Court rules that DIF’s are reasonable

On June 9, 2010 a great breeze was felt throughout California.  No, it was not the Pacific Ocean offshore flow typical of June.  It was a collective sigh of relief from California’s many municipal, county and special district land-use attorneys.  What was the reason for this phenomenon?  The decision in Home Builders Association of Tulare/Kings Counties Inc. v. City of Lemoore, which essentially upheld that City’s DIF schedule based upon a basic and reasonable application of §66000 et. seq. of the Government Code (or, AB1600).

How does the decision affect you? If you followed the (reasonable) basics of §66000, you will be just fine (and we at RCS did and continue to follow those requirements).  I am sure that your City Attorney has already sent a summary of the decision to Council and staff outlining this fact.  Many have copied me and I appreciate them remembering and including me.  If it weren’t for the current building economics, we’d get this party started!

Having dedicated a great deal of my career to this very important revenue source, I am pleased, but not particularly surprised, by the Fifth Appellate District’s decision.   Initially, I am glad to see an “on-point” court decision, that is, it was a challenge on a specifically calculated Development Impact Fee Calculation and Nexus Report.  This is far better than having to extrapolate principles from the “Big Two” exaction cases, Nolan and its little sister Dolan (not that they aren’t important, they are).  Secondly, given the data we generate for a DIF Report, I am not surprised that it was not one of my client’s Reports (or, as I prefer to call them “our reports”) that had to go through the challenge.  Here (with as much brevity as I am capable of) is what the judges concluded:

1. General descriptions of needed projects are sufficient.  In our reports, Community-use Facilities DIF collections can be used to acquire additional generally defined, as opposed to specifically defined community-use facility square feet to accommodate future residents.  The specific type of community-use facilities can be determined at a later point in time.  In our reports we identify the acquisition and construction of park acres, but not necessarily specifically where or what type. This process, I have always contended, while general in nature, is specific enough.

2. Existing DIF collection fund balance paid (on behalf of) businesses and residents upon permit issuance are part of the existing community and represent a current asset.

3. The Quimby Act does not preempt §66000. The decision supports RCS’s application of dual park DIF calculations, the Quimby Act for application to subdivision of land (where specific land acquisition is required), and §66000 for non-subdivided developments for general Citywide park needs.  There is no conflict, and to exempt either category (sub-divided or non-subdivided developments) would be inconsistent.

4. Minor contradictions with the General Plan are not a problem.  Nice, but that being said, your municipality adopts both the General Plan and the DIF Calculation/Nexus Report, so there is no need for any such contradiction. If required, amend your General Plan.  If your currently met (or de facto) standard for library space is 0.32 square feet per resident, insert a comment in your General Plan that the City’s library standard is either A) the current de-facto standard or, B) the actual 0.32 square feet per resident.  I recommend the former.  Then indicate whether or not the City wishes to maintain that standard or alter it.

5. Inclusion of vehicles and specialty equipment is reasonable.  The court stated “Vehicles and officer safety equipment are necessary to provide the public service of police protection.”  Just document it.  We do.

6. Recoupment of previous project costs is invalid, as it represents general revenue to the City. I generally understand this conclusion with two possible exceptions.  The first would be if a project were constructed with additional capacity specifically intended for future demands.  Findings would need to be made at the time the facility was acquired or built and the excess capacity must exist.   Secondly, I maintain my belief that a case can be made for a “buy-in” approach for utilities (only) would be considered fair because the system has been constructed with utility rate proceeds, not general taxes.  A DIF defense would require a full appraisal of the utility system to determine its current value.  A perfect example would be Loma Linda’s water system. It was 80% complete (due to specifically creating additional capacity) but served less that 65% of the system’s ultimate demand as represented by the existing users (and payers).  Thus, 65% of the users have overpaid for the system.  They should be able to get that back, and I think a combination of the two above instances would meet court scrutiny.

So, what is the practical application of the Court’s decision?  Most importantly, it provided acceptance; the acceptance that DIFs are a reasonable (and necessary) capital financing tool. The development community and their BIAs will no longer be able to merely threaten lawsuits over the entire report.  Instead they will have to identify some sort of substantive complaint about specific projects.  Given the cost of litigation, a few projects here or there will not likely generate a lawsuit.

Again, be as specific in identifying specific projects as possible without handcuffing yourself. Clearly touching base with the development community to identify these projects they consider too vague will continue to be a good plan. That doesn’t mean they are, but maybe some stronger language can strengthen your claims.  Be sure to make your findings clear. The Mitigation Fee Act requires a local agency to: (a) identify the purpose of the fee and the use; (b) determine that the fee’s use and the need for the public facility are reasonably related to the type of development project on which the fee is imposed; and (c) determine a reasonable relationship between the amount of the fee and the cost of the public facility.  We have done that.

Secondly, you can keep your Quality of Life infrastructure projects (community and aquatic centers, libraries, parks and open space) sufficiently vague, or vaguely sufficient. A park is pretty much a park. The City’s Hard Infrastructure, consisting of law enforcement, fire suppression/medic, circulation, storm drainage collection, general facilities, and all public utilities should be based upon Master Plans, and thus will likely be more specific.

So, let’s hear it for the Fifth Appellate District Court judges, who actually know what “reasonable” is.  Now, if we can just do something about that whole bad economy thing.