by William W. Abbott and Robert T. Yamachika
This article summarizes recent case law addressing dedications and development fees.
Howard Jarvis Taxpayers Association v. City of Roseville (2002) 97 Cal.App.4th 637
The case revolved around an in-lieu fee imposed by the City of Roseville on utilities that provided water, sewer and refuse collection services. The fee was intended to cover the City’s costs for maintaining rights-of-way needed to provide the services. The in-lieu fee at issue began in 1992, when the City imposed a four percent fee on each of the utilities annual budgets and transferred the funds to the City’s general fund. A group of taxpayers sued the City, alleging that the fee violated Proposition 218. Proposition 218, the Right to Vote on Taxes Act, was adopted by California voters in November of 1996 and provided that fees for property-related services must be tied to the cost of providing those services. The trial court found that the fee did not have a relationship to the actual cost of maintaining the City’s rights-of-way.
Proposition 218 covers fees for public services that are imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a fee or charge for a property-related service. In this case, pursuant to the City’s Code, water, sewer and refuse collection were tied to property ownership. Therefore, the in-lieu fee fell within the coverage of Proposition 218.
In addition, Proposition 218 requires that a fee or charge revenues may not exceed what it costs to provide the services. Proposition 218 requires that fees must reasonably represent the cost of providing the service. In this case there was no showing that the in-lieu fee reasonably represents costs. The City sets the in-lieu fee at a flat four percent of the utilities budget which is imposed regardless of how extensively the utilities use the City’s rights-of-way. Finally, the City also improperly transferred the proceeds to its general fund, for general governmental services, rather than applying them directly to the purpose for which the fee was imposed.
Howard Jarvis Taxpayers Association v. City of Salinas (2002) 98 Cal.App.4th 1351
In this case, the Court of Appeal for the Sixth Appellate District held that a “storm water drainage fee” was illegally imposed by the City of Salinas. The plaintiff, Howard Jarvis Taxpayers Association (“HJTA”) contended that the storm drainage fee imposed by the City of Salinas was a “property-related” fee requiring voter approval. HJTA’s arguments were based on Proposition 218, the “Right to Vote on Taxes Act,” which was passed by the California voters in 1996. Proposition 218 added article XIII D, section 6(c) to the California Constitution, requiring notice for a public hearing and a vote for a proposed property-related fee or charge. If a majority of the affected property owners or two-thirds of the electorate in the affected area do not approve the fee, it may not be imposed.
In an effort to comply with the Clean Water Act, the City of Salinas imposed a “Storm Water Management Utility Fee” on “users of the storm water drainage system” to finance the improvement of storm and surface water management facilities. The fee was to be paid annually to the City “by the owner or occupier of each and every developed parcel in the City who shall be presumed to be the primary utility rate payer. . . .” The amount of the fee was to be calculated by the degree to which the property contributed runoff to the City’s drainage facilities as measured against the amount of “impervious area” on the parcel. Developed parcels that maintained their own storm water management facilities or only partially contributed storm or surface water to the City’s storm drainage facilities were also required to pay a proportionate share. Undeveloped parcels were not subject to the storm drainage fee.
HJTA filed suit alleging that the fee was a property-related fee that violated Proposition 218 requirements because it had not been approved by a majority vote of the affected property owners or a two-thirds vote of the electorate in the affected area. The trial court found that Proposition 218 requirements did not apply for two reasons (1) the fee was not “property related” and (2) it was exempt from the voter approval requirement because it was “related to” sewer and water services not property. The HJTA appealed.
The City of Salinas (“City”) maintained that the storm drainage fee was not a property-related fee, but a “user fee” which the property owner could avoid simply by maintaining a storm water management facility on the property. Because it was possible to own property without being subject to the fee, the City argued that the fee was not imposed “as an incident of property ownership” or “for a property- related service.” The appellate court disagreed. Instead the court found that the management of storm water runoff from the “impervious” areas of each parcel in the City was plainly a property- related fee for a property- related service. The court also found that the “opt-out” arrangement was misleading, because it incorrectly suggested that the property owner could avoid the fee by declining service. Furthermore, the reduction was not proportional to the amount of services used, but based on the physical properties of the parcel. The court pointed out that the provisions of Proposition 218 are to be liberally construed to effectuate its purposes of limiting local government revenue collection without taxpayer consent.
