By Cori Badgley

There are many different types of fees, taxes and assessments that a local agency may impose. For each type, there are specific procedures and requirements, and if the agency does not use the correct procedure and meet the correct requirements, a court may invalidate the fee. In California Building Industry Association v. San Joaquin Valley Air Pollution Control District (2009) 178 Cal.App.4th 120, the agency got it right, and the court held that the agency’s indirect source review fees were valid regulatory fees.

The San Joaquin Air Pollution Control District (“APCD”) adopted Rules 9510 and 3180 relating to emission reduction requirements for new development. The rules allowed new developments to incorporate onsite measures, pay fees, or any combination of the two in order to reduce their emissions to the required level. After adoption of the rules, the California Building Industry Association (“BIA”) brought suit against the APCD on the grounds that the fees were invalid and adopted in excess of the APCD’s authority. The trial court found in favor of the APCD and the BIA appealed.

The appellate court upheld the trial court’s ruling. In its opinion, the appellate court broke the case down into three parts: 1) whether the fees were regulatory fees or development fees; 2) whether the fees were valid regulatory fees; and 3) whether the APCD had the authority to adopt and impose the fees.

The Fees Were Regulatory Fees

According to the appellate court, a development fee is a fee “exacted in return for building permits or other governmental privileges so long as the amount of the fee bears a reasonable relation to the development’s probable costs to the community and benefits to the developer.” On the other hand, “when a fee is charged for the associated costs of regulatory activities and does not exceed the reasonable cost of carrying out the purposes and provisions of the regulation, it falls within the category of a regulatory fee.” This is an important distinction because development fees must be adopted pursuant to particular provisions of the Mitigation Fee Act (Gov. Code §§ 66000 et seq.).

The court found that the fees were not imposed as a condition of project approval, and that the fees were not taken in return for “permits or other government privileges.” Instead, the APCD adopted the fees in order to achieve federal air quality standards by mitigating the additional air pollution resulting from new development. Therefore, the court held that the indirect source review fees adopted in this case were regulatory and not development fees.

The Fees Were Valid

The BIA asserted that even if the fees were regulatory fees, they were not valid because the APCD used an invalid calculation method, failed to prove “the estimated costs of the regulatory activity,” and failed to prove “that its basis for apportioning the costs of the program bear a reasonable relation to the payer’s burdens on the [APCD].” The court disagreed on all counts.

First, the court found that the calculation method accounted for the existing emissions and ensured that new development was only paying for the increased emissions. Second, URBEMIS, the computer model used to calculate the fee, provided a reasonable method for determining the fee amount. Although there may be another method of calculation preferred by the BIA all which is required under the standard of review is that the APCD act reasonably. Third, the program costs were “the cost per ton of the offsite emission reduction necessitated by the development,” and this provided the cost estimation necessary for adoption of the fees. Therefore, the court held that the fees were valid regulatory fees.

APCD Did Not Exceed its Authority

The court found that the source of the APCD’s authority, as identified in the rules, was Sections 40727, 40716, 42311(g) and 40604 of the Health and Safety Code. These sections require the APCD to “adopt … a schedule of fees to be assessed on area-wide or indirect sources of emissions …” In one last attempt to invalidate the fee, the BIA argued that the definition of “indirect source” adopted by APCD was too broad. Housing developments should not be considered indirect sources. The court reviewed the definitions of indirect source used by the federal government and the California Air Resources Board. Both of these definitions included facilities, building and structures as indirect sources. Therefore, the court found that the APCD’s inclusion of the housing developments as an indirect source was not unreasonable and upheld the APCD’s adoption of the fees.

In this case, the APCD followed the correct procedure and satisfied the correct requirements in adopting its fees. Thus, the fees were valid, and the APCD can continue to extract money from new development in order to achieve its goal of lower emissions.

Cori M. Badgley is an associate at Abbott & Kindermann, LLP.  For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP 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.