School District Cannot Levy Fee on Preexisting Development Where No Increase in Student Generation is Shown

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The owner of an apartment complex challenged a school district’s imposition of school impact fees that were based on the entire square footage of the owner’s new, larger apartment complex built after the demolition of an existing apartment complex.  A California court of appeal held that the owner is entitled to a refund of the portion of the school impact fees that was derived from the preexisting square footage of the project.  (Cresta Bella LP v. Poway Unified School District (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., July 31, 2013).)

What This Means To You

A school district may levy fees for development that will contribute to an increase in a district's student population.  Where a reconstruction of facilities will not increase student population, a district accordingly cannot charge fees.  A school facilities needs analysis (“SFNA”) is a vital tool for districts in order to establish the amount of fees to levy and to be able to support this amount if ever challenged.

Facts

School districts are authorized to impose school impact fees for new residential construction that results in increases to student population in order to pay for construction of school facilities that are needed due to such increases.  Statutes set a maximum amount of school impact fees that may be imposed per square foot of residential construction, which are generally referred to as Level 1, Level 2 and Level 3 fees. 

The Poway Unified School District (“District”) retained a consulting firm to prepare a SFNA.  The firm determined that the maximum Level 2 fee for new residential construction for the District was $3.89 per square foot.  In August 2008, the District passed a resolution that adopted a $3.89 per square foot Level 2 fee to mitigate the impacts of the new residential construction.  The resolution “applied the fee to the entire square footage of a development project, including preexisting square footage (i.e., existing footage that was demolished and reconstructed.)” 

Cresta Bella, LP, was the owner of an apartment complex that was 258,169 square feet and contained 248 units.  Cresta Bella demolished the complex to build a new apartment complex that was 371,612 square feet and contained 368 units.  The District charged Cresta Bella Level 2 school impact fees based on the new apartment complex’s entire square footage.  Cresta Bella paid the fees under protest, asserting that it should not have to pay fees for the square footage that existed before the demolition.

Cresta Bella exhausted its administrative remedies and then filed a petition for writ of mandate in superior court seeking a refund of the allegedly excessive fees.  The superior court concluded that the District had not imposed an improper fee upon Cresta Bella.  The decision was appealed, and the appellate court concluded that Cresta Bella was entitled to a refund of the fees that were levied on the preexisting development because the District had not demonstrated an increase in student generation as a result of the reconstruction.

Decision

The appellate court reversed the decision of the superior court, finding that the District should not have imposed school impact fees for the square footage that was already in existence at the time of the new development project, unless there was a study conducted that showed that reconstruction of the preexisting square footage increases the student population. 

The appellate court noted that “a school district that qualifies for a Level 2 fee must set the maximum amount of the fee based on a rather complex formula that incorporates a variety of statutorily-defined variables.”  The school district cannot recoup the total actual costs of a new school facility that is necessitated by an increase in student population due to new residential development.  Instead, only a portion of the estimated cost for new facilities can be recouped pursuant to the Level 2 formula.  A school district must show “that there is a reasonable relationship between the development activity and the impact on the school district ....”  In other words, the school must show that the development increases the student population and necessitates the construction of new school facilities.  Here, the appellate court found that the SFNA did not show that reconstruction of preexisting square footage contributes to an increase in student population.

Education Code section 17620, subdivision (a)(1)(B) allows school districts to levy fees against new residential construction to be used to fund the construction or reconstruction of school facilities.  In order to impose a Level 2 fee, the school district must conduct and adopt an SFNA “to determine the need for new school facilities for unhoused pupils that are attributable to projected enrollment growth from the development of new residential units over the next five years.”  The school district must calculate the maximum Level 2 fees that may be imposed per square foot.  The formula “provides for a fee that reflects only a portion of the estimated new facilities costs generated by the projected new unhoused pupils identified in the SFNA.” 

The reasonable relationship requirement for school impact fees may be satisfied by showing (1) the projected amount of new housing to be built, (2) the estimated number of students that will be generated by that new housing, and (3) the estimated cost to provide facilities for those students.  To justify the imposition of fees where there was preexisting square footage, “there must be a correlation between reconstruction of preexisting square footage and an increase in student population.” 

The appellate court found that pursuant to the analysis in the SFNA, “the reconstruction of preexisting units is not the cause of the increased financial burden on the District; rather, newly-added units, combined with the statutory cap, cause this burden.”  The appellate court noted there may be circumstances where reconstruction trends in a school district “could support a correlation between reconstruction of preexisting residential units and the generation of new students.”  The District, however, did not show such a correlation.  So, the appellate court held Cresta Bella is entitled to a refund of the fees that were imposed for preexisting square footage.