The court then addressed the question of whether the storm drainage fee was exempt from Proposition 218 requirements because of the exception for fees “for sewer, water, and refuse collection services.” The parties offered two differing views as to whether the exception in section 6(c) extends to a storm drainage system as well as a sanitary or industrial waste sewer system. The City urged that the court should apply the commonly accepted meaning of a sewer, noting the broad dictionary definition of the word. The City also pointed to the Public Utilities Code and the Salinas City Code, which described storm drains as a type of sewer.
Ultimately, the court did not find either of the statutory construction principles offered by the parties to be useful. Instead, the court concluded that the term “sewer services” was ambiguous in the context of both article XIII D, section 6(c) and Proposition 218 as a whole. The court considered the voters’ intent that Proposition 218 was to be construed liberally to curb the rise in “excessive” taxes, assessments, and fees exacted by local governments without taxpayer consent.
The court noted that the City itself treats storm drainage differently from its other sewer systems. According to the City’s public works department, the storm drainage fee was used not just to provide drainage service to property owners, but to monitor and control pollutants that might enter the storm water before it was discharged into natural bodies of water. The court did not agree with the City’s argument that the storm drainage fee was for “water services.” “The average voter would envision “water service” as the supply of water for personal, household, and commercial use, not a system or program that monitors storm water for pollutants, carries it away, and discharges it into the nearby creeks, river and ocean.” Therefore, the City was required to subject the proposed storm drainage fee to a vote by the property owners or voting residents of the affected area because it was property related.
As this case demonstrates, Proposition 218 creates significant procedural requirements for imposing new or increasing fees or charges. With the exception of sewer, water and refuse collection as provided in article XIII D, section 6(c) fees and charges for services that are property related or incident of property ownership require compliance with Proposition 218. Storm drainage fees are not subject to the exception for “water services” and must comply with the procedural requirements of Proposition 218.
La Costa Beach Homeowners’ Association v. California Coastal Commission (2002) 101 Cal.App.4th 804
One of the goals of the California Coastal Commission (“Commission”) is to maximize public access to beaches. In this case the Commission after conducting a public hearing, allowed three real-party-in-interest property owners on Malibu’s Carbon Beach to delete conditions in the residential construction permits that required view corridors. As mitigation the owners were permitted to substitute the dedication to the California Coastal Conservancy or other appropriate agency, an undeveloped 80 foot wide parcel on an adjacent beach. The mitigation parcel would be deed restricted to provide for public view and public access to the beach.
The La Costa Beach Homeowners’ Association (“LBHA”) petitioned to overturn the Commission’s actions. The LBHA contended that the California Coastal Act (Public Resources Code section 30000 et seq.) prohibited the use of off-site mitigation and that the Commission’s actions violated CEQA. The trial court granted LBHA’s petition, finding that the Coastal Act did not permit off-site mitigation, because it failed to maximize public access to and along the coast as required by Public Resources Code section 30001.5(c).
The appellate court reversed, and ruled in favor of the Commission. The court found that “nothing in the Coastal Act or in any other statute, regulation, or legal opinion that would circumscribe the Commission’s exercise of discretion in this case and forbid it to conclude that the public will receive a greater benefit from the mitigation parcel, with its uninterrupted 80-foot view and public beach access, than from retaining separate view corridors adjacent to the residences that real parties have been authorized to build.”
The court held that the Commission provided adequate public notice of hearings, properly evaluated the environmental impacts of use of the mitigation parcel and made appropriate findings. The court also found that the Commission had not violated CEQA.
