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By Blair Aas, SCI Consulting Group

On September 28, 2021, Governor Gavin Newsom signed AB 602 (Grayson) into law requiring additional substantive and procedural requirements for establishing or increasing development impact fees as well as some new transparency requirements.  Here is an overview of the new law with some direction for special districts on how to comply.

In addition to the findings required by the Mitigation Fee Act (Government Code Section 66000), special districts will need to ensure that future fee program updates satisfy the following new substantive requirements:

• Beginning January 1, 2022, an impact fee nexus study must be prepared and adopted to establish the legal and policy basis for adopting a new or increased development impact fee.
• Nexus studies must now identify the existing level of service for the public facilities funded by the impact fee. If a new level of service is proposed, it must be identified along with an explanation and supporting information of why the new level of service is necessary.
• If a nexus study supports an increase of an existing impact fee, the assumptions of the nexus study supporting the original impact fee should be reviewed and the amount of impact fees collected under the original impact fee should be evaluated.
• Residential impact fees adopted after July 1, 2022, must be imposed based on square footage of the proposed units OR the nexus study must make specific findings for a different method of apportionment that satisfy the proportional requirement of the Mitigation Fee Act. Additionally, a square footage-based residential impact fee is deemed to be a valid method to establish a reasonable relationship between the fee charged and the burden posed by the development.
• The Mitigation Fee Act requires that facilities funded by an impact fee must be identified in the nexus study. A nexus study may identify a broad class of projects or refer to a capital improvement plan, applicable general or specific plan requirements, or other public documents. AB 602 states that large jurisdictions, defined as any cities or counties with a county population greater than 250,000, now must adopt a capital improvement plan in conjunction with the nexus study. Adoption of a capital improvement plan in conjunction with a nexus study remains optional for special districts unless required by the land use authority.

AB 602 amends the procedural requirements for adopting a new or increased impact fee by adding the following new provisions:

• Nexus studies and associated impact fee programs must be updated at least every eight years.
• Nexus studies and associated impact fee programs must be adopted at a public hearing with at least 30 days’ notice to the public (rather than the previous ten days), including notice to anyone that requests notice.
• Members of the public may submit evidence that the nexus study findings and determinations are insufficient, or that the special district failed to comply with the required procedural requirements for adopting impact fees. The special district and adopting local agency must consider all such evidence timely provided.

To satisfy the new transparency requirements, special district should post their impact fees in addition to certain exactions to their websites in effect on January 1, 2018, and any subsequent increases. Specifically, the types of fees and exactions subject to these transparency requirements include development impact fees, Quimby land dedication requirements and in-lieu fees, public art in-lieu fees, cost of service fees, construction excise taxes, and Mello-Roos Community Facilities District special taxes levied on new housing units.

For these fees and exactions, a special district’s website must include the following information (or a link to the information) within 30 days of any change: 

• Current schedule of fees and exactions. Special districts should also provide effective dates and any relative information for an applicant to calculate their payment. Note that the effective date of a development impact fee is not when the special district governing board approves the fee but when the respective city/county adopts them on behalf of the special district.)
• Current and five previous annual accounting reports as required by Government Code Section 66006.
• All associated nexus studies, cost of service studies, or equivalent justification documents were conducted on or after January 1, 2018. Although not required, special districts should consider posting the justification documents supporting their current fees and exactions even if adopted before January 1, 2018.

Finally, AB 602 directs the California Department of Housing and Community Development (“HCD”) to create an impact fee nexus study template that includes a method for calculating the feasibility of housing being built with a given fee level. The HCD must be made available by January 1, 2024, and special districts will have the option but will not be required to use it.

This article was written by Blair Aas with SCI Consulting Group as part of CSDA’s New Laws Series, where experts explain legislation passed in 2021 and how it will impact special districts moving forward. This article is provided for general information only and is not offered or intended as legal advice. Readers should seek the advice of an attorney when confronted with legal issues, and attorneys should perform an independent evaluation of the issues raised in these materials.

Stay tuned to the New Laws Series in CSDA eNews for more in-depth analyses on new laws affecting special districts.

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