Bldg. Indus. Ass'n of Cent. Cal. v. City of Patterson
| Decision Date | 30 January 2009 |
| Docket Number | No. F054785.,F054785. |
| Court | California Court of Appeals Court of Appeals |
| Parties | BUILDING INDUSTRY ASSOCIATION OF CENTRAL CALIFORNIA et al., Plaintiffs and Appellants,v.CITY OF PATTERSON, Defendant and Respondent. |
OPINION TEXT STARTS HERESee Cal. Jur. 3d, Real Estate, § 1146; 9 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 25:45; Annot., Validity, Construction, and Application of Inclusionary Zoning Ordinances and Programs (2007) 22 A.L.R.6th 295; 12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 824.
Sheppard, Mullin, Richter & Hampton, David P. Lanferman, San Francisco, and Margaret J. Pak for Plaintiffs and Appellants.Law Office of George G. Logan and George G. Logan, Atwater, for Defendant and Respondent.
Morrison Homes, Inc. (Developer) obtained a development agreement and tentative subdivision maps for the construction of two residential subdivisions in Patterson, California. At the time those documents were approved, the City of Patterson (City) 1 allowed developers to pay a fee of $734 per house in lieu of building affordable housing. About three years later, City increased this fee to $20,946 per house and sought to apply the increased fee to Developer's two residential projects among others.
Developer sued City claiming that the increased fee violated (1) its vested property rights, (2) its contractual rights under the development agreement, (3) various statutory provisions, and (4) constitutional provisions requiring voter approval of special taxes. The trial court found that the increased in-lieu fee was permitted under section 4.5(d)(ii) of the development agreement and the amount of the increase was reasonably justified. The court entered judgment accordingly, and Developer appealed.2
We will conclude that the meaning of the contractual term “reasonably justified” presents a question of law and that, under an objective test, the term is meant to incorporate the legal standards generally applied to such fees. Those legal standards require that the amount of a development fee be limited to the cost of that portion of a public program attributable to the development. City has failed to show that the increase in its in-lieu fee satisfies this standard and, therefore, has failed to show that the increase was “reasonably justified” as required by the development agreement.
The judgment is reversed and the matter remanded for further proceedings.
Developer owns two residential subdivisions, known as Magnolia and Bella Flora and consisting of 214 single family residential lots. The subdivisions are part of a larger development known as Patterson Gardens, which contains 305.3 acres that are divided into seven different areas or phases. Plans for Patterson Gardens include five areas of low density residential housing that cover 228.5 acres and contain a total of 985 dwelling units.
City conducted environmental and land use review in connection with its approval of the proposed development of Patterson Gardens. Also, pursuant to Government Code section 65864 et seq., City entered into a development agreement with Developer's predecessor-in-interest, dated January 21, 2003 (Development Agreement). That agreement provides for the development of Patterson Gardens and establishes certain development rights in that project.
The City Council approved the Development Agreement in January 2003, and that approval became ordinance No. 648.
Section 5.1 of the Development Agreement states that, except as the agreement provides otherwise, the developer shall pay only those fees in effect prior to the effective date of the Development Agreement and specifically listed in exhibits D–1 (residential development) and D–2 (retail/office development). Those exhibits list certain capital facility fees, connection fees, and use fees. Exhibit D–1 lists over 20 fees, including an affordable housing in-lieu fee of $734 per unit. Exhibit D–1 also states that the affordable housing in-lieu fee is referenced in section 4.5 of the Development Agreement.
Section 4.5 of the Development Agreement addresses how the parties will satisfy City's affordable housing objectives. The developer has four alternatives: (1) build affordable housing units; (2) develop senior housing within the project; (3) obtain a sufficient number of affordable residential unit credits from other residential developments within City; or (4) pay an in-lieu fee at the time the building permit is issued for a market rate housing unit.
Section 4.5(d)(ii) of the Development Agreement, which is central to the contractual issues, provides in full:
The City Council also adopted resolution No. 2003–05 in January 2003. The resolution approved “the combined preliminary/final development plan and vesting tentative subdivision map for the Patterson Gardens project ... subject to the conditions set forth in Exhibit E hereto.” Condition No. 1 provided: “Development of Patterson Gardens shall be in accordance with the approved Final Development Plan, as modified by these conditions and as may be modified by a development agreement between the City and developer.” Condition No. 1 also stated that “the terms of the development agreement will control” in the event of a conflict with the conditions.
City first adopted an “affordable housing in-lieu fee” in 1995. The fee originally was set at $319 per new single family home, payable as a condition to the issuance of a building permit for such construction.
In May 2001, City received a study prepared by its consulting firm, Crawford Multari & Clark Associates, which addressed certain fees and recommended raising the affordable housing in-lieu fee. That study reviewed four different approaches to calculating the affordable housing in-lieu fee. One approach, the “leverage” analysis, considered the cost of providing an affordable single family house and assumed federal or state funding would require the local government to provide only 9 percent of the total amount needed. It produced a fee of $734 per unit.
In July 2001, the City Council adopted resolution No. 2001–53, which increased the affordable housing in-lieu fee to $734 per new single family home.
In November 2005, the City Council adopted resolution No. 2005–114, which adjusted the fees allowed under certain development agreements, including the agreement for Patterson Gardens. The resolution stated that the fees assessed under the development agreements could be adjusted periodically to reflect increases in the current construction cost index.3 The resolution also stated that the index had experienced larger than normal increases and these increases warranted an adjustment to the fees allowed under the development agreements. The resolution adjusted certain fees, but not the affordable housing in-lieu fee.
A declaration of David Moran 4 states that, by 2003, City's strategies for supplying affordable housing were falling short. He further states that in 2003 City investigated ways to improve the supply of affordable housing, including revisions to the development impact fee. An outcome of the investigation was a “Development Impact Fee Justification Study 2005/06 Update” prepared for City by Crawford Multari & Clark Associates (Fee Justification Study). Moran is listed as one of the authors of this study.
The Fee Justification Study recommended increasing the affordable housing in-lieu fee up to $20,946 per market rate unit. This recommendation did not rely on the prior assumption (part of the “leverage” approach to calculating the fee) that the local fee could be used as leverage to obtain federal grants and loans. Instead, the recommendation was based on bridging the so-called “affordability gap” between the cost of a new market rate unit 5 and the cost of units affordable to very low, low, and moderate income households. The affordability gap analysis compared the cost of units to an estimate of what the three different income levels could afford. The difference was an estimate of the subsidy someone of that income level would need to be able to obtain housing. The analysis estimated a subsidy of $55,280 was needed for each unit of moderate income housing, a subsidy of $119,280 was needed for each unit of low income housing, and a subsidy of $167,280 was needed for each unit of very low income housing.
The next step in the calculation involved multiplying the amount of the subsidy for each income level by the number of units needed for that income category. When the three products of this multiplication were added together, the sum was the total amount of the subsidy needed for affordable housing. The Fee Justification Study identified the number of units needed for each income level by referring to Addendum No. 1 to the 2001–2002 Regional Housing Needs Assessment for Stanislaus County prepared by the Stanislaus Council of Governments.6 That document allocated...
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