Legislature Impacts Timing of When Developer Fees May Be Collected for Many Local Agencies
January 2025
Number 5
On September 20, 2024, the Governor signed into law Senate Bill (SB) 937, amending a section of the Mitigation Fee Act. The changes to Government Code section 66007 went into effect January 1, 2025. As discussed more thoroughly below, the impact of SB 937 on school districts compared to other local agencies is less clear, but we continue to monitor legislative activity and guidance from State agencies.
The Mitigation Fee Act permits a local agency, including cities, counties, special districts, and any other municipal public corporations to charge fees “as a condition of approval of a development project” to address the impact of new development on the agency. Existing law requires these fees be paid on the date of the final inspection or the date the certificate of occupancy is issued, whichever occurs first. Existing law also provides several exceptions that enable local agencies to collect fees at an earlier date.
While the Mitigation Fee Act applies to various types of local public agencies, including school districts, the Education Code offers more specific mandates regarding the collection of impact fees on behalf of school districts. Under the Education Code provisions, a city or county is prohibited from issuing a building permit prior to certification by the school district that impact fees have been paid.
Application of SB 937 to Cities, Counties, Special Districts, and Other Local Agencies
The new statutory scheme codified through SB 937 narrows the scope of the existing exceptions that allow a local agency to collect impact fees prior to proof of certificate of occupancy by creating a new category of development where local agencies may not require payment of developer fees until a temporary certificate of occupancy (TCO) or a certificate of occupancy is issued, whichever occurs first.
This new category of development is defined in SB 937 as “designated residential development projects.” “Designated residential development projects” include the following:
This bill does not completely eliminate the ability of public agencies to compel earlier payment of development fees. A local agency may continue to collect fees at an earlier date for the purpose of reimbursing the local agency for expenditures actually incurred but not otherwise reimbursed by other development fees. A local agency may also collect fees for certain public improvements, including the construction and rehabilitation of school facilities, providing water, sewer, wastewater, fire, public safety, and emergency services to the residential developments, when the local agency’s governing board has authorized the expenditure of funds for the authorized purpose.
Local agencies may require residential developers that do not pay all fees prior to issuing a building permit to enter into a contract agreeing to pay the fees at the time of issuance of TCO, certificate of occupancy, or final inspection. SB 937 requires that, before executing such a contract, a local agency must post a model agreement on its website. The bill provides that a local agency’s governing board may delegate the authority to any employee to approve and execute these types of contracts.
School Districts under SB 937
SB 937 provides an exception that would allow a school district to collect fees earlier under the Government Code from designated residential developments for “public improvements or facilities” which includes “schools and related facilities.” However, to take advantage of the Government Code exception, a school district must use the fees to reimburse itself for expenditures previously made or for a project that has a five-year plan required by the Leroy F. Greene State School Building Lease-Purchase Law of 1976. The Leroy F. Greene purchase-program is outdated and the five-year construction plan required by the program is no longer being utilized, which calls into question the intent of the legislature and the ability for a school district to comply with the requirements of SB 937.
While the Government Code revisions leave ambiguity as to the application to school districts, the bill does not make any modifications to the provisions of the Education Code that require school district developer fees to be paid before the issuance of a building permit. Because the Education Code requirement is unchanged, there remains an argument that school districts can continue to require the earlier collection of fees. It is unclear how a court might harmonize the revisions of the Government Code with the existing Education Code, and there is not yet any other clear guidance on this issue. Each local agency should assess the practical application of these statutes and determine how best to apply the statutes on a local and regional basis. Consultation with legal counsel is recommended.
Takeaways
For school districts wanting to learn more about the process for adopting, implementing and collecting developer fees, Lozano Smith publishes its “Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California”. The Handbook is available at no cost to public school district clients of Lozano Smith. The Handbook is also available to non-client public school districts and select non-public entities at a cost of $300. If you would like access to our Developer Fee Handbook for School Facilities, register here.
Number 5
On September 20, 2024, the Governor signed into law Senate Bill (SB) 937, amending a section of the Mitigation Fee Act. The changes to Government Code section 66007 went into effect January 1, 2025. As discussed more thoroughly below, the impact of SB 937 on school districts compared to other local agencies is less clear, but we continue to monitor legislative activity and guidance from State agencies.
