September 16, 2019

September 16, 2019

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No Students? No Problem, Developer Still Pays

In Tanimura & Antle Fresh Foods, Inc. v. Salinas Union High School District, the Sixth District Court of Appeal considered whether the Salinas Union High School District (“District”) acted reasonably in imposing a school impact fee on a new 100-unit residential development intended to only house adult seasonal farmworkers without dependents (the “Project”) employed by Tanimura & Antle Fresh Foods (“T&A”). After reviewing the relevant statutory schemes, the Legislature’s intent, and the District’s evidence for imposing the fee, the court found that the District properly determined a reasonable relationship existed between the fee and the new residential construction, even though the development would not generate any new students. Therefore, the District did not act arbitrarily by imposing the fee on the Project. In holding so, the court reversed the trial court judgment.

This decision reinforces the concept that, while school districts must demonstrate a nexus – or reasonable relationship – between development fees and the type of development, such as residential units, they generally are not required to evaluate the ultimate user of a particular development project before imposing district-wide fees on a developer. This ruling will likely have direct repercussions to a developer’s proforma in today’s marketplace, were both developers and local governments are implementing creative strategies for addressing certain housing shortages – such as the provision of specific workforce housing.

Background

Two statutes are addressed in this case: 1) the Mitigation Fee Act (Govt. Code §§ 66000 et seq.) and 2) legislation governing the imposition of school impact fees on private development projects (Ed. Code § 17620; Govt. Code §§ 65995, 65995.5, 65995.6, and 65995.7). School districts are authorized under Education Code section 17620 to levy fees on new construction in order to provide school facilities for a growing student population, subject to criteria for “Level 1, 2 or 3” fees in Government Code Sections 65995, 65995.5, 65995.7. The Mitigation Fee Act requires local agencies, including school districts, to determine how there is a “reasonable relationship” between: (i) the use of the fee they seek to impose on private developers; (ii) the type of development project subject to the fee; and (iii) the need for the public facilities to be funded by the fee.  Here, the District prepared a school facilities needs analysis (“SFNA”) that concluded the District could collect a “Level 2” fee of $3 per square foot from residential projects based on a projection of residential units to be built in the District over five years.

When the Project was approved by the County of Monterey, it was subject to conditions of approval that described the Project as intended “for agricultural employees only without dependents.” T&A also executed an agreement, recorded as a covenant running against the land, with the County specifying T&A’s obligation to comply with the conditions of approval. T&A challenged the applicability of the District’s Level 2 fee on the Project, arguing that the fee was not reasonably related to the need for new school facilities because the Project would not generate any new students. The trial court agreed with T&A, noting that the SFNA did not take into account that no children would live in the type of development proposed by T&A. The District, supported by the Coalition for Adequate School Housing and the Education Legal Alliance of the California School Boards Association, appealed the trial court decision.

Court of Appeal’s Analysis

On appeal, the District argued that the Mitigation Fee Act’s reasonable relationship requirement applies to the type of development project, not to a specific development. The District also contended that the trial court’s ruling would have wide-ranging implications for school funding, as developers would be able to characterize their projects as a different “type” than that covered by the fee analysis for which a fee has been established.

The court conducted a detailed analysis of the relevant statutes, their legislative histories, and the Legislature’s intent behind the statutory schemes. It found that the trial court failed to reconcile its project-specific focus with the controlling statutes. Instead, the court stated that a unique or atypical designation of a residential development does not qualify it for separate consideration as a “type” of residential development. In particular, the court noted that “type” in the context of Government Code section 66001 (a) allows an agency to impose a general fee, reasonably related to projected development impacts, without tying its analysis to an individual project.

Furthermore, the court observed that the “type of development” on which a fee is imposed in the specific context of school impact fees broadly means any new residential, commercial, or industrial construction. (Ed. Code § 17620; Govt. Code § 65995(d).) The court noted the significance of the legislative scheme, which provides only limited, express exceptions for certain project subtypes. The limited exceptions include facilities exclusively used for religious purposes, private day schools, state-owned facilities, senior citizen housing and residential care facilities for the elderly, and notably, government housing for agricultural migrant workers. The Legislature made no express provision for employee-only housing, and the court found it especially telling that only government-financed agricultural migrant worker housing is expressly exempt from school impact fees, not privately-financed farmworker housing.

As such, the court observed that it is reasonable to interpret housing subtypes not identified for special treatment in the authorizing statues as being subject to the general provisions and fees for residential construction, and that “[t]o construe the designation of agricultural employee-only housing as a distinct “type” would contravene the Legislature’s intent to ‘include virtually all construction except that exempted by [Government Code] section 65995(i).’” Based on its review of the statutory schemes, the court concluded that the District was not required to anticipate and analyze agricultural employee-only housing as a distinct subtype of residential housing in the SFNA under Government Code section 65995.6 for purposes of satisfying the Mitigation Fee Act’s reasonable relationship requirement.

The court further concluded that the District did not act arbitrarily in imposing the Level 2 fee on the Project. The SFNA projected the total number of new residential units expected to be built, approximated the number of students that would be generated by the new housing, and estimated the related cost-burden imposed on the District’s school facilities. This, according to the court, was a “reasoned analysis.” As such, T&A was unable to convince the court that the District’s determinations underlying the SFNA were unsupported. Therefore, the court reversed the trial court’s judgment.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Jennifer E. Renk Real Estate Lawyer Sheppard Mullin Law Firm
Partner

Jennifer Renk is a partner in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

Areas of Practice

Jennifer’s practice focuses on land use and environmental law, with particular expertise in the California Environmental Quality Act. She advises clients on the regulatory and political hurdles facing development projects across California, with an emphasis on commercial, residential, mixed-use, and high tech projects.

Over the course of her career, Jennifer has worked on a diverse range of projects, including...

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Alison G. Martinez Real Estate Lawyer Sheppard Mullin Law Firm
Associate

Alison G. Martinez is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's Los Angeles Office.

Areas of Practice

Alison’s practice focuses on land use planning and environmental matters. She assists clients in complying with a number of state and local laws, including the California Environmental Quality Act (CEQA) and State Planning and Zoning Law. Alison has worked on a variety of housing, mixed-use development, and commercial projects throughout California.

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