwhile, the voters who are voting for the county board don’t mind if George has to pay all of this. So really, this is a way to hide the political ball by forcing people like George to pay for improvements that really the public as a whole is benefiting from and should be paying for.
Rand:
Hmm. So let’s dig into the courtroom dynamic. So you weren’t there yourself, but your team was. What was the county’s argument really at the end of the day? Like, how did they try to anchor this into something tangible beyond just like, well, we get to, right? How did they get there?
Dearson:
You know, it’s really strange, David. I don’t think I’ve ever seen anything like it. I don’t think many of my colleagues have.
When we got to the United States Supreme Court, there was one question presented to the court, and it comes down to that loophole I mentioned earlier, where some states say we’re not going to apply scrutiny if the fee is imposed by the legislative branch through an ordinance.
That was the only question before the Supreme Court. Does it make a difference if this fee comes from an administrative or executive officer or if it comes from the legislature?
And when we got to the Supreme Court, we were surprised to find the county basically totally rolled over on this issue. They had what the justices called radical agreement. There basically wasn’t an argument.
They said, yeah, you know, look, at the end of the day, George is probably right. It doesn’t really make a difference if it’s done from the legislative level. You know, we don’t think there’s anything wrong with the fee that we’re imposing, but the mere fact that it’s in our ordinance probably doesn’t shield us from scrutiny.
Let’s go back down to the California state courts to face that scrutiny. But yeah, at the Supreme Court, really, it was not much of an argument at all. It was basically no contest.
Rand:
So they kind of showed up to the big game and forfeited right at the last second. They got to the NCAA finals and just threw in the towel.
Dearson:
Yeah, that’s right. It was pretty fun to watch.
Rand:
Yeah, yeah. So was that really the moment you knew you had them?
Dearson:
It goes back down to the California Court of Appeals.
Rand:
But it looks like that one didn’t go your guys’ way. Can you tell me about that?
Dearson:
Right. So it actually skips the California Supreme Court because they didn’t want to look at it in the first place. And it went back down to the California Court of Appeals.
And they said, OK, the United States Supreme Court has now clarified for us that just because this is in the ordinance doesn’t mean that we’re going to rubber stamp it. But then essentially they go ahead and rubber stamp it anyway.
And, you know, what the scrutiny in this doctrine calls for is that the government has to show it made some kind of individualized determination about the relationship between the fee and the impact.
There’s an open question about how that gets applied when what we’re dealing with is a legislative fee schedule, rather than an administrative decision to apply it to one particular person.
And what the California Court of Appeals essentially decided is it doesn’t matter what the final number is. It doesn’t matter if there actually is any relationship between the impact and the fee. All that matters is that the methodology that the legislature used to come up with the fee schedule was rational.
And I don’t know if you know anything about courts and about the history of constitutional law. Rational is not a good test for the property owner, for the individual. Rational usually means government wins.
You know, as long as it’s not so absurd that you would find it in Kafka, then we’re basically going to rubber stamp it.
Rand:
Yeah. Yeah. The weird thing here is, in my view, in our view, you could find this in Kafka because, again, as I mentioned earlier, they’re shifting a huge amount of the impacts attributable to commercial development onto Mr. Sheetz.
So that’s their methodology, is that they’re intentionally and openly saying even though commercial developments contribute 40% of the problem, we’re only going to charge them 16% of fees, and we’re going to put the other 84% of fees on residential builders like George Sheetz.
To me, that methodology is not rational, and certainly the result is not rational. But the California Court of Appeals thought it was essentially fair enough.
The very silly argument that more residential development means more people moving in. People spend money. Therefore, more residential development is what leads to more commercial development. So we’re not going to charge the commercial. Because we’re going to say it’s the residential development that creates the need for commercial development.
Dearson:
Right.
Rand:
Well, they never read Say’s Law, apparently, because you have to make things before you can buy them. Right. So that’s a typical core ignorance of economics. Sorry, you were saying.
Dearson:
Yeah, so that was the Court of Appeals decision. We appealed that up to the California Supreme Court. The California Supreme Court declined to hear the case, but they did something sort of unusual in that they depublished the Court of Appeals opinion, which is sort of a signal that they said something’s not quite right about this, but we don’t want to fix the problem. So we’re just going to sort of sweep it under the rug.
Rand:
Wow. Is that judicial avoidance? Is that what that is? Just refusing to engage with your own profession?
Dearson:
It is. Right. Something’s fishy here. It’s our problem. Gosh, we wish it weren’t. Let’s treat it as if it’s not.
And so then, you know, the only remaining step is, again, to go back up to the United States Supreme Court, where we are. We’re asking the court to take a look at the case as it stands now to decide whether that’s true, that you don’t actually have to have an actual relationship between the fee and the impact. You just have to have some rational methodology.
