On May 26, 2016, the California Building Industry Association successful obtained a temporary restraining order from the Sacramento Superior Court preventing the State Allocation Board—and all others acting in concert with the SAB or under its direction—from implementing Level 3 school impact fees or sending notice to the Legislature that state funds for new school construction are not available. The TRO temporarily halted the ability of school districts statewide to impose Level 3 fees. We wrote about the California Building Industry Association v. State Allocation Board case on May 27, 2016.

The case proceeded to a preliminary injunction hearing on July 22, 2016, and exactly one month later the court denied the request and terminated the TRO.

To issue the preliminary injunction the court was required to weigh two interrelated factors: (1) the likelihood that CBIA—the moving party—will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or non-issuance of the injunction. A preliminary injunction restrains the defendant’s actions before a trial on the merits and is thus considered an extraordinary and drastic remedy. It will not be granted lightly. CBIA’s burden was particularly heavy because there is a general rule against enjoining state agencies from performing their duties. Thus, when a party seeks to enjoin a state agency, the party must make a significant showing of irreparable injury.

The court’s ruling turned on Government Code section 65995.7(a), which allows imposition of Level 3 fees “[i]f state funds for new school facility construction are not available . . . .” The section explains that “state funds are not available if the State Allocation Board is no longer approving apportionments for new construction pursuant to Article 5 . . . of the Education Code due to a lack of funds available for new construction.” (Emphasis added).

CBIA argued that sufficient funds are available for school construction because $2.2 million of Article 5 funds continue to exist. CBIA further asserted that those funds must be apportioned until no other Article 5 funds remain. CBIA also argued that $85.2 million of Article 8 funds exist for seismic repairs. Because section 65995.7 expressly excludes Article 11 funds, CBIA contended that this language shows that only Article 11 funds are to be excluded from consideration in determining if funds are available for new construction.

The court rejected CBIA’s argument regarding Article 5 funds because the State Allocation Board cannot make any other apportionments as a result of the fact it already approved $15.6 million in new construction funds for the next in line application. The court found that the statute does not require the SAB to approve apportionments for projects when an apportionment would fall short of allowing a receiving school district to certify grant sufficiency, and it also does not require the SAB to wait for additional funds that may later become available.

The court rejected CBIA’s argument regarding Article 8 funds because they are intended for use in connection with seismic repairs, and just because such repairs may be so extensive as to require construction of a new facility does not mean they are also available for Article 5 purposes.

In considering the relative interim harm to the parties, the court found that the harms to CBIA from improperly authorized Level 3 fees (resulting in increased new construction home prices) are greater than the harm to the State Allocation Board and the public (resulting in a stall in building enough schools to meet the capacity of required to serve housing construction). Ultimately, however, those harms were not enough to overcome the fact that the court found no likelihood of success on the merits.

Absent a stay in the court’s decision, the State Allocation Board is free to find that state funds for new school construction are no longer available and the SAB is no longer approving apportionments for new construction due to lack of funds. The SAB would then notify the Secretary of the Senate and the Chief Clerk of the Assembly, in writing, of that determination, and the notice would be published in the respective journal of each house. Once that occurs, eligible school districts that already charge Level 2 school impact fees may charge Level 3 fees, which would immediately double the school fees in those districts.