Russ Bldg. Partnership v. City and County of San Francisco

Decision Date20 January 1987
Citation234 Cal.Rptr. 1
CourtCalifornia Court of Appeals Court of Appeals
PartiesRUSS BUILDING PARTNERSHIP, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent. PACIFIC GATEWAY ASSOCIATES JOINT VENTURE, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent. CROCKER NATIONAL BANK et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent. A030997, A033493.

Allan N. Littman, Robert M. Westberg, Kevin M. Fong, Debra B. Keil, Pillsbury, Madison & Sutro, James P. Bennett, Leigh R. Shields, Morrison & Foerster, San Francisco, for plaintiffs and appellants.

Louise Renee, City Atty., George E. Krueger, Utilities Gen. Counsel, Burk E. Delventhal, Deputy City Atty., Jerome B. Falk, Jr, Peter J. Busch, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, for defendant and respondent.

LOW, Presiding Justice.

We hold that the San Francisco Transit Impact Development Fee Ordinance is valid. It may not be applied retroactively as to Pacific Gateway Associates Joint Venture, Crocker National Bank and Crocker Properties, Inc.

In this consolidated appeal, plaintiff Russ Building Partnership 1 (hereafter Russ Building plaintiff), and plaintiffs Pacific Gateway Associates Joint Venture (Pacific), Crocker National Bank (CNB), and Crocker Properties, Inc., (hereafter collectively Crocker plaintiffs) appeal from a judgment upholding the validity of San Francisco's Transit Impact Development Fee Ordinance (the Ordinance). They contend that the trial court erred (1) in treating the Ordinance as a development fee and (2) in finding that the Ordinance could not be successfully challenged under articles XIII A and XIII B of the California Constitution, or the equal protection and due process clauses of the federal and state Constitutions.

In May 1981, the City and County of San Francisco (city) enacted Ordinance No. 224-81 ' [i]n order to be able to provide public transit services for new development in the downtown area....' The Ordinance requires that the owners of buildings located in downtown San Francisco which contain newly developed office space, who have not yet received a building permit or a certificate of completion prior to the effective date of the Ordinance, pay a transit fee as a condition of issuance of a certificate of completion and occupancy. The fee is designed to provide revenue for the San Francisco Municipal Railway system (Muni) to offset the anticipated increased costs to accommodate the new riders during peak commute hours generated by the construction of new office space in the downtown area. The San Francisco Board of Supervisors fixed the fee to be paid by property owners at a maximum of $5 per square foot of new office space. 2

Under the Ordinance, the transit fee is payable by each building's owner in a lump sum at the end of construction. Alternatively, the owner may choose to amortize the fee over several years and make installment payments. The amount of the fee assessed is to cover increased transit costs which the city predicts will be generated over the 45-year life of each office building. There is no provision for adjusting the amount owed by each owner depending on the actual 'life' of the building or actual transit operation costs. The Board of Supervisors may, however, adjust the $5-per-square-foot figure for future developers, depending on changing conditions.

In May 1981, Russ Building plaintiff filed a class action suit against the city to have the Ordinance declared invalid on its face and in its application. Another suit was filed against the city by Crocker plaintiffs, who additionally challenged the retroactive application of the Ordinance. The two cases were consolidated for trial of common issues.

The trial court entered judgment in favor of the city, finding that the Ordinance was not a tax and was a 'debatably rational' development fee. It also found that the retroactive application of the Ordinance as against the Crocker plaintiffs was legal. Appeals were taken separately from the trial court's judgments and the cases have been consolidated for appeal before this court.

I

Both sets of plaintiffs argue that the transit impact fee is not a legitimate development fee because the $5-per-square-foot fee exceeds the reasonable cost of the increased services to be provided, and thus is a 'special tax' which must be approved by two-thirds of the electorate pursuant to California Constitution, article XIII A, section 4 (hereafter referred to as section 4). Whether the transit fee is a development fee or a special tax is an issue of law. (See generally, Heckendorn v. City of San Marino (1986) 42 Cal.3d 481, 487, 229 Cal.Rptr. 324, 723 P.2d 64.)

