Court Issues Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees

On May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board. The court subsequently issued a temporary restraining order to temporarily halt the action of the SAB, and then later issued a tentative ruling in SAB’s favor. The case was heard on July 22, 2016. On August 22, the Court issued a final ruling denying CBIA’s request for a preliminary injunction. The Court’s conclusion, which mirrors its July tentative ruling in support of Level III Developer Fees, is that CBIA failed to prove any likelihood of success on the merits of its case. In addition to denying the preliminary injunction, the Court also terminated the previously issued temporary restraining order.

SAB argued that when funds are not available for new construction projects, pursuant to Article 5 (commencing with Section 17072.20 of the Education Code), that Level III Developer Fees may then be authorized. Conversely, CBIA argued that there were funds available, including Hardship Application and seismic repair funds, and the fact that any amount was available, however small, meant that funds were still available.

The Court examined whether funds available for new construction were based solely on Article 5 funds, or whether the SAB should consider alternative sources of funds. The Court concluded that authorization of Level III Developer Fees are appropriate “when Article 5 funds are insufficient to allow for continued apportionment for new construction.” Additionally, the Court concluded that although there are $2.2 million in Article 5 funds remaining, the next project in line for funding was Fresno Unified School District’s approved application for over $15 million, and that project alone would deplete remaining Article 5 funds. The Court found that SAB was “not approving apportionments as the funds provided fall far short of that needed for the ‘next in line’ approved application.”

The Court also noted that “the statute does not require [SAB] to wait for additional funds that may become available at some point in the future.” Although Proposition 51, regarding the statewide school bond, has been placed on the November ballot, SAB is not required to take a “wait-and-see” approach for funding new construction projects in the meantime.

In its August 22 ruling, the Court also directed SAB to prepare a final order incorporating the Court’s ruling to be entered by the Court and to finalize this matter, pending any appeals by CBIA.

SAB’s earlier finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds, which led it to authorize the implementation of Level III Developer Fees, has thus far withstood the legal challenge by CBIA.

We have previously covered the authorization of Level III fees and this legal challenge in our May 27 and July 21 Legal Updates, which can be accessed at /blog/, and we will continue to monitor the status of this case. Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at /

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