The Supreme Court has made it easier to challenge development fees that are key to funding a broad array of public improvements, including roads, parks, sewer lines and schools.
It’s too early to determine what impact Friday’s ruling will have, but it could lead to cities readjusting their fees or, at the very least, giving more consideration to how they justify them.
That could lead to less revenue for infrastructure and push a discussion about what is the appropriate way to finance necessary public works beyond tacking on tens of thousands of dollars to new homes.
The court’s decision also comes as the November election approaches in California, when voters will consider a ballot measure that would lower the approval threshold to certain local government bonds and taxes for infrastructure and housing from a two-thirds majority to 55 percent. That’s what it takes to approve school bonds now.
If approved, that proposition would make it easier to raise revenue — perhaps harkening back to the big infrastructure bonds more common generations ago — at a time when there likely will be downward pressure on development fees.
There’s a flip side, however. Also on the ballot is a proposal backed by the California Business Roundtable to make the two-thirds voter approval threshold universal to taxes, bonds and even fees now levied without a public vote.
At least two potential scenarios could emerge.
One suggests an infrastructure funding migration away from development fees, while making broadly based bond and tax measures more politically doable.
The other scenario is it could be more difficult to finance public improvements either through fees or by going to the voters to approve bonds and taxes.
It’s a complex weave of possible outcomes and, for the moment, much is theoretical.
“We’re not sure yet what exactly this means,” Lori Holt Pfeiler, president and CEO of the San Diego Building Industry Association, said of the court ruling. “We do know that cities will have to take care in what they’re doing.”
She specifically noted a proposal in Carlsbad for a more than three-fold increase in park fees for some developments. A hearing on that is scheduled for Tuesday.
The Supreme Court did not strike down or alter any development fees. But the court said such impact fees could be unconstitutional if they force new development to pay an unfair share of public projects. The justices did not say what would be unfair, leaving that for the lower courts.
“It seems like kind of a nightmare to figure out where that line should be drawn,” Justice Amy Coney Barrett said during oral arguments in January.
Builders and some housing advocates say high fees in California add considerably to the cost of housing. But there’s no guarantee that lowering them, or getting rid of them, would moderate prices. Further, if the alternative is more taxes and bonds, that would shift costs elsewhere.
This concern is surfacing while San Diego and other jurisdictions already face an infrastructure funding shortfall.
The ruling said California state courts had blocked claims arising from a “development impact fee imposed pursuant to a legislatively authorized fee program” for new development, according to the Los Angeles Times.
The Supreme Court, voting 9-0, allowed such challenges.
The suit involved an appeal by a person in California’s El Dorado County who put a manufactured home on a small lot and was charged a $23,420 traffic mitigation fee.
Liberal Justices Ketanji Brown Jackson and Sonia Sotomayor said they signed on to the ruling because it simply allows challenges. Conservative Justice Brett Kavanaugh said there was merit in certain conditions and fees on development “through reasonable formulas or schedules that assess the impact of classes of development rather than the impact of specific parcels of property.”
After examining the ruling, the group Livable San Diego decided to file an appeal of a judge’s decision earlier this year striking down its lawsuit against the city of San Diego, Tom Mullaney, executive director of Livable San Diego, said Monday.
The organization, which has been critical of moves to increase housing density in some areas, sued the city in November over a new policy to use development fee money from higher-end neighborhoods to build infrastructure in lower-income areas.
Mullaney said the judge ruled against the group because the lawsuit did not challenge fees on a specific project, but the broader program.
“We believe that the City of San Diego plan to spend (development impact fee) money far from the site of development is improper and illegal,” Mullaney said in an email.
In 2019, an analysis by a consultant hired by the city found that Los Angeles, San Francisco and San Jose collect most of their developer fees for infrastructure on a citywide basis, not by specific neighborhood, according to David Garrick of The San Diego Union-Tribune.
For a long time, there was a nexus between the amount of developer fees and the impacts from a project that needed to be mitigated, whether improving new roads or building new parks.
But the fees expanded in both amount and scope after voters approved Proposition 13, the 1978 landmark initiative that rolled back property taxes and limited increases. Proposition 13 and other laws required two-thirds votes to raise most taxes. Property taxes had long been a main financial tool to fund public works and various government operations.
The future of development fees could be uncertain depending on how the Supreme Court ruling is interpreted and the success of challenges under it.
There’s also uncertainty about replacement sources of revenue.
The California Legislature approved Assembly Constitutional Amendment 1, the November ballot measure to lower the voting threshold to 55 percent for some bond and tax measures.
Recent court rulings have established that tax increases through citizen initiatives require only a majority vote. Most tax measures put on the ballot by local government boards and councils require a two-thirds majority if the money is targeted for a specific purpose. That would change under ACA 1.
Then there’s the California Business Roundtable measure, which not only expands the two-thirds requirement, but makes it retroactive to Jan. 1, 2022, threatening existing taxes and fees approved since then.
Adding another dimension, a third measure is on the statewide ballot drafted by Assemblymember Chris Ward, D-San Diego, and others that would require any proposition that raises the voter-approval threshold to be ed by that same requirement. If approved, that means the business measure could need a two-thirds vote to .
If all are approved, it will likely take some time, and considerably more court action, to sort out which measure, or which parts, stand — and how infrastructure funding may be affected.