Typically, a development fee is an exaction imposed as a precondition for the privilege of developing the land. Such fees are commonly imposed on developers by local governments in order to lessen the adverse impact of increased population generated by the development. (See Candid Enterprises, Inc. v. Grossmont Union High School Dist. (1985) 39 Cal.3d 878, 218 Cal.Rptr. 303, 705 P.2d 876 [school-impact fees]; Associated Home Builders etc., Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633, 94 Cal.Rptr. 630, 484 P.2d 606 [dedication of land for park space or fee in lieu thereof].) This is one of the most common subjects of local police power regulations. (See Trent Meredith, Inc. v. City of Oxnard (1981) 114 Cal.App.3d 317, 325, 170 Cal.Rptr. 685.) ' The position of the public entity is that this arrangement is only fair. The developer has created a new, and cumulatively overwhelming, burden on local government facilities, and therefore he should offset the additional responsibilities required of the public agency by the dedication of land, construction of improvements, or payment of fees, all needed to provide improvements and services required by the new development....' ' (Ibid.)

The question which remains is how does the transit fee imposed here differ from a 'special tax' within the meaning of section 4. The distinction between a tax and other exactments is admittedly blurred--taking on a different meaning in different contexts. Our Supreme Court has defined 'special tax' in section 4 'to mean taxes levied for a specific purpose rather than a levy placed in the general fund to be utilized for general governmental purposes. (City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 57 [184 Cal.Rptr. 713, 684 P.2d 935] ).' (Heckendorn v. City of San Marino, supra, 42 Cal.3d at p. 489, 229 Cal.Rptr. 324, 723 P.2d 64.) In reaching this conclusion, the court held that the term must be strictly construed and ambiguities resolved so as to limit the situations to which the two-thirds requirement applies. (City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 52, 184 Cal.Rptr. 713, 648 P.2d 935.) The court reasoned that a restrictive interpretation was necessary because of the inherently undemocratic requirement that the tax must be approved by a supermajority of the electorate. (Ibid.)

While the Ordinance in this case does exact a fee for a specific purpose--to fund the cost of providing for increased ridership caused by the development--the crucial inquiry is whether the transit fee is a tax at all. The definition in Farrell makes the distinction between types of taxes only. To ascertain whether the transit fee is a tax, we first turn to the purpose behind section 4, using the strict interpretation approach announced in Farrell.

A

California Constitution, article XIII A was enacted to provide effective real property tax relief. ' [S]ections 3 and 4 combine to place restrictions upon the imposition of such taxes.' (City and County of San Francisco v. Farrell, supra, 32 Cal.3d at p. 56, 184 Cal.Rptr. 713, 648 P.2d 935.) One characteristic of a special tax is that it levies a fee to replace revenue for services which were affected by the reduction caused by article XIII A. (See Heckendorn v. City of San Marino, supra, 42 Cal.3d at p. 489, 229 Cal.Rptr. 324, 723 P.2d 64.) In contrast, the transit fee imposed by the Ordinance is not intended to replace revenues lost as a result of article XIII A. It is triggered by the voluntary decision of the developer to construct office buildings and is directly tied to the increase in ridership that this construction will possibly generate.

In Terminal Plaza Corp. v. City and County of San Francisco (1986) 177 Cal.App.3d 892, 223 Cal.Rptr. 379, the city enacted an ordinance which required residential hotel owners to make a one-for-one replacement of residential units which were lost through conversion or demolition as a condition for obtaining a building permit. In distinguishing this exactment from a special tax, the court concluded that 'fees not exceeding the reasonable cost of providing the service or regulatory activity for which the fee is charged and which are not levied for general revenue purposes, have been considered outside the realm of special taxes.' [Citations.]' (Id., at p. 906, 223 Cal.Rptr. 379.)

The transit fees required by the Ordinance were limited to the estimated costs involved to serve the increased ridership. None of the transit fees are earmarked for general revenue purposes. Further, unlike most taxes, the fees imposed by this Ordinance are not compulsory but are exacted only if the developer voluntarily chooses to create new office space. (See id., at p. 907, 223 Cal.Rptr. 379; Trent Meredith, Inc. v. City of Oxnard, supra, 114 Cal.App.3d at p. 328, 170 Cal.Rptr. 685.) Developers have been required to pay for streets, sewers, parks and lights as a condition for the privilege of developing a particular parcel. There is little difference between these public improvements and the benefit to the public from the increased transit services paid for by the transit fee. In all instances, there is an...

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    ...e.g., New Jersey Bldrs. Assn. v. Mayor of Bernards Twp., 108 N.J. 223, 528 A.2d 555, with Russ Bldg. Partnership v. City & County of San Francisco, 188 Cal.App.3d 977, 234 Cal.Rptr. 1, appeal dismissed 484 U.S. 909, 108 S.Ct. 253, 98 L.Ed.2d 211; and Call v. City of W. Jordan, 606 P.2d 217 ...
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