Court Distinguishes Connection Fee from Development Impact Charge

An appellate court has rejected a psychiatric home developer’s challenge to water and sewer connection charges. The court held the developer should have presented its challenge when the governing board adopted its fee ordinance, not when the water district applied the fees to the project at hand.

The controversy arose when California Psychiatric Transitions, Inc., proposed a 32-bed adult residential care facility in Merced County. The facility lies within the Delhi County Water District, which provides water and sewer services. The district classified the project as a rest home under its fee structure. Rest homes are charged at one-third of current connection fees per bed, meaning the base residential rate was multiplied by one-third the number of beds. Under this formula, the district charged the psychiatric home developer $45,333.

The developer paid the fee but immediately filed a protest and then a lawsuit. Merced County Superior Court Judge William Ivey ruled for the district. California Psychiatric Transitions appealed, and a unanimous three-judge panel of the Fifth District Court of Appeal upheld the lower court.

What became the central issue of the case was whether the developer was challenging the fee ordinance, or the district’s application of the fee to this project. Both sides agreed that if the developer was contesting the ordinance, the lawsuit was filed years too late.

Government Code § 66013 permits local agencies to impose fees for “water and sewer connections” and “capacity charges.” Developers have 120 days to contest fees adopted under § 66013.

Government Code § 66020 addresses “fees imposed on a development project,” which are essentially development impact fees. The imposition of fees under § 66020 can be contested within 180 days of the date the fees are levied. California Psychiatric Transitions relied on this code.

But the Fifth District pointed to , (2001) 26 Cal.4th 1185, in which the state Supreme Court held that fees imposed in connection with a development project are not automatically “fees imposed on a development project” under § 66020. In the Delhi case, the fees could be considered capacity charges (which pay for capital improvements) or user fees, and are not necessarily related to property development, the court held. Thus, the court did not allow the challenge under § 66020.

Furthermore, the court noted, California Psychiatric Transitions had argued that the water district’s only direct expense related to the project was an inspection that cost $37. So, the developer argued, the fee was not based on the district’s actual costs. The court held that this argument was not an attack on the specific fee that the water district assessed for a specific project.

“The underlying claim by appellant is that respondent’s fee structure does not comply with the statutory mandate that connection fees reflect the estimated cost of labor and materials,” Presiding Justice Steven Vartabedian wrote for the court. “his clearly is an attack on the ordinance.”

The Case: , No. F040278, 03 C.D.O.S. 8195, 2003 DJDAR 10163. Filed September 5, 2003. The Lawyers: For California Psychiatric Transitions: Michael Ott, Erickson, Arbuthnot, Kilduff, Day & Lindstrom, (559) 449-2600. For the district: David Capron, (209) 722-8144.