Are your Development Impact Fees Compliant?

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By Dima Galkin

With constraints on tax revenue growth and overwhelming pension obligations, how can cities and counties ensure they have the financial capacity to fund the capital improvements necessary to accommodate new development? One way is by imposing development impact fees (DIFs). This option does not require a public vote (a sales or transient occupancy tax increase does) but involves a series of qualifications and reporting requirements not associated with standard tax revenues. Fees can be applied to a wide range of physical infrastructure, from parks and police facilities to streets and sewers.

The guidelines for DIFs were established with the Mitigation Fee Act (MFA), passed in 1987 as AB 1600 and filed in Government Code Section 66000 et seq. As amended, the MFA reflects the requirements established by the influential US Supreme Court decisions Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994).

The fee must be “‘roughly proportional’… both in nature and extent to the impact of the proposed development.” For example, a park impact fee could only be applied to a development that increases the need for parks and in an amount that equals the cost of building that additional park space. Despite this limitation, DIFs are a critical financial resource for jurisdictions looking to match new development with new infrastructure to serve it, without impacting the availability of other City funds for ongoing public services.

The MFA requires agencies file Annual and 5-year Reports. The Annual Report cover amounts collected and spent, what projects were funded, and whether any loans were made between funds. The 5-Year Report provide continued justification for the fee amounts.

According to State Senator Jeff Stone, almost one-third of localities have not kept up with these reporting requirements. In response, Senator Stone sponsored Senate Bill 1202, passed and signed into law in 2018. Under SB 1202, agencies that fail to keep up with MFA reporting can be subjected to an independent audit at their own expense and if they fail to make findings for the fee’s necessity, agencies may be forced to pay back unused impact fees.

In addition, several pieces of pending legislation focusing on transparency and promoting housing affordability would affect DIFs.

AB 1484

This bill would require each city (including charter cities) and county to post its fee information for housing development on its website and to provide that website address to development applicants.

AB 831

Existing law requires the State’s Housing and Community Development Department (HCD) to complete a study evaluating the reasonableness of local DIFs and to make recommendations on potential amendments to the MFA to reduce fees for residential development by June 30, 2019.

AB 831 would add the following requirements for HCD:

·         Post this study on its website,

·         Complete a separate study by June 30, 2020 that identifies the category of all fees for residential development and the average amount thereof in each of the State’s 47 Councils of Governments and post on its website, and

·         Issue a report to the State Legislature by January 1, 2024 on the progress of cities and counties in adopting the recommendations made in the first study.

AB 1483 would enhance the requirements of the Annual Progress Reports to include more detailed information on permitting and development applications and would require agencies to post a schedule of fees on their websites.

This recent and pending legislation points to increased scrutiny applied to development impact fees of all kinds, but especially those that apply to residential development, as the State puts in place sticks (also carrots, but mostly sticks) to address the statewide housing crisis. This makes it more important than ever to meet the reporting requirements and be aware of new requirements as they arise.

RSG is available to help you keep up with reporting and other requirements for DIFs, as well as for housing and economic development.