Warmington Old Town Associates v. Tustin Unified School District (2002) 101 Cal.App.4th 840
As part of a redevelopment project, Warmington Old Town Associates (“Warmington”) demolished 56 apartment units in the City of Tustin and replaced them with 38 single family homes. The Tustin Unified School District then imposed $122,080 in school impact fees on the redevelopment project, viewing the total square footage of the 38 single family homes as “new residential contraction” within the meaning of Education Code section 17620 (a)(1)(B). Warmington paid the sum under protest and filed a petition for a writ of mandate requesting the District be directed to refund the fees. Warmington argued that it should have received a “credit” with respect to the 56 units that were replaced and also argued that there was an insufficient “nexus between the impact of the new residential units in terms of student generation and fees imposed.”
The appellate court affirmed in part, reversed in part and remanded. The court focused on two issues whether: (1) the trial court erred in its interpretation of Education Code section 17620 and (2) the fee study showed that the school impact fees imposed were reasonably related to the School District’s need for educational facilities and provided the required nexus between the fees and the School District’s needs.
Education Code section 17620 permits school districts to impose school impact fees to “new residential construction” (§ 17620(a)(1)(B)) and to “other residential construction, only if the resulting increase is assessable space exceeding 500 square feet.” (§ 17620(a)(1)(C)(i)) The court stated that redevelopment construction is not exempt from the imposition of school impact fees under Education Code section 17620(a)(1)(C)(I). Because Education Code section 17620(a)(1) does not expressly address redevelopment construction, the court looked at the legislative history and statutory exemption given other types of construction under Education Code sections 17620 and 17626. The court concluded that the Legislature did not mean to provide for an exemption for redevelopment construction such as the case at hand. “It appears the Legislature did not think it obvious that the destruction of existing residential units and replacement with newly constructed residential units was exempt under section 17620 so it was necessary to create an exemption under section 17626 when the destruction was cause by disaster. The Legislature made no corresponding exemption when the residential units were destroyed in connection with redevelopment.”
However, the court found that the Mitigation Fee Act (Gov. Code § 66000 et seq.) requires the School District to establish a reasonable relationship between the fee’s use and the type of development project on which the fee is imposed and the need for the public facility and the type of development project on which the fee is imposed. In this case, the School District exercised its authority under Education Code section 17620 to impose school impact fees on a redevelopment project, but failed to meet its obligations under Government Code section 66001.
The court cited the nexus test as stated in Shapell Industries, Inc. v. Governing Board (1991) 1 Cal.App.4th 218, 235, “facilities fees are justified only to the extent that they are limited to the cost of increased services made necessary by virtue of the development. The Board imposing the fee must therefore show that a valid method was used for arriving at the fee in question, ‘one which established a reasonable relationship between the fee charged and the burden posed by the development.'” The Shapell court enunciated the following test:
“Such a showing with respect to the fees . . . must involve the interrelation of three elements. First, since the fee is to be assessed per square foot of development, there must be a projection of the total amount of new housing expected to be built within the District. Second, in order to measure the extent of the burden imposed on schools by new development, the District must determine approximately how many students will be generated by the new housing. And finally, the District must estimate what it will cost to provide the necessary school facilities for that approximate number of new students.” Shapell at 235.
The court found that the School District’s Fee Study was flawed. In using the Fee Study as a basis for imposing school-impact fees on redevelopment construction, the School District failed to meet the first and second prongs of the Shapell test. “It failed to meet the first prong to the extent that the projection of the total amount of new housing failed to take into consideration the demolition of housing units for redevelopment. Similarly, it failed to meet the second prong because the Fee Study did not approximate the number of students to be generated by redevelopment (i.e., the difference between the number of students that previously inhabited redevelopment sites and the number of students projected to subsequently inhabit those sites).”
In this case, the Fee Study did not address the burden created by redevelopment construction, as opposed to new residential construction that did not displace existing housing, and thus did not show the requisite connection, or “nexus” between the amount of the fee imposed and the burden created.
In conclusion, the court affirmed the entire refund designated by the trial court, but noted that the trial court cited the wrong legal underpinning in support of its conclusion. Education Code section 17260 did not provide the sought after exemption for redevelopment construction, but the School District failed to adhere to the requirements of Government Code section 66001 in imposing the fees.
William W. Abbott is a partner and Robert T. Yamachika is an associate with Abbott & Kindermann, LLP in Sacramento. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.