Most of the time when we think of impact fees and other development exactions, Nollan and Dolan spring immediately to mind. In those two cases, the Court established the requirement that exactions have a reasonable relationship (“nexus”) to some ill caused by a proposed development, and be “roughly proportional” to the impact created by the development.
Absent a nexus and proportionality, an exaction is “not a valid regulation of land use but ‘an out-and-out plan of extortion.'” Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987) (citations omitted). The Court was worried that absent a nexus and proportionality, impact fees, in-lieu fees, and development exactions were a form of “pay to play” where local governments take advantage of the fact that a property owner seeks development approvals, to leverage land other property or cash to address impacts not caused by the property owner.
However, Nollan/Dolan is not the only context in which these issues arise. In Homebuilders Ass’n Tulare/Kings Counties, Inc. v. City of Lemoore, No. F057671 (Cal. Ct. App. June 9, 2010), for example, the court invalidated an impact fee under California’s Mitigation Fee Act (Cal. Gov’t Code § 66000, et seq.) because fees imposed on development in one part of town where fire facilities were adequate would be used to offset the cost of already-built fire facilities in another part of town. The standards for impact fees under the Act are similar to the constitutional Nollan/Dolan standards, and the court concluded the impact fee violated the statute because it was not reasonably related to the burden created by a development.
Update (July 8, 2010): the court issued an amended opinion tweaking the standard of review section, but not changing the judgment.
In 2005, the City of Lemoore commissioned an impact fee study to support the imposition of various impact fees for such things as law enforcement, park land acquisition and improvement, refuse, fire protection, and community recreational facilities. The Homebuilders Association challenged the fees for a variety of reasons, but its petition was eventually whittled down to the Mitigation Fee Act and California’s Quimby Act (Cal. Gov’t Code § 66477), which limits the ways local governments can impose subdivision exactions. The trial court upheld all of the impact fees except the park land improvement fee, which it invalidated as preempted by the Quimby Act.
The court of appeal reversed the Quimby Act holding (see slip op. 10-14 if you are interested for the analysis of preemption) and upheld all of the other impact fees, except one part of the Fire Protection Impact Fee, which it invalidated under the Mitigation Fee Act:
For purposes of calculating fire protection impact fees, the Colgan Report divided the City into two service areas, the older established east side and the newer west side. Regarding the east side, the Colgan Report states that “the facilities and equipment needed to serve future development are already in place, so impact fees for that area are intended to recover new development’s proportionate share of the cost of the fire protection assets serving the area. The revenue from those fees will be used to offset a portion of the City’s recent investments in facility improvements and new equipment, which were funded in part with general fund money.” In contrast, the west side will need a new fire station and equipment to serve that area as it develops.
….
As discussed above, the Mitigation Fee Act requires the local agency to determine that the amount of the fee and the need for the public facility are reasonably related to the burden created by the development project. Further, the local agency must identify the facilities to be financed by the fee.
HBA objects to the east side fees on the ground that they are being imposed for general revenue purposes. Since there is no need for additional fire protection facilities in that part of the City to serve new development, HBA contends that no nexus exists between the fees and the burden posed by new housing.
HBA is correct. While a fee may be imposed to cover costs attributable to increased demand for public facilities reasonably related to the development project in order to (1) refurbish existing facilities to maintain the existing level of service or (2) achieve an adopted level of service that is consistent with the general plan (§ 66001, subd. (g)), the existing east side fire protection facilities are already adequate to continue to provide the same level of service. In other words, the new development will not burden the current facilities. The Colgan Report’s proposal to reimburse the City for its prior general fund money investments is not authorized by the Mitigation Fee Act. Rather, such a fee would constitute general revenue to the City in violation of section 66008, and therefore is invalid.
Slip op. at 18-19.
However, the court upheld the fire protection fee for developments on the other side of town:
The Colgan Report concludes that, due to the barrier created by Highway 41 between the east side and the west side of the City, a new fire station will be required to serve the west side as it develops. In calculating the cost per capita for the west side, Colgan included the forecasted population of a 476 acre area that may be annexed to the City in the future. This addition resulted in reducing the west side fire protection impact fees by approximately 28 percent.
HBA objects to the calculation including this potential annexation area as opposed to using the existing legal boundaries of the City. HBA posits that a new fire station might not be needed if the hypothetical annexation does not occur.
Contrary to HBA’s position, the Colgan Report provides a reasonable basis for the City’s adoption of the west side impact fee. There is no indication that, without the potential annexation, additional fire protection facilities would be unnecessary to serve new development. Rather, it can be inferred from the relatively low percentage of fee reduction, i.e., 28 percent, that fire protection facilities would be required with or without the annexation. The City considered the potential population to be served for the purpose of reducing the fee that would otherwise be charged and spreading the costs more equitably. This action was not arbitrary or capricious.
Slip op. at 19.
This case is worth a read even for non-California practitioners. Even though this opinion deals with the Mitigation Fee Act, the court’s handling of Nollan/Dolan-like standards is instructive for anyone who deals with impact fees and exactions.