November 30, 1988 - From the November, 1988 issue

Development Fee Update: Blank Checks and Open-Ended Fee Conditions

Two recent legal developments impact how cities and counties establish and impose development fees. A 1988 Supreme Court decision and new state legislation which takes effect in January provide some guidance to developers who want to know if and when cities can require them to write "blank checks" for development fees.

In Russ Building Partnership v. City and County of San Francisco, 44 Cal.3d 839 (1988), the California Supreme Court upheld the retroactive imposition of a public transit fee on projects approved almost three years before the fee ordinance was adopted. The Court found that an open-ended "blank check" condition requiring mitigation of adverse impacts on the city's public transportation system required the developers to pay the later-enacted fee.

In Russ Building, the developers accepted a condition of approval in 1979 requiring them to "participate in a downtown assessment district, or similar fair and appropriate mechanism to provide funds for maintaining and augmenting transportation service, should such a mechanism be established by the City." In 1981, the city passed a transit fee ordinance applicable to all new downtown projects.

The city attempted to impose the new transit fee on the Russ building developers, to the tune of over two million dollars each for two of the projects. The developers challenged the fee on the grounds that their projects were vested and that the fee was not contemplated by the condition of approval. The Supreme Court, however, construed the language of the condition to include the fee approved by the city and required the developers to make good on their "blank check" condition. 

The decision will undoubtedly encourage the continued use of open-ended "blank check" conditions of approval, such as the traffic mitigation conditions now applied by the City of Los Angeles, under a variety of "interim" traffic mitigation ordinances throughout the City.

However, to check the unbridled assessment and collection of development fees, the Legislature has imposed new statutory requirements on the imposition of fees by cities. Current law provides that there must be a reasonable relationship, or "nexus," between the burden created by the new development and the fee or exaction imposed as a condition of approval. Furthermore, the fee must not exceed the estimated reasonable cost of providing the service or facility for which the fee or exaction is imposed.


Effective January 1, 1989, Government Code Sections 66000 - 66003 will require that any local agency which establishes, increases or imposes a fee as a condition of approval of a development project must make specified findings to establish and document the nexus between the fee and the burden of the new development.

In addition, cities must segregate the fees in special accounts and make findings after five years regarding unexpended or uncommitted fees. Finally, a city must refund unexpended or uncommitted fees for which a need cannot be demonstrated after five years.

This legislation provides some limitation to the amount which can be assessed under a "blank check" condition and provides a procedural safeguard against the imposition of excessive fees. This statute also provides a mechanism for developers and the public to ensure that development fees are ultimately expended for the public improvements for which they were collected.


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