Exactions: Connection, Capacity Charges Not Subject to AB 1600
Sewer connection fees and capacity charges are not the same as development fees imposed as a condition of project approval, meaning they are not subject to the conditions of the Mitigation Fee Act, The Fourth District Court of Appeal has ruled. The court decided that a hotel builder was not entitled to a refund of unspent sewer connection fees, as the developer might be to unspent development fees.
The unanimous three-judge panel ruled that the Government Code (§ 66013) specifically excludes sewer connection fees and capacity charges from refund provisions of the Mitigation Fee Act, frequently known as AB 1600.
In 1989, Taj Development Corp. and Chandulal Patel requested a sewer connection permit from Capistrano Beach Sanitary District for the Dana Point Hilton. Taj paid $393,000 to connect the hotel to the sewer system. Five years later, Taj sought a refund of the unexpended portions of the fee. The district rejected Taj's claim, and the two sides then sued each other.
Taj argued it spent $750,000 to construct sewer and water lines and the $393,000 connection fee was "governmental greed." The district at first did not argue the Mitigation Fee Act did not apply to the connection fees. Later, the district did contend the connection fee was not a development fee and, therefore, Taj had no right of refund.
Orange County Superior Court Judge C. Robert Jameson sided with the district, and, on appeal, so did the Fourth District, Division Three.
The appellate panel noted two statutory schemes were in effect at the time Taj paid its fees. The Mitigation Fee Act (§§ 66000 — 66008) set rules for imposing development fees and includes a section that allows for the refund of the unspent portion of fees under certain circumstances. Also in effect in 1989 was a section of the Government Code addressing local agency service fees and charges (then § 54991, now § 66013). "This section did not authorize a refund for connection fees," wrote Presiding Justice David Sills. "Instead, it provided for a reduction of future connection fees if earlier fees created ‘revenues in excess of actual cost.'"
In 1998, the California Building Industry Association sponsored legislation in response to the Taj case. As introduced, SB 1760 would have placed sewer and water connection fees in the same category as other development fees. However, the Assembly amended the bill to delete language requiring that water and sewer fees be treated similarly to development fees. Justice Sills quoted an Assembly Local Government Committee bill analysis which said, "‘This bill requires only that capacity charges be accounted for. It does not increase any restrictions regarding the imposition, use, or reporting of a connection fee, the type of fee at issue in Taj. This bill contains no provisions for the refund of either connection fees or capacity charges.'"
The Legislature further amended and eventually passed SB 1760, which became Chapter 644 of the Statutes of 1998. "Although it provides for stricter accounting of capacity charges (but not water or sewer connection fees), it does not provide a refund remedy," Sills wrote.
Taj argued that the sanitary district imposed the fee on the project as part of the development approval process to defray costs of public facilities related to the project.
"Taj's argument," Sills wrote, "completely ignores the existence of former § 54991 (now § 66013) which specifically addresses the fee it paid. And Taj ignores the key language defining a ‘fee' subject to the refund provisions under the Act: The fee must be charged by the local agency in connection with approval of a development project. … No evidence in the record shows the District conditioned the approval of the hotel project on payment of the fee or in any way imposed the fee in connection with issuing or approving a permit for development."
Sills continued, "The language in the Fee Mitigation Act is clear. The repetition of the phrase ‘as a condition of approval of a proposed development' throughout the chapter strongly suggests the refund provisions of the Act apply to ‘development fees.' Taj's fee is governed by § 54991 (now § 66013) which dealt with the rates imposed to connect the hotel to the public sewer system."
Capistrano Beach Water District v. Taj Development Corp., No. G021735, 99 C.D.O.S. 3952, 1999 Daily Journal D.A.R. 5011, filed May 25, 1999.
For Capistrano: Gary Lee Gebler, (949) 833-3715.
For Taj: Stephen M. McNamara, McNamara, Van Blarcom, McClendon & Leibold, (714), 639-6700.