At Wednesday's meeting of the State Allocation Board, the Board voted to authorize Level III developer fees, consistent with Government Code section 65995.7.  This is the first time the Board has authorized the levying of Level III fees.

Senate Bill 50, which was enacted in 1998, authorized school districts to levy developer fees at one of three levels:

• Level I fees, the basic statutory mitigation fees, are established by the State Allocation Board.  Currently, Level I fees are $3.48 per square foot of residential development and $0.56 for commercial development.  The amount is adjusted by the State Allocation Board every other year.
• Level II fees are generally intended to represent approximately 50% of a district's matching share for new school construction projects and are typically higher than Level I fees.  Level II fees must be adopted annually by a school district based on a School Facilities Needs Analysis.  The fees may be used for facilities that are attributable to projected enrollment growth from the construction of new residential units.
• Level III fees are intended to represent approximately 100% of the costs of new school construction projects.  Level III fees cannot be collected unless the State Allocation Board finds that state funds for new school construction are no longer available.  At its May 25th meeting, the State Allocation Board took this step and authorized Level III fees.  In order to collect Level III fees, in addition to action taken by the State Allocation Board to authorize the fees, a school district must qualify for Level III fees pursuant to the process set forth at Section 65995.7.

Several concerns have been raised in response to the State Allocation Board's authorization of Level III fees.  A state-wide school bond measure has been placed on the November 2016 ballot and passage of the state-wide bond may mean that once again, state funds for new school construction are available, eliminating the basis for Level III fees under Section 65995.7.  It is not clear how Level III fees are terminated once they are no longer needed.

Additionally, the California Building Industry Association has already challenged the action of the State Allocation Board.  A Temporary Restraining Order (“TRO”) has been granted by the Sacramento Superior Court in a case entitled California Building Industry Association v. State Allocation Board(filed May 25, 2016).  This TRO prevents the State Allocation Board from implementing or giving notice of any determination that state funds for new school facility construction are not available at this time and to refrain from authorizing the imposition of Level III fees, pending further order of the Court.  A later court date has been set to hear further arguments in this case.

School districts with Level II and Level III School Facilities Needs Analyses in place may be in a position to begin levying Level III fees in the near future, pending the outcome of the California Building Industry Association v. State Allocation Board case.  Other school districts may wish to take this opportunity to evaluate the underlying authority supporting the district's developer fee program by preparing a School Facilities Needs Analysis (approved by the district's board under Section 65995). Such a study may be the basis for enacting a Level III fee so long as the State Allocation Board's May 25th findings remain in effect.  It should be noted however, that such a study may, over time, become obsolete and not provide adequate justification in support of a district's fee program as required by law.  Accordingly, it is important that these studies are regularly reviewed and updated as necessary.

School districts planning to move forward with levying Level III fees should be aware of additional State and federal laws that also apply to impact fees since the provisions of Government Code section 65995 et seq. are not the only source of authority in this area.  Further, this issue is more critical since a Level III fee is potentially greater than a Level I or II fee and raises issues regarding the amount of the fee in relation to the facility costs it is intending to address.

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