by Joel Ellinwood, AICP
The California Mitigation Fee Act, Government Code sections 66000, et seq. (“MFA”), affords some limitation on developer fees and exactions that is generally consistent with the constitutional principles enunciated in the United States and California Supreme Courts case law (Nollan fn1, Dolan fn2, Ehrlich fn3, and San Remo Hotel fn4). The MFA provides a “payment under protest” remedy for claims of excessive fees charged to a particular project, but case law has qualified this remedy for various types of fee claims. Some categories of fees may not have a refund remedy under the MFA. However, other statutes may provide independent authority for the “payment under protest” remedy. One example is water, drainage and sewer connection fees adopted under Health and Safety Code section 5471.
Under the MFA and constitutional due process and taking principles, the fee or exaction must bear a “nexus” or reasonable relationship to the impacts of the project. The more ad hoc and project specific the fee or exaction is, the closer the relationship that must be demonstrated, particularly if it involves dedication or public use of a portion of the project site. The broader and more generally applicable the fee or exaction is, the less exacting the review of the relationship between the development and the use of the fee is likely to be, particularly if it only involves payment of a fee set by some objective standard that is uniformly imposed on a similar class or type of use.
Challenges to the amount of development fees charged to a particular development can be made without delaying the completion of the project through the “payment under protest” procedure under Government Code section 66020. The agency must be given a written notice of the factual and legal basis for the protest within 90 days of payment, and suit must be filed within 180 days. However, if a court determines that the protest is really a facial attack on the validity of the fee ordinance itself (a “legislative” decision), rather than the manner of its application to a particular project (an “adjudicatory” decision), a shorter 120 day statute of limitations from the date of adoption of the ordinance applies.
No reported case has yet determined whether a timely filed, truly adjudicatory challenge to the manner of calculation of water or sewer connection fees or capacity charges for a particular project may be made under the “payment under protest” procedure of section 66020, as was suggested in N.T. Hill v. City of Fresno (1999) 72 Cal.App.4th 977, or as the due process clause of the California and United States Constitutions would seem to require. Section 66013(h) states that fees for water or sewer connections or capacity charges are not subject to the MFA generally, except sections 66016 [procedures for adopting or increasing fees]; 66022 [time limits for filing judicial actions to challenge the adoption or increase of fees; and 66023 [right to request an audit to determine if fees exceed reasonable costs].
Not all fees charged during the course of development are necessarily fees on development (fees imposed as a condition of development) fn5. Exceptions are taxes fn6, special assessments fn7, and application or permit processing fees fn8. The courts have likened water or sewer capacity charges to special assessments or user fees because they are designed and limited to spreading a fair share of the cost of existing or planned future infrastructure facilities to all future developments benefitting from those facilities fn9. Once that cost has been recovered or there is a miscalculation of these types of fees, the MFA remedy may be limited to a prospective reduction of the fees, but not a refund fn10.
The necessity of wading through this misty swamp of vaguely defined distinctions and uncertainty (try to read the cases and answer the question, “when is a fee collected during development not a development fee?”) that case law has created under the MFA can be avoided if the water or sewer connection fee is charged pursuant to the authority of Health and Safety Code section 5471 fn11 by a sanitation district or other “entity fn12” in connection with its water, sanitation, storm drainage, or sewerage system. Health and Safety Code section 5472 provides a pay under protest remedy:
“… any person may pay such fees, rates, tolls, rentals or other charges under protest and bring an action against the city or city and county in the superior court to recover any money which the legislative body refuses to refund.”
Payments under protest and actions must be brought in accordance with Article 2, Chapter 5, Part 9, of Division 1 of the Revenue and Taxation Code. The applicable provisions of the Revenue and Taxation Code are found at section 5140, et seq. An action for refund requires that a claim have first been filed pursuant to Revenue and Taxation Code sections 5097 and 5097.02, and must be filed within four years after making the payment sought to be refunded. See, e.g. Pinewood Investors v. City of Oxnard (1982) 133 Cal.App.3d 1030. The claim must be in writing specifying whether the whole assessment or only a portion is claimed to be void and the grounds on which the claim is founded.
The reference to the Revenue and Taxation Code property tax payment under protest procedure helps clarify the limited scope of the review under this type of remedy. A protest cannot attack the validity of the tax or fee assessment ordinance itself, or the activity or facilities funded by the fee. Put another way, a protest of the fee calculation as applied to a particular property cannot be made to the determination of the cost of the facility or the basis for allocating those costs (the “fair share”) except by a timely challenge to the ordinance. Review by payment under protest is limited to appropriateness of the interpretation and application of the tax or fee calculation for a specific property (e.g. an error in measuring the square footage of improvements), or the validity of the data used to calculate the fee (the appropriateness of comparable sales data relied upon). These determinations are not necessarily purely formulaic, allowing for no discretion on the part of the public official calculating the fee. Some judgment and discretion is required. The founding fathers realized that whenever official discretion is allowed it may be abused. If official discretion is abused affecting a substantial property or liberty right, our system of government allows a remedy, ultimately by judicial review.