The Mitigation Fee Act permits a local agency, including cities, counties, special districts, and any other municipal public corporations to charge fees “as a condition of approval of a development project” to address the impact of new development on the agency. Existing law requires these fees be paid on the date of the final inspection or the date the certificate of occupancy is issued, whichever occurs first. Existing law also provides several exceptions that enable local agencies to collect fees at an earlier date.
While the Mitigation Fee Act applies to various types of local public agencies, including school districts, the Education Code offers more specific mandates regarding the collection of impact fees on behalf of school districts. Under the Education Code provisions, a city or county is prohibited from issuing a building permit prior to certification by the school district that impact fees have been paid.
Application of SB 937 to Cities, Counties, Special Districts, and Other Local Agencies
The new statutory scheme codified through SB 937 narrows the scope of the existing exceptions that allow a local agency to collect impact fees prior to proof of certificate of occupancy by creating a new category of development where local agencies may not require payment of developer fees until a temporary certificate of occupancy (TCO) or a certificate of occupancy is issued, whichever occurs first.
This new category of development is defined in SB 937 as “designated residential development projects.” “Designated residential development projects” include the following:
- Projects where 100% of the units are dedicated to lower income households.
- Development projects that help unhoused individuals obtain permanent housing (i.e., Low Barrier Navigation Center developments).
- Local-agency approved affordable housing projects within a commercial zone.
- Multi-family housing development that adjoins parcels developed for urban use subject to a streamlined ministerial approval process.
- Affordable housing developments subject to the Affordable Housing on Faith and High Education Lands Act of 2023.
- Projects eligible for a density bonus from a city, county, or city, and county.
- Projects of ten or fewer units.
This bill does not completely eliminate the ability of public agencies to compel earlier payment of development fees. A local agency may continue to collect fees at an earlier date for the purpose of reimbursing the local agency for expenditures actually incurred but not otherwise reimbursed by other development fees. A local agency may also collect fees for certain public improvements, including the construction and rehabilitation of school facilities, providing water, sewer, wastewater, fire, public safety, and emergency services to the residential developments, when the local agency’s governing board has authorized the expenditure of funds for the authorized purpose.
Local agencies may require residential developers that do not pay all fees prior to issuing a building permit to enter into a contract agreeing to pay the fees at the time of issuance of TCO, certificate of occupancy, or final inspection. SB 937 requires that, before executing such a contract, a local agency must post a model agreement on its website. The bill provides that a local agency’s governing board may delegate the authority to any employee to approve and execute these types of contracts.
School Districts under SB 937
SB 937 provides an exception that would allow a school district to collect fees earlier under the Government Code from designated residential developments for “public improvements or facilities” which includes “schools and related facilities.” However, to take advantage of the Government Code exception, a school district must use the fees to reimburse itself for expenditures previously made or for a project that has a five-year plan required by the Leroy F. Greene State School Building Lease-Purchase Law of 1976. The Leroy F. Greene purchase-program is outdated and the five-year construction plan required by the program is no longer being utilized, which calls into question the intent of the legislature and the ability for a school district to comply with the requirements of SB 937.
While the Government Code revisions leave ambiguity as to the application to school districts, the bill does not make any modifications to the provisions of the Education Code that require school district developer fees to be paid before the issuance of a building permit. Because the Education Code requirement is unchanged, there remains an argument that school districts can continue to require the earlier collection of fees. It is unclear how a court might harmonize the revisions of the Government Code with the existing Education Code, and there is not yet any other clear guidance on this issue. Each local agency should assess the practical application of these statutes and determine how best to apply the statutes on a local and regional basis. Consultation with legal counsel is recommended.
Takeaways
- Public agencies who must defer collection of fees for designated residential development should evaluate how potential changes in anticipated cash flow will affect current and upcoming funding needs.
- School districts should consult with their legal counsel regarding the interplay of Education Code and Government Code requirements following the enactment of SB 937.
- Additional coordination may be required between local agencies regarding the collection of fees and issuance of building permits, TCOs, and certificates of occupancy.
For school districts wanting to learn more about the process for adopting, implementing and collecting developer fees, Lozano Smith publishes its “Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California”. The Handbook is available at no cost to public school district clients of Lozano Smith. The Handbook is also available to non-client public school districts and select non-public entities at a cost of $300. If you would like access to our Developer Fee Handbook for School Facilities, register here.
As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.
