A recent ruling by a California appellate court has put the brakes on what many builders hoped would be a major overhaul of how local governments charge impact fees on new development projects.

The long-running legal battle began in 2016, when homeowner George Sheetz filed a lawsuit against El Dorado County for charging him a $23,420 traffic mitigation fee to build a single home on his property. Sheetz argued that the county should have to prove the fee directly reflected the actual wear and tear his new home would cause on nearby roads.

The case escalated all the way to the U.S. Supreme Court, which last year issued a unanimous ruling in Sheetz’s favor — at least in principle. The Supreme Court said local boards and agencies must justify their impact fees, though it left vague just how detailed that justification must be.

In a much-anticipated follow-up, a three-judge panel at California’s 3rd Appellate District ruled this week that El Dorado County’s fee system was legally sound under that standard. The judges concluded the county “used a valid method for imposing the (traffic) fee” and “established a reasonable relationship between the fee charged and the projected burdens.” In other words, the county did enough to connect the dots between new development and its traffic impact — at least for now.

The ruling marks a significant moment for cities and counties across California, where local impact fees have become a major tool for funding infrastructure like roads, schools, and parks as communities grow. A 2015 UC Berkeley report found California’s locally imposed impact fees run nearly three times the national average — a big factor in the state’s notoriously high housing costs, according to homebuilders.

After the Supreme Court’s decision last year, developers and construction advocates were hopeful it would usher in a new era of lighter fees and fewer obstacles for building homes. Meanwhile, local governments warned that losing impact fee revenue could slash funding for critical services, potentially pushing costs onto existing residents through other taxes.

The appeals court decision keeps that balance intact, at least for now.

Brian Hodges, an attorney with the Pacific Legal Foundation who represented Sheetz, said his team is still considering whether to appeal to the California Supreme Court. He acknowledged the mixed outcome, saying, “We won the war but lost the battle.”

Hodges also noted that the Supreme Court’s original ruling still leaves the door open to future challenges. “The U.S. Supreme Court’s order from last year still makes a wide swath of locally imposed requirements on builders in legal jeopardy,” he said. That could include not just traffic fees but also inclusionary zoning rules that require developers to reserve a portion of new housing for lower-income tenants — a key tool cities use to expand affordable housing.

For now, builders, local governments, and homeowners across California are left in limbo, waiting to see if this latest decision stands or if higher courts will weigh in again. With California’s housing affordability crisis still raging, the next round of this legal fight could shape who pays for growth — and how much — for years to come.

Originally reported by Ben Christopher in Cal Matters.