Unfortunately it is not at all clear whether the Health and Safety Code section 5472 remedy is available if the public entity charging the fee is operating under authority other than the Sanitation District Facility Law, such as a Community Services District formed under the Government Code or a Community Water District, Irrigation or Drainage District formed under the Water Code.
It may also be argued that the MFA preempts remedies provided by other statutes authorizing the adoption of water, sewer or drainage capacity charges. Section 66013(a) begins with the phrase, “Notwithstanding any other provision of law …” However in the author’s view the rest of the sentence is simply a legislative restatement of the limitations of Proposition 13, and not an attempt to preempt all other water or sewer connection and capacity charge statutes. Government Code section 66016(d) states that the limited remedies provided by that section only apply to fees and charges described in certain specified statutes. For the most part the list includes planning, application and processing fees for various types of plans or projects. Health and Safety Code section 5471 is not on the list. One principle of statutory construction is to harmonize apparently conflicting statutes to give each its intended effect. By permitting a limited fact-based payment under protest remedy for fee calculations that require official judgment or discretion for a specific project or property under Health and Safety Code section 5472 that principle would be honored.
This is yet another example of the nearly impossible complexity and lack of consistency or predictability in the California development process. It is essential to identify the specific authority under which the applicable connection fee or capacity charge is assessed and not assume that the MFA is the only source of authority or applicable remedy.
fn1 Nollan v. California Coastal Commission (1987) 438 U.S. 825.
fn2 Dolan v. City of Tigard (1994) 512 U.S. 374.
fn3 Ehrlich v. City of Culver City (1996) 12 Cal.4th 85.
fn4 San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643.
fn5 Utility Cost Management v. Indian Wells Valley Water Dist. (2001) 26 Cal.4th 1185, 1191.
fn6 Gov. Code, § 66000 (b); California Psychiatric Transitions, Inc. v. Delhi County Water District (2003) 111 Cal.App.4th 1156, 1161.
fn7 Gov. Code, § 66014; Barratt American, Inc. v. City of Rancho Cucamonga (2005) 37 Cal. 4th 685.
fn8 California Psychiatric, supra. ; The analogy is tenuous because taxes, special assessments and standby charges or user fees are terms of art, generally collected with property taxes, and are all subject to specific statutorily required notice and adoption procedures completely separate from the MFA. They are not collected as a lump sum as a condition of issuance of a building permit or certificate of occupancy for new development. If a connection fee or capacity charge is determined only upon application for a connection to the infrastructure, the potential for a dispute cannot be known until the agency calculates it and presents the bill. If the calculation is truly erroneous there is no remedy unless a payment under protest is permitted.
fn9 Gov. Code, § 66013; “Connection fees” are limited to the cost of labor and materials to make the physical connection to the system. (Gov. Code, § 66013 (b)(1), (2) and (5)). At least some of what is often included in what local agencies collect as “connection fees” are in reality “capacity charges” as defined in the MFA, Gov. Code, § 66013 (b)(3), being “a charge for facilities in existence at the time a charge is imposed or charges for new facilities to be constructed in the future that are of benefit to the person or property being charged.” Under the MFA a higher level of accountability applies to capacity charges, which includes the responsibility for the agency to prepare an annual report on the collection and use of the fees, and to adjust the fees so that any excess revenues are used to reduce the fees in subsequent years. Gov. Code, § 66013 (d), (i); Gov. Code, § 66016 (a); Capistrano Beach Water District v. Taj Development Corporation (1999) 72 Cal. App. 4th 524, 529.
fn10 Gov. Code, § 66016 (a); Barratt American, supra, 37 Cal.4th at 699.
fn11 Health & Safety Code, § 5471 allows local agencies “to prescribe, revise and collect, fees, tolls, rates, rentals, or other charges, including water, sewer standby or immediate availability charges, for services and facilities furnished by it, either within or without its territorial limits, in connection with its water, sanitation, storm drainage, or sewerage system.” Revenues from these fees or charges “shall be used only for the acquisition, construction, reconstruction, maintenance, and operation of water systems and sanitation, storm drainage, or sewerage facilities, to repay principal and interest on bonds issued for the construction or reconstruction of these water systems and sanitary, storm drainage, or sewerage facilities and to repay federal or state loans or advances made to the entity for the construction or reconstruction of water systems and sanitary, storm drainage, or sewerage facilities.” A fee adopted under Health & Safety Code, § 5471 must be approved by a two-thirds vote of the governing body. A fee adopted under Government Code, § 66013 for the same purpose need only be approved by ordinance or resolution by a majority vote of the governing body.
fn12 Health & Safety Code, § 5470 (e); “Entity” means and includes counties, cities and counties, cities, sanitary districts, county sanitation districts, sewer maintenance districts, and other public corporations and districts authorized to acquire, construct, maintain and operate sanitary sewers and sewerage systems.
Joel Ellinwood is a senior associate with Abbott & Kindermann, LLP. 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.