Senate Bill No. 937 (Weiner) (“SB 937”), signed into law on September 19, 2024, and effective as of January 1, 2025, makes dramatic and troubling changes to current development impact fee laws. SB 937 generally delays the collection of developer fees on certain types of residential housing projects from the time a building permit is issued to the date the certificate of occupancy or temporary certificate of occupancy is issued and limits the amount of the fees paid to the amount that was in place at the time the building permit was issued. The amended law does not apply to collection of fees at time of building permit for commercial development and other types of residential development that do not fall within the newly defined category of “designated residential housing projects.” However, SB 937 also provides certain exemptions that, if applicable, will allow districts to continue to collect developer fees for all projects at the time of building permit issuance.

SB 937 in a Nutshell

Currently, school districts collect developer fees (aka school impact fees) for residential development at the time building permits are issued by a city or county. SB 937 now provides that for “designated residential development projects,” local agencies, including school districts, “shall not require the payment of [impact fees] until the date the first certificate of occupancy or first temporary certificate of occupancy is issued, whichever occurs first.” (Gov. Code, § 66007(c)(1)(A)(i).)[1] “Designated residential development projects” include:

• Projects dedicated 100% to lower income households;
• Low barrier navigation centers;
• Affordable housing developments in commercial zones;
• Mixed-income housing development along commercial corridors;
• Housing developments qualifying for a streamlined and ministerial approval process;
• Projects located on land owned by an institution of higher education or a religious institution;
• Residential projects entitled to a density bonus; and
• Housing projects with 10 or fewer units.

As noted above, SB 937 does not affect the ability of a school district to continue to collect fees at the time of building permit issuance for commercial construction or for residential construction that does not fall within the enumerated list of “designated residential development projects.” Additionally, if a school district can meet the requirements for an exemption, described below, the district will be able to continue to collect developer fees on designated residential development projects at the earlier date of building permit issuance rather than at the delayed issuance of the first certificate of occupancy or first temporary certificate of occupancy.[2]

It is also important to note that designated residential development projects pay the per-square-foot amount of school impact fees that are in place when building permits are pulled. For districts exempt from SB 937, collection of fees would occur at building permit as well.  If a district is not exempt, a developer would pay fees at certificate of occupancy so long as construction begins within five years of the permit date. For non-exempt districts, this will undoubtedly add a layer of tracking complexity that must be built into the district’s fee collection process.

The new law allows a school district to require payment of school impact fees for designated residential development projects at an earlier time if:

(a) Fees are imposed to reimburse the district for expenditures previously made; or

(b) The district determines that:

1. 1. 1. The fees will be collected for the construction and rehabilitation of school facilities; and
      2. The district “has a five-year plan pursuant to subdivision (c) of Section 17017.5 of the Education Code;” and
      3. An account has been established, and funds appropriated, for the improvements described in that five-year plan. Funds are considered appropriated if they have been authorized by the governing board for which the fee is collected to make expenditures and incur obligations for specific purposes.

It should be noted that the five-year plan requirement described above refers to facility plans required under the Leroy F. Greene State School Building Lease-Purchase Law of 1976, which is a program that is no longer operational or funded, and its regulations have long since been repealed. Thus, the reference to these old provisions has caused confusion as to the Legislature’s intention. However, with the passage of Proposition 2 on November 5, 2024, a new state facility funding program is now in place that also includes a ”five-year facilities master plan”. Therefore, arguably, there is a new plan that is similar in intent and content to the plan required under the defunct program.[3]

SB 937 also amends the law to allow a developer to post a performance bond or letters of credit from a federally insured, recognized depository institution to guarantee payment of fees and charges due on certain designated residential development projects. In the event a bond or letter of credit is not posted, the new law provides cities and counties with authority to place a lien on parcels for which fees have not been paid at the time of occupancy. These amendments could offer helpful collection tools to districts who are not exempt from SB 937.

What this Means for School Districts

The passage of SB 937 is the latest example of legislative actions elevating the construction of housing above the needs of school districts and compromising districts’ ability to address school capacity needs as families move into new developments. In addition to creating new categories of housing projects that increase the complexity of fee collection, delayed payment of fees will significantly diminish the value of fees paid to well below the district’s cost to mitigate the impact of the housing.

However, DWK believes districts have options to establish an exemption from SB 937, particularly with the passage of Proposition 2. As the bill is effective beginning January 1, 2025, districts should take action quickly to confirm their approach to compliance with the new law. We urge you to contact us to discuss your district’s options.

This bulletin is for educational purposes only and does not constitute legal advice. However, DWK attorneys in our Business and Property group are available to assist your district with any questions you may have regarding the impacts of SB 937 and available options. Please do not hesitate to contact a DWK attorney in our BPC practice group for guidance.

[1] PLEASE NOTE: All references to Government Code section 66007 throughout this Bulletin are to the statute as that Section 66007 will read as of January 1, 2025.

[2] In the event that a city or county does not issue certificates of occupancy for the types of residential developments identified as “designated residential development projects,” the final inspection serves as the certificate of occupancy. (Gov. Code, § 66007(c)(3).).

[3] We hope that the Legislature will take action early in 2025 to correct the five-year plan citation to reflect the new five-year plan requirements under Proposition 2 or provide other needed clarifications. We will continue to monitor potential legislative activity concerning SB 937 and provide guidance to our clients as needed.