RCS Impact Fees are Battle Tested

The last thing I ever needed to hear from one of my clients was “We are being sued over our impact fees”. Never fun. But that is just what I heard last year from a central coast client, the City of Atascadero. I was included as the expert witness as to how the impact fees were calculated and supported. Working closely with City staff, we all had to protect the City’s ability to collect the $88.1 million in capital projects or acquisitions that the impact fee Report identified as needed to accommodate new development in Atascadero by General Plan build-out. But before I make you read much further – the City prevailed on every claim made by the plaintiff, a total victory. My takeaways are at the conclusion of the article.

How it Works - This may seem a bit obvious, but one needs to have a genuine legal claim or "cause of action" in order to have a court support your position. The City has the initial burden of “producing evidence to show that it used a valid method for imposing impact fees.” No report to defend yourself? Game over. Then the plaintiff “must establish that the contested fee is invalid.”

The Basics of the Case – In 1995, a developer received approval to construct detached dwellings on 114 large rural lots. Three lots were later dropped as undevelopable due to their extreme slopes. It is important to note that there was no vesting tentative map, development agreement, or final lot line adjustment that locked in the DIFs at that time. The impact fees to be imposed would be from the adopted DIF schedule in force at the time of permit issuance.

City staff and I generated the initial RCS comprehensive 120 page Development Impact Fee Calculation and Nexus Report (DIF) and the supporting 113 page Master Facilities Plan (MFP) in 2002 and updated them both in 2006. Both of the reports were generated with the City staff’s significant assistance in generating the land-use database and development-related project identification and cost input.

Developer/Plaintiff Claims - The developer basically made three claims. The first was that the City should not have imposed the 2006 fees on a 1995 approved project. Again, as they were lacking any of the previously named “locking in” documents, this was a non-starter and a win for the City.

Secondly, there was the ubiquitous general developer claim that the City (and the RCS DIF Report) failed to meet the burden of showing that the impact fees were related to that development project. The judge ruled otherwise and stated that “Thorpe’s explanation of the formula underlying the 2006 Impact Fees was sound and well-supported,” and a win for the City/RCS.

Lastly, the plaintiff argued that the City erred in not giving the plaintiff a financial credit against the various categories of impact fees imposed for “public improvements” that the developer had made within the footprint of the remaining 111 unit development. Those improvements included a helipad, three lots as open space and certain circulation and storm drainage improvements required as City conditions of approval. Again, cumulative wins for the City and here’s how:

The helipad was never required by the City. The previous Fire Chief had merely given the developer some suggestions about how a helipad should look like, but it was never a requirement by the City, win for the City.

The open space areas that the developer wanted credit for were merely the previously mentioned three lots deemed unbuildable. They were not visible from any other part of the City and they were not within the area identified by the City as desired open space that would serve the entire City. Frankly I cannot think of any reason why any city would accept the dedication of three problematical lots which would include ANY liability that would go with three steep lots.

The minor circulation improvements were imposed as conditions of approval required to either mitigate local problems caused by that specific development or to provide a second circulation access route for these homes in a very heavily wooded area. The required circulation improvements were largely acceleration/deceleration lanes required merely to get the residents of the 111 homes safely in and out of the development in a manner that also did not cause any traffic back-ups on the contiguous rural highway. In short, if the development did not occur, these improvements were not necessary, nor were they of any benefit to the City at large.

The storm drainage issue was based upon the developer’s contention that some of the on-site stormwater run-off from the development went directly into a contiguous creek and not the City’s storm drainage system. As many of you already know, RCS has always argued that the development of the City’s spine (or major) storm drainage system benefits all developments and ensures that owners of those 111 homes, as well as all of the existing and future residents and business owners, will be able to travel safely about on their daily errands/jobs or receive goods/services through and from all parts of the City during a major storm event.

The Takeaways - Though frustrating at times the experience was enlightening. At public hearings I am used to taking as much time as is needed to fully explain the impact fee laws, the calculation process, the nexus explanation, and the importance of impact fees to accommodating future development. In court you are limited to answering questions posed to you from both of the attorneys, and you have no control over the pace or timing of your comments. Both attorneys exhibited a good knowledge of the legal subject and the Judge probably knew a bit less about the subject, at least at first. I found that most daunting of all, the line of questions was the opposite of the order of information I would use in a public hearing.

I am very comfortable with the method of my calculations arrived at over my thirty years. I have always believed that these calculations would pass legal scrutiny, and they did. I am mindful that during the trial that there were a few areas of my nexus text where had I thought that they were very clear and understandable but they had elicited more cross-examination questions that needed longer answers than I had anticipated. It could be my “forest for the trees thing” or maybe the plaintiff’s attorney was merely acting like it was not fully understandable. Regardless, I have concluded that nothing can be even remotely ambiguous. I made some notes and will improve those portions of text so that they cannot be considered ambiguous. That’s a simple fix.

Bottom Line - For those of you that have impact fee schedules, you need to take a look at your adopted Development Impact Fee Calculation and Nexus Report (assuming there is one). Is the report clear, concise, detailed and understandable? Did you satisfy the five findings required by the State’s Mitigation Fee Act? Do the various nexus distribution components truly represent the increasing demands on the City’s various separate and distinct infrastructures? Are the building and construction cost components reasonable? In short, do you feel that your DIF report would be satisfactory in defending the City’s right (and need) to collect impact fees in the tens or hundreds of millions of dollars? But lastly, would the impact fee report or reports you have be adequate to persuade a judge that you have met the State’s legal obligations?

So, in the end, it was not a great deal of fun, but it was certainly satisfying to enter with City staff into the battle and walk out just fine. My thanks to the City of Atascadero staff for never losing faith in me or my work. And clearly the majority credit for the win is in their camp.