On July 22, 2016, the Superior Court of Sacramento County heard the California Building Industry Association’s (CBIA) request for a preliminary injunction to stop the State Allocation Board (SAB) from taking any further action to allow school districts to levy Level 3 developer school impact fees. The court took the matter under submission.  We do not know when the ruling will be issued.

The court evaluates two criteria when determining whether to grant a petition for a preliminary injunction: (1) petitioner’s likelihood of success on the merits; and (2) the relative harms to the parties.  In its briefs, CBIA contended: (i) that the SAB was not entitled to make the findings required to implement Level 3 developer fees, twice the Level 2 fees, because State bond funds for new construction could still be apportioned and (ii) that the harm to its members from the implementation of Level 3 fees would outweigh the harm to the SAB from the injunction.  The SAB responded that, because the next district in line for Article 5 new construction funding is seeking over $15 million for its project, and because its requested apportionment exceeds the $2.2 million of available Article 5 new construction funds, available funds are insufficient, and the SAB is not approving apportionments.

Two school districts, Dublin Unified and Fremont Unified, represented by Dannis Woliver Kelley, participated in the case as amici curiae, or friends of the court, in support of the SAB.  The districts contended that the harm to growing school districts from the lack of either developer fees or State bond funds to pay for housing for the students from new developments exceeded the harm to CBIA from the higher fees.  The City of Dublin also filed an amicus brief in support of the SAB, explaining the impact of inadequate school facility funding on school districts in communities with high growth.

Since the court’s tentative ruling, issued the day before the hearing, held that CBIA could not prevail on the merits, the arguments at the hearing focused on the SAB’s ability to apportion further funds, but also touched on the relative interim harm to the parties.  The temporary restraining order (TRO), which has been in place since May 23, 2016, will remain in place until the court issues its ruling.

Background

Under SB 50, enacted in 1998, Level 2 and Level 3 developer fees are alternatives to the statutory Level 1 fees which all school districts may charge.  SB 50 requires that districts meet two of four criteria and prepare an annual School Facilities Needs Analysis (SFNA) in order to levy these alternative fees.  The SFNA calculates the anticipated number of students to be generated from new development within the next five years, and the cost to the school district for facilities to house those students.  Level 2 fees were supposed to provide half the funding needed for school facilities, with State bonds administered through the School Facility Program providing the other half.  Level 3 fees, at twice Level 2 fees, were to provide all the funding for those facilities when the SAB makes a finding that State bond funds are no longer available.  While neither Level 2 nor Level 3 fees actually provide this percentage of the cost of school facilities, they are an important financing vehicle for school districts experiencing growth, and essential for those experiencing high growth rates.

After several months of persistent effort by the Dublin and Fremont school districts to inform the SAB of the impacts of the absence of either Level 3 funds or State bond funds, the SAB made the finding at its May 22, 2016, meeting that no State bond funds were available for apportionment to school districts, and that none had been apportioned since September 2015.   CBIA filed its petition for writ of mandate and request for a TRO immediately.  The court granted the TRO on May 23, thereby suspending any further implementation of Level 3 fees until a further order lifting the TRO.

Impact on School Districts

Districts should watch for an announcement of the order once the court issues it.  This may allow districts currently charging, or eligible to charge, Level 2 fees to charge Level 3 fees.  Districts preparing a new SFNA or planning to update their Level 2 fees may want to be sure that the notice and resolution also authorize Level 3 fees so they can be levied when the TRO is lifted.  Districts may want to consult with their legal counsel about this process.

For more information about this case, or any other questions, please contact a DWK attorney.