In upholding the City of Lemoore's development impact fees for a wide range of municipal facilities, an appellate court has rejected a homebuilders association argument that such fees must be based on a specific list of public facilities.

The Homebuilders Association of Tulare/Kings Counties challenged a series of housing development impact fees adopted in 2006 and 2007 by the San Joaquin Valley city of Lemoore for community/recreation, park land, police, municipal facilities, fire protection, and refuse vehicles and containers. The case addressed several key practice questions regarding impact fees, including 1) whether the fees must be earmarked for specific facilities, and 2) to what extent the Quimby Act – which governs impact fees for parkland acquisition – is pre-emptive.The lawsuit also challenged the city's fee accounting practices.

The Kings County Superior Court ruled for the city on nearly all claims. After the builders association appealed, a three-judge panel of the Fifth District Court of Appeal echoed the Superior Court's ruling and generally upheld the city's fees, with the exception of a fire impact fee on the east side of town.

The appellate court first addressed the burden of proof. The court noted that while the public agency bears the initial burden of justifying its fees, the burden of proof ultimately falls on the fee challenger.

The first issue of substance was that of the community/recreation fee. The city used an approach by which it valued the existing facilities and divided that total amount by the city's population to create a cost per resident. The city decided that new growth had to maintain the existing value of recreational facilities per resident. This is a fee calculating methodology referred to as "standard-based," rather than the more typical "facility-based" approach that uses a list of future facility needs. Lemoore's plan generally described the types of facilities that could be constructed, but the city did not commit to specific facilities. The builders association argued the city had to identify specific facilities that the fees would fund. However, the appellate court concurred in the city's approach, noting that the Mitigation Fee Act gives local agencies discretion when identifying the facilities to be developed.

The builders association also argued that fees for recreation facilities were pre-empted by the Quimby Act. However, the court viewed the purposes of the Quimby Act as preserving recreational opportunities for new subdivisions. In this instance, Lemoore's impact fees were designed to fund unique facilities of broader benefit, and, therefore, were not pre-empted by the Quimby Act, the court ruled.

Like the community/recreation fee, the parkland impact fee also applied, in part, to non-subdivision development. Again, the appellate court rejected the Quimby Act pre-emption argument, as well as the argument that a standard-based fee calculation was improper. The builders further argued that the city's 5-acres-of-parks-per-1000 residents standard (which is allowed by the Quimby Act), was inconsistent with the 3-acres-per-1000 residents standard set forth in the city's general plan. In an analysis that is not entirely clear, the appellate court agreed with the city that the 5-acre standard was not inconsistent with the general plan.

The builders' objection to the public safety fee and municipal facilities fee posed another challenge to the use of a standards-based calculation that the city employed to ensure no dilution of existing service levels. Again, the appellate court held that the city's fee report provided ample supportive documentation to justify the charges.

Where the appellate court agreed with the building association was with respect to the city's east side fire fee. The east side of the city is largely developed and is fully served by existing facilities. The revenue from the fee was to be used to pay back the city for facilities already constructed by the city to serve the east side. On this issue, the appellate court held the impact fees to be invalid because they were enacted for general revenue purposes. At the same time, the court upheld the west side fire fee because it would fund facilities that would directly serve the new development. That fee assumed the city would eventually annex substantial acreage (an assumption which effectively lowered the per unit fee). The court concluded that a sufficient basis existed to support the west side fee, even without annexation.

The final category of fees challenged were fees for solid waste vehicles and equipment, which opponents argued were not capital assets and therefore not eligible to be funded by impact fees. Although the depreciation rate for these assets is much more rapid then other types of facilities, this equipment still qualified as capital facilities that could be funded by impact fees, the court ruled.

The petitioner's final challenge was to the city's accounting practices. The court viewed this argument as a recast of the debate over standards-based versus facility-based fees. As the city was entitled to use broad facility descriptions when enacting the fees, a similar approach was sufficient when accounting for the fees, the court ruled.

Presiding Justice James Ardaiz concurred in the ruling but expressed concern over the city's purported connection between facilities that serve the broader community, such as a military museum, to specific instances of new growth. "In my view, absent some showing of a more direct and specific relationship between the municipal improvement and the proposed development, such fees are seriously subject to question," Ardaiz wrote.

The Case:

Homebuilders Association of Tulare/Kings Counties, Inc. v. City of Lemoore, No. F057671, 2010 DJ DAR 8671. Filed June 9, 2010.

The Lawyers:

For the homebuilders: Walter McNeill, (530) 222-8992.

For the city: Daniel Jamison, Dowling, Aaron & Keeler, (559) 432-4500.

(William W. Abbott is a partner in the law firm of Abbott & Kindermann, LLP: California Land Use & Real Estate Lawyers.)