Walker v. City of San Clemente (August 28, 2015, G050552)

Why It Matters: In a strict reading of a local agency’s responsibilities under the Mitigation Fee Act (Gov’t Code §§ 66000 et seq.), the Court of Appeal held that San Clemente’s failure to make the proper findings under the Act to retain almost $10 million in mitigation fees collected from developers, and failure to justify holding these fees when it had not spent the money to alleviate the alleged problem which the fees were originally intended to address, required full refund of the unspent impact fees to the current property owners. This decision emphasizes the importance of agency findings and having substantial evidence in the record to support those findings, and the costly consequences of failing to comply.

Facts: In 1989 the City of San Clemente adopted the “Beach Parking Impact Fee,” which was imposed on all new residential developments outside the City’s coastal zone. The City anticipated that the substantial number of residential development projects proposed to be built in the inland areas of the City would result in increased demand for beach parking. The impact fee was to be used to acquire and construct new beach parking facilities.

Between 1989 and 2009 the City collected almost $10 million in Beach Parking Impact Fees and accrued interest. During that same time the City expended only $350,000 of those fees to purchase a vacant parcel on which no parking facilities have been built.

The Decision: This case involves a challenge brought under the State’s Mitigation Fee Act. The Act was adopted in 1987 to create uniform procedures for local agencies to follow in establishing, imposing, collecting, using, and accounting for impact fees charged to development projects. The Act created mechanisms and procedures to ensure that those fees were (1) used only to fund improvements for which a nexus existed between the development and improvement, (2) timely used to pay for those improvements, (3) not diverted for general revenue purposes, and (4) refunded if the fees go unused.

At the end of each fiscal year the Act requires a local agency to separately account for the fees that have been collected, to disclose the beginning and ending balance of the account in which the fees are deposited, and identify the public improvement on which the fee was expended, and dates of construction for any incomplete or proposed public improvement to be funded by the collected fees.

The Mitigation Fee Act also requires a local agency to make findings every five years to justify its continued retention of collected but unspent fees. The agency must identify how the fee will be used, demonstrate a reasonable relationship between the fee and the purpose for which it was charged, and identify all sources and amounts of funding anticipated to complete financing any incomplete public improvements. Failure to make these findings requires a refund of the unused fees to the current owners of the affected properties.

In 2004 San Clemente received and filed its Five-Year Report for the Beach Impact Parking Fee per the requirements of the Act. In 2009 the City once again received and filed the Five-Year Report for the fee. The 2009 Report was the same as the 2004 Report. In 2012 the plaintiffs filed an action to compel the City to refund the unspent Beach Impact Parking Fees. Both the trial court and the Court of Appeal decided in favor of the plaintiffs and ordered the City to refund the fees.

In its examination of the City’s 2009 Five-Year Report, the Court of Appeal concluded that the City failed to make the specific findings required by the Mitigation Fee Act. The City failed to discuss the relationship between the unspent fees and the purpose for which the fee was collected, failed to evaluate whether the residential developments that paid the fees had any impact on beach parking, or what the City had done since 1989 to address beach parking. The Court was highly critical of the City’s reliance in 2009 on prior reports and the original findings made when the fee was adopted in 1989. According to the Court, the five-year findings requirement “imposed a duty on the City to reexamine the need for the unexpended Beach Parking Impact Fees to finance beach parking improvements.” The Court held that the City should make new findings to justify its continued retention of the fees and any improvements it proposed to construct to remedy the beach parking problems that arguably were the catalyst for the imposition of the fees.

Practice Pointers:

  • Any developer or builder that has paid fees subject to the Mitigation Fee Act should carefully monitor and review the local agency’s five-year reports and findings to confirm that the required findings were made and that the public improvements to be funded by the fees have actually been constructed, or that a time frame and funding plan for their development are disclosed in the reports.
  • Local agencies adopting development impact fees must carefully comply with the reporting requirements of the Mitigation Fee Act and ensure that they take a “hard look” during each reporting period to justify the continued collection of the fees and retention of fees for public improvements.