Two Supreme Court rulings — one just announced and one to be released later this spring — will tip the scales further away from the side of government and regulatory agencies toward business sectors like manufacturing, construction and energy production.
How far the rulings will level the playing field for U.S. businesses is anyone’s guess. But we can already draw conclusions from the Supreme Court of the U.S.’s (SCOTUS) unanimous decision in Sheetz v. County of El Dorado, California:
- “excessive” government fees are fair game for legal review at the highest level, and
- SCOTUS doesn’t care if lawmakers or regulators are the ones setting the fees.
Court Ruling Puts Local & State Government On Notice
Eight years ago, California engineering contractor George Sheetz bought a prefabricated house and a small plot of land in the northern California county of El Dorado to retire on. His dream turned into a nightmare when the county told him he’d need to pay a $23,420 traffic mitigation fee first. The fee was part of a general plan approved by county commissioners to fund future increases in public services due to any new development.
Sheetz asked county officials how his home could cost taxpayers anywhere near $23K in traffic-related expenses. “They said, ‘This is just the way it is,'” according to Sheetz. Officials told him, “You don’t have to build. No one’s making you build.”
Sheetz realized, “they pretty much have you over the barrel.” Most people in this situation would’ve balked at the fee, but Sheetz decided to pay the $23K. He then sued the county for violating his 14th Amendment rights. The takings clause of the 14th Amendment reads, “nor shall private property be taken for public use, without just compensation.”
The Pacific Legal Foundation (PLF) took on Sheetz’s case, pro bono, confident of a win based on SCOTUS precedent. SCOTUS ruled in two earlier cases that government fees:
- require “essential nexus” — in other words, a direct relationship between an activity (in this case, siting a pre-fab house) and an outcome (traffic), and
- must be roughly proportional to the financial impact.
Writing for the majority, Justice Amy Coney Barrett scolded a lower court’s failure to assess the county’s traffic impact fee for essential nexus and rough proportionality. “Nothing in constitutional text, history or precedent supports exempting legislatures from ordinary takings rules. … The Constitution’s text does not limit the takings clause to a particular branch of government … [or] single out legislative acts for special treatment.”
Ruling’s Impact Goes Well Beyond Homebuilding
At first glance, the Sheetz ruling may seem like a victory for homebuilders getting squeezed by greedy local governments and nothing more. On the contrary: Recent history shows SCOTUS rulings frequently impact wider areas of the economy.
Case in point: SCOTUS ruled that Harvard and the University of North Carolina discriminated against White and Asian student applicants in favor of Blacks and Hispanics. The case focused entirely on admissions policies in higher education, but the ruling put the fear of God into businesses far and wide.
Since the 2022 Harvard ruling, companies are scaling back their diversity, equity and inclusion (DEI) programs to avoid class-action lawsuits. The Big 4 accounting firms are opening up formerly DEI internship programs to white applicants under public pressure.
The Sheetz ruling gives businesses more reason to oppose onerous permitting fees. SCOTUS clarified that no one is exempt from the takings clause. So what’s to stop companies from taking on, for example, five-to-six-figure permitting fees for greenhouse gas emissions or stormwater runoff? Regulators like the Environmental Protection Agency (EPA) would struggle to show nexus and proportionality in many of the fees they set.
Will Court Take a Scalpel or Hatchet to Chevron Doctrine?
The second SCOTUS decision, due out any day now, should end 40 years of courts deferring to regulators’ (ahem) expertise. The Chevron doctrine, in effect since 1984, gave deference to a government agency’s interpretation of an ambiguously worded statute.
The doctrine largely worked to government’s favor. In cases where Chevron deference is granted, regulatory agencies won more than 70% of cases. But in recent years lower courts and SCOTUS began chipping away at the precedent as regulations grew in number — and cost — to industry.
The case that should finally upend Chevron is a classic case of government overreach: The National Marine Fisheries Service, which falls under EPA’s purview, required herring fishermen to cover the cost of observers working on their boats. Fishing companies not only had to comply with overfishing regulations, they had to pay the regulators to make sure they were complying. A group of fishing companies sued to get the rule — and specifically the Chevron doctrine — overturned.
Many times SCOTUS gives the losing side some wiggle room in its rulings. For example, SCOTUS “suggested” Harvard and other schools could use other means to give disadvantaged youth a better chance at admission. Immediately after the ruling, Harvard announced it would give more weight to high schoolers’ application essays.
Chevron however is pretty cut-and-dried — in cases where a statute is vague, courts must defer to the regulator. Overturning the doctrine is clearly a win for businesses and a big hurdle going forward for regulators. Whether overturning Chevron will mean “the end of government as we know it” as some in the media frame it remains to be seen.