And by the way, is the methodology that they used even rational in the first place?
Rand:
It seems like it’s embedded in the word fee, right? Like when I think of a fee, I don’t think of just raising money. It’s not the price of the thing. It’s a service on top of the price of the thing, right? So how can it be so disconnected from the proportionate use of the service and be rational, whatever that means?
And this all just feels very much like an Ayn Rand novel at this point. It just feels like, you know, all of the worst parts of government are just manifesting themselves to Mr. Sheetz’ life and just making this just hellish, just a nightmare for him.
Well, the California Supreme Court certainly did shrug. Yes, right, right. They did not bother bearing the weight of their responsibility on this one.
So I want to get back out for a minute and look again. I mean, I know you probably don’t know the numbers, but just begging the question, just asking the question of you and the audience, everything, how many people you know face this every day and then just pay the fee and move on.
And they don’t know Pacific Legal Foundation. They don’t get recommended to you. They don’t see that opportunity to fight this in the courts. What do you think about that?
Dearson:
Surely countless people. But I’ll tell you, there’s actually something that makes me even more concerned. And that’s the number of people who see these fees and say, you know, it’s not worth building at all.
And we’re in a national housing shortage.
Rand:
Or just the people who are just bearing the cost, right? So most houses are built by a developer. Those developers are capitalized or if they don’t have a lot of capital, they have good business relationships with banks and they can get out the loan.
But then how do they recoup their costs from the loan? They put that in the price of the house. And then so when people are going out and they’re looking at a house, they’re saying, why is it so expensive?
Well, there’s lots of reasons. It’s multi-causal. But at least one of them is these enormous impact fees, at least in the state of California.
Dearson:
Yeah, absolutely. Those costs are getting passed on to the consumers of these residential units. And again, that’s what makes it sort of politically attractive, because the people who already live in the county and who are voting for the decision makers in the county are more likely to have homes that they live in and own and are going to stick around there.
But it’s the people who might want to move into town and help the town grow that have to bear all of these costs. They don’t get a voice. And that’s part of what makes these impact fees so pernicious and part of why the Supreme Court has insisted that we have to apply meaningful scrutiny to them.
Rand:
Hmm. So if someone’s watching this and they have some similar phenomenon, some other impact fees someplace that they’re facing, you know, like what George dealt with, and it has nothing to do with the project in the same similar kind of fashion, you know, if they’re also being extorted, where do they start?
What do they do to try to fight these kind of rules from whatever state they’re in?
Dearson:
Well, I mean, naturally, they can always reach out to Pacific Legal Foundation and they can go to pacificlegal.org. And, you know, we’re happy to take a look and see if we can help.
But, you know, I think just you can sometimes write letters to your local officials citing these cases, pointing out what’s happened in Sheetz, pointing out how strict these tests are. And if the city officials get the sense that you may have a firm like Pacific Legal Foundation in your corner, it’s not unheard of that they might back off or they might find some exemption for you.
Of course, that’s unlikely. You know, they want to impose these fees. They want to get these fees. But what we’ve found in a lot of similar cases is that the government settles pretty quickly because they don’t want to get these bad court decisions that they know are very likely to come down that are going to invalidate their program altogether.
And so they’ll sometimes, when they’re in court, they’re highly incentivized to find ways not to apply the fee to whoever it is that’s suing them.
Rand:
There you go. So at the end of the day, a lot of this does look to me like an ordinance or legislative fix too, potentially, where if a state or locality wanted to make sure that this wasn’t getting out of hand, they could put some constraints on this, on some standard.
Is there anyone working on legislative angles for this sort of thing to try to make sure, at least at a minimum, just make sure fees actually act the way fees seem like they should work?
Dearson:
Yeah, absolutely. Well, I’ll continue to take the opportunity to plug PLF’s work because we also have a legislative arm and we have model bills on how states can make sure that their municipalities are staying on the right side of constitutional law in designing these impact fees.
I think it’s unlikely to come from the local municipal level because of those perverse incentives. Again, that’s exactly why there’s this heightened scrutiny in the first place, because cities just can’t help themselves. It’s such a politically convenient way to fill their coffers.
But you do see reform efforts at the state level who don’t like the idea that cities in their states are making it harder to build and are essentially extorting people at the permitting counter. So you are seeing efforts to reform impact fees at the state level, and PLF is heavily involved in those efforts.
Rand:
That’s great. Yeah. If you’re a regular voter at the doorstep and a local legislator walks your door, you say, what are you doing about building impact fees? You should check out Pacific Legal Foundation. Pass that along.
And if you’re a legislator watching this, obviously check out Pacific Legal Foundation for some great resources on model legislation, maybe some assistance.
So thank you so much for your time, David. That was a really great time.
Dearson:
Yeah, absolutely. It was a pleasure. Thanks again. Cheers.
