August 1, 2002 - From the August, 2002 issue

Home Owners/Developers Overturn LAUSD Facilities Fee Assessment

In June, Los Angeles Superior Court Judge Ralph Dau ruled that the LAUSD failed to meet lawful requirements in applying Alternative School Facilities Fees, Level Two, last year. The plaintiff in the case was the Coalition for Affordable Housing, a coalition of homeowners and housing developers, represented by Pam Schmidt of Jeffer, Mangels, Butler & Marmaro LLP. TPR is pleased to present this interview with Pam Schmidt, in which she discusses the ruling and its impact on housing development in Los Angeles.


Pam Schmidt

Pam, a recent news release asserts that in a major victory for residential builders, developers and homeowners, the Los Angeles Superior Court struck down Level Two school facilities developer fees imposed last year by the Board of Education and LAUSD. You represented the plaintiffs. Tell us about the case, the issues, and what was won.

The case involved a challenge to LAUSD's decision to impose so-called Level Two fees, thus raising the school facilities fees from the state-set level of $2.05 to $3.55. The reason this was an important victory is two-fold: One is that the fee was a very large increase-at $3.55 per square foot, that can really affect the ability to build housing. Los Angeles, as well as California, has a shortage of housing; we need more. I think the other part of the victory that's important is that LAUSD did a sloppy job in following the law in its attempt to justify a Level Two fee.

Tell us a little bit about what drives this fee-setting process and what led the school district to try and circumvent what you say was the agreement. Help our readers better understand what the issues are here.

SB50 which allows for the local adoption of Level Two fees, basically said, ‘The only time you can go over the state mandated maximum of $2.05 is if you can prove that your schools are overcrowded, that you have tried alternative methods to house the students, and that the overcrowding is directly linked to the development. The legislature specified how that could be proven, but the underlying goal was to make sure that these districts only imposed fees beyond the Level One amount if these specific circumstances were met. That's a fairly thorough documentation process. LAUSD, for it's own reasons which I can't really comment on, just chose not to go that way, and said, ‘Of course it's overcrowded and this is how much we need.' That's what it chose to do rather than what the law required of it.

But why did they do that? I know that's not a question you normally ask of the plaintiff's side, but I want to understand the dynamics before we get into the case.

I honestly don't know other than doing what the legislature requires is a lot of work. Perhaps the reason LAUSD avoided complying with the legislation was because it didn't think it would end up with a number that it wanted at the end of the day.

So, tell us what the difference is between a Level One fee and a Level Two fee. What was the process that led us to this point?

The Level One fee wasn't always called Level One, but it's been around for a while. The statute said that school districts couldn't charge more than X which was a set amount adjusted for inflation every two years. There were a series of court decisions that said, "Well that's fine, but that limit doesn't apply to certain land use decisions." That meant that when a project is proposed, the school district may exact more fees than anticipated and this created a lot of problems for the development community. Even though there were state mandated maximums, throughout the course of the entitlement process the school district might say, "Oh, this particular project is going to have a really big impact on schools, so give us some more money." And so, SB50 instituted new limits for developer fees.

There is the original fee, we now call Level One that currently has a limit of $2.05 per square foot and is assessed on a district wide basis. And, there is the new limit which is called Level Two. Districts can no longer assess fees on a project-by-project basis and can only assess Level 2 fees if it justifies them as I mentioned before.

Let's take a step back and explore some of the underlying tensions here. In 1998, voters passed Prop 1A, following SB 50, which authorized $9 billion in bonds to build and modernize new schools. In order to obtain their proportional share of these state funds, local school districts have had to provide a 50 percent match from local funds.

School fees are often the local districts' primary or only source of matching money. But the development community is always worried that they are the ones who will carry the whole load. And that's why they seek these compromises. Is that a fair statement?

Yes, that is.

And why does the development and building community go to the legislature to craft these deals? Why aren't they locally crafted compromises between local school districts and the developers in that area?

My understanding is that because of the impact these have on housing and the critical shortage of housing in California, it is a matter of statewide concern. It is something for which the development community needs certainty. And rather than having it district-by-district, a consistent statewide solution to this problem can be fairly implemented.

Every district could impose Level Two fees after going through a process dictated by local data. So instead of saying, You're maximum Level Two fee is X, the legislature gave the school districts that were severely crowded the ability to have a higher Level Two fee than those that aren't crowded. It makes sense in terms of it being a statewide solution, but it's implemented on a district-by-district basis, depending on what the facts are in that district.

Judge Ralph Dau seemed to find an issue with the defendants' expert, Schoolhouse Services, who did the nexus study that supported the fee increase. What did he find that was troubling?

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Well, he found a number of things that were troubling. His fundamental problem with Schoolhouse Services was that there was no backup for any of their data-they would make statements, but you would search in vain for any support for those numbers. As an example, one of the things the legislature required is that a district look to see how many new units of housing were constructed in the previous five years and determine how many new students showed up in the school district as a result of those new units. That would help you determine a student generation rate, which you could apply to the next five years.

Schoolhouse Services instead chose a random four-year period that included no explanation of why those particular four years were chosen and showed no empirical support of that evidence in the report. Then, in looking to see how many new units would be built in the next five years, instead of doing a market report or asking the cities in which LAUSD operates what their anticipation was, they used SCAG housing demand numbers, which are usually quite different from what is really expected to be built.

They basically just didn't follow the statute and made a lot of wild leaps from point A to point B. The Judge very thoroughly went through each and every step the legislature prescribed and tried to match it against with what LAUSD's consultant did and found that for the most part, there was no way to match the two together. That was the basis for his invalidation of the fee.

Let's talk about the consequences of the judge's decision. The school district still has to build schools and there is still a housing demand. So what's changed?

I hope one of the long-term consequences is that LAUSD, if it chooses to re-adopt the Level Two fee, will keep the Judge's judgement in mind and comply with the law the next time. And, if in fact, LAUSD can justify a Level Two fee in a particular amount, it should and can build the schools that are necessary.

But the point of SB50 and Prop 1A was to make sure that the school districts were exhausting other means for funding. It's a balance between the need for housing and the need for schools. And if you shift the overcrowding problem to housing, you are going to create a housing crisis or exacerbate the existing housing crisis.

So, if LAUSD can actually follow the law and demonstrate that a certain number of students will show up in a jurisdiction as a result of development and those new students need school rooms that aren't available even after exhausting all the local sources, then it should adopt a Level Two fee which would follow and implement the balancing act that SB50 and Prop 1A put in place. Hopefully, that will be the long-term result.

And housing? What's going to happen as a result of the reduction of these Level Two fees?

If there is an immediate cause and effect, it will allow projects that were infeasible as a result of the $3.55 to now proceed. How much housing is built is a complex problem that involves a range of economic issues, but this removes one additional burden. It can only hope to assist in production.

What lesson should we learn from this, Pam?

The lesson we should learn from this is that when the legislature and the voters have gone through a lot of efforts to craft a compromise between two very needy goals, housing and schools, it should be faithfully adhered to. If it's not, there are consequences.

It seems to me there was never a transparent discussion about this compromise between the building industry and the schools. How can we have a better common understanding of the issues and a better way of funding school facilities?

How can we ensure that they're done holistically, that the burden of meeting increased demand is shared, that they're built where they are needed, and that local matches are available (even post-Prop 13) in a way that allows the districts to smartly plan, design, and build them?

That discussion has to happen at all levels. You're probably accurate that what happens at the state level starts at the local level, when there are discussions. There is a consequence to putting the entire burden on the local development industry and there is a consequence to letting them off the hook too much. It's a balance that needs to be discussed and worked out at the local level.

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