Court of Appeal Holds That Level 2 Developer Fees Were Properly Assessed on a New Residential Development Project Intended to House Employee Seasonal Farmworkers

04.26.2019

Today, in Tanimura & Antle Fresh Foods, Inc. v. Salinas Union High School District, the Sixth District Court of Appeal issued its opinion reversing the trial court’s finding that there was no reasonable relationship between a school district’s impact fees and an employee seasonal farmworker residential project’s impact on school enrollment.

In 2015, Tanimura & Antle Fresh Foods, Inc. (“T&A”) applied for a combined development permit with the County of Monterey to construct a 100-unit agricultural employee housing complex to house between 200 to 800 seasonal and migrant farmworkers. The County approved the permit with several conditions, with one being that it would house “agricultural employees only without dependents.” Around the same time, the Salinas Union High School District (“District”) completed its School Facilities Needs Analysis (“SFNA”) and established Level 2 fees of $3 per square foot for residential construction within the District’s boundaries. Under the newly adopted Level 2 fees, T&A was assessed $294,210 in developer fees by the District on its new seasonal farmworker residential project. T&A paid the fees under protest and filed a lawsuit arguing that the fees were not reasonably related to the need for school facilities because the project was designed and approved for agricultural employees only, without dependents, and therefore, would not generate any new students as a result. T&A’s position that this project was “not the typical type of residential project” covered by the District’s SFNA so there was no reasonable relationship.

In finding for T&A, the trial court found that there were no facts to support a reasonable relationship between the impact fees and the project’s impact on school enrollment. The trial court reasoned that the SFNA included all residential development into the category of “residential construction” without taking into account that no children would live in this type of development.

School impact fees or developer fees are ways for school districts to accommodate growing student populations created by new development within its boundaries. Education Code section 17620 authorizes a school district to levy school impact fees against new residential and commercial/industrial construction within its boundaries to fund the construction or reconstruction of school facilities. Under Government Code section 65995.6, in order to adopt Level 2 fees, a school district must conduct and adopt an SFNA which is designed 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. In this case, T&A did not challenge the District’s adoption of the Level 2 fees based on the SFNA, only that the District incorrectly assumed that all residential construction would generate additional students and did not consider that this “type” of project was limited to agricultural employees whose families lived outside of the District’s boundaries.

In reviewing the trial court’s ruling, the Court of Appeal noted that the trial court’s reasoning was logically sound, but did not reconcile the project-specific focus with the controlling statutes. However, the Court of Appeal’s review was only to determine if the District’s actions in assessing the Level 2 fees were arbitrary, capricious or lacking evidentiary support. The Court of Appeal went through a comprehensive analysis of the statutes and case law interpreting the statutes to find that T&A’s seasonal farmworker residential project does not qualify it for separate consideration as a “type” of residential development under the relevant statutes.

The Court of Appeal noted that the authorizing statute for school impact fees, Education Code section 17620, allows for the levy of fees on new residential construction, new commercial and industrial construction, and other residential construction only if the result increases the assessable space by more than 500 square feet. The Court further noted that the definition of residential units included single family detached housing units, single family attached housing units, manufactured homes and mobilehomes, condominiums, and multifamily housing units, including apartments, residential hotels, and stock cooperatives. Given the extensive definition of residential units within the statute, T&A’s employee seasonal agricultural housing project was not included in the definition of residential units.

In rejecting T&A’s argument that the District was required to analyze its specific “type” of project as not having any impact on school enrollment, the Court of Appeal stated that a school district is NOT required to anticipate and analyze a unique subtype of residential development that is not contemplated in the statutes, but according to its intended use. The Legislature has identified that school impact fees may be levied against residential, commercial, and industrial development projects, with limited exceptions for religious purposes, private day schools, government-owned facilities, senior citizen housing and elderly residential care facilities, and government housing for agricultural migrant workers. There is no express provision exempting employee-only housing from the assessment of school impact fees and there was no dispute that T&A’s project was a residential project.

Finally, the Court of Appeal held that the imposition of the Level 2 fees was not arbitrary or capricious. First, T&A did not challenge the adequacy of the District’s needs analysis or the imposition of Level 2 fees on residential development. The Court stated that there was nothing in the record to suggest that the District’s SFNA was invalid and that the SFNA projected the total number of new residential units expected to be built, approximated the number of students that would be generated by the new housing, and estimated the related cost-burden imposed on the District’s facilities to establish the Level 2 fee in the amount of $3 per square foot. Because the developer fee statutory scheme does not require a separate analysis of “subtypes” of residential development not contemplated by statute, the Court of Appeal held that the District’s SFNA adequately determined a reasonable relationship between the Level 2 fee’s use, the need for school facilities, and new residential development in the District.

This case is one of many recent challenges to school districts’ levy of school impact fees, with developers seeking to create new exemptions for “subtypes” of residential housing such as employee farmworker housing and student housing. Other developers are also challenging the underlying methodology in preparing the SFNA that is necessary for the implementation of Level 2 fees. The Legislature has deemed that school impact fees are a reasonable method of financing the expansion and construction of school facilities resulting from new economic development within the district.

AALRR continues to be on the forefront of developer fee litigation and participated in this lawsuit by filing an amicus curiae brief on behalf of the Coalition for Adequate School Housing in support of the District. If you have questions about developer fee issues, please contact one of the attorneys listed above.