Land Developers Dispute ‘Unreasonable’ Fees : Watson Land Co. President Asserts They Cost Jobs

William T. Huston, president and chief executive officer of Watson Land Co., is a passionate spokesman on the subject of excessive development fees.

A longtime proponent of reasonable and equitable assessments, he worries about local government’s reliance on developers to finance new public improvements--a situation he believes could result in serious economic consequences.

Huston and others who have been arguing the issue, both at local and state levels, fear that excessive development fees will make California less competitive and restrict its ability to create new jobs.

As volunteer chairman of the Economic and Job Development Committee of the California Chamber of Commerce, Huston made a strong plea on behalf of developers at a state Senate hearing last December.

“The constituency in opposition to excessive fees is not large, and is usually the new homeowner or developer who is faced with the decision to either accede to the exaction or not get the building permit,” he stated.

“As a result, over-eager planning and building officials can milk this development fee cow to death without realizing the broader economic implications of financing their community infrastructure solely on the new development projects.”

The advent of development fees and the escalation in this sector can be traced to Proposition 13’s limitations on raising of property taxes to impose fees and changes, Huston said.

Joel Fox, president of the California-based Tax Reduction Movement founded by the late Howard Jarvis (co-author of Proposition 13) said CTRM, which numbers 200,000 California property owners and voters, takes the view that “any time tax money is transferred from one person’s pocket to another’s pocket, the person surrendering the money should have a say in the matter.

“Proposition 13, which passed in 1978, established the procedure for voter involvement in such matters, but court cases decided since, have created loopholes calling taxes by other names such as fees and assessments. A tax by any name should be subject to close scrutiny with taxpayer involvement mandatory.”.

The California Chamber of Commerce and other organizations (including the Building Industry Assn. and the California Assn. of Realtors) have made some progress in furthering the legislation of restraints on excessive fees and exactions.

Chamber-sponsored bills, already approved now protect the rights of protest by property owners or developers when excessive fees and exactions are in question.

In 1986, through the efforts of Sen. Bill Green (D-Los Angeles), new Chamber-sponsored legislation prohibits monetary exactions imposed on a project to exceed the cost of the project need; also passed was a bill introduced by Assemblyman Elihu Harris (D-Oakland), which protects the home owner or developer who believes fees are excessive and amount to a revenue raising scheme, by shifting the burden of producing the evidence to the government.

“The development community has never objected to paying reasonable development fees to finance public services and facilities that are needed by new housing subdivisions and commercial development, but fees and exactions have escalated to where they may be inadvertently chasing industry away,” he said.

“We need to create some 300,000 to 500,000 new jobs each year to meet the naturally occurring growth and immigration,” Huston said. “Every new obstacle in meeting that demand will contribute to increased unemployment and business costs for all Californians.”

David Ackerman, vice president of the California Chamber of Commerce, who also been working to clarify the issue, said that development fees seem to fall into two categories:

“One is where the local government has not planned for its infrastructure needs and extracts fees on an ad hoc basis as people request a building permit. The other is where the community is planning for its infrastructure needs, but has decided for political reasons that the burden of new facilities will come from new development rather than rocking the boat by asking existing property owners to assess themselves for the needed capital,” Ackerman said.

‘What seems to be missing is an overall analysis of where we are going as a state in trying to finance new infrastructure on the backs of new homeowners and new business expansion,” he said.

“Where city ordinances or resolutions are adopted imposing what has been called ‘postage stamps’ infrastructure fees, this can range from a percentage of the construction value, to replacing a water pipeline that served an older adjacent subdivision and was not needed by the new property, to supplying a new water tank for the entire city,” Ackerman commented.

“When an established business that needs to expand must relocate because new construction is inflated by excessive development fees, especially the manufacturing businesses that we need in California, then we are seeing adverse effects on creating jobs in the future,” he added.

Kenneth Emanuels, legislative director for the League of California Cities, agrees with Chamber representatives that if a fee exceeds the need of a project directly or indirectly, the problem could be considered unconstitutional.

“However, in approving growth, cities must account for the need for adequate public works and that has to be financed from somewhere. Our major source at present is our development fees. We also are concerned with the economic implications of excessive fees and would be willing to reduce these fees if there were alternate funding sources,” Emanuels explained, citing business license tax, utility tax and Mello-Roos bonds as possibilities, “but that would require two thirds of the public vote and it would be hard to convince the voters to tax themselves so that facilities would be available for the newcomers. It is a question that even reasonable people can disagree on.”

Rutan & Tucker, a Costa Mesa-based law firm that has both public agencies and developers as clients, some local agencies have attempted to address this apparent inequity by requiring future developers to reimburse the original developer with some of the construction costs for shared facilities in excess of the need generated by the original project, explained Philip Kohn, one of the firm’s attorneys.

“Ideally, a project-by-project evaluation should be done and perhaps some added legislation could help establish better guidelines for development fees and exactions, and possibly avoid some of the existing inequities,” Kohn added.

A survey sponsored by the California Chamber of Commerce to determine whether there had been any significant impact of excessive development fees on economic growth was conducted by Connerly & Associates Inc. with funds from the Construction Industry Advancement Fund.

‘Inflates Prices’

“It showed what minimal research has been undertaken in the field, and indicated that this method of financing inflates prices for both new housing and existing housing stocks,” Huston said. “We also know that when the price per square foot of exactions reaches a certain level for certain businesses, projects are no longer feasible, get canceled and companies consider alternative locations.”

Landmark legislation (AB 2926) approved last year and in effect last January, allows for the assessment for school construction on new construction or renovation of commercial and industrial projects on the basis of 25 cents per square foot, and allows for a maximum $1.50 levy per square foot for residential construction.

Citing an example, Ackerman questioned whether construction of a new 50-story high rise building in downtown Los Angeles would generate considerably more school attendance within its vicinity while another project might. “There should also be some criteria that school districts might follow in order to create a more equitable distribution of financial responsibility.”