Suits Raise Questions on Developer Fees

By DAVID HALDANE

Dec. 14, 1997 12 AM PT

TIMES STAFF WRITER

SANTA ANA —

If you want to build a storage rental facility in south Orange County, there’s an easy way to save tens of thousands of dollars--sue the Transportation Corridor Agencies, and they will return huge chunks of your development fee.

Since 1994, the TCA, which operates toll roads, has refunded or waived more than $548,000 to settle with the builders of self-storage facilities in Newport Beach, Orange, Irvine and Mission Viejo. The agency, with little publicity, has settled all four times builders have challenged it in court.

In addition, the agency has tried to keep the settlements secret by inserting a nondisclosure clause in each agreement. “We didn’t want all these settlements going out to all the other potential developers,” TCA lawyer Rob Thornton said.

This is just one of the controversial aspects of the TCA’s development fees. Developers have complained that because their self-storage facilities bring far less traffic than a fast-food restaurant or a shopping center, they should not have to pay the same fee per square foot.

The San Joaquin Hills Transportation Corridor Agency’s board of directors recently asked its staff to look into that matter. “It’s a very poor way of doing business,” said board member Patricia C. Bates, a Laguna Niguel city councilwoman. “I think we can do a better job.”

Since 1985, the TCA has been charging developers for the right to build in or near any of the 14 cities surrounding the San Joaquin Hills or Foothill/Eastern transportation corridors. The assessments help pay the costs of building and operating the toll roads. “We borrowed money,” Thornton explained, “and have pledged to bondholders that we will repay them from two sources--toll revenues and development impact fees.”

The TCA charges developers of commercial property a one-time fee ranging from $2.96 to $5.10 per square foot, depending on the location, regardless of the kind of business involved. “We feel that it’s fair and reasonable,” Thornton said.

Because their projects take up much more space and generate far less traffic than other businesses, builders of self-storage facilities argue the fee structure violates state laws requiring development fees to bear a “reasonable relationship” to the impact of the developments.

“It’s an inequity,” said Kenneth High, an Oxnard attorney who is building a 94,510-square-foot self-storage facility in Orange.

The TCA assessed his company $407,000, which, along with a $172,000 assessment by the county for road improvements, constitutes more than 10% of his building costs. His facility is expected to generate 2.6 trips per 1,000 square feet per day, costing him $1,657.69 per trip. A fast-food restaurant such as McDonald’s, which generates 900 daily trips per 1,000 square feet, would pay only $4.79 per trip. A shopping center generating about 135 daily trips would pay $31.93 per trip, High said.

“That doesn’t make any sense to anybody that I know of,” he said.

Thornton defended the fees, saying court cases support the right of a public agency to impose fees that affect businesses disproportionately as long as there is a “rational, legitimate” reason for doing so. The TCA cannot assess development fees based solely on the number of trips generated, Thornton said, because of the huge staff that would be required to analyze each case.

He would not say why the TCA has refunded 27% to 73% of developers’ fees rather than fight their challenges in court. “I can’t tell you the agency’s thinking and strategy,” Thornton said. “The agency elected to [settle] because . . . it was in the agency’s best interests to do so.”

The Times received copies of the settlement agreements from the TCA. The agency had already given High copies after he requested them under the state Public Records Act.

County Supervisor Thomas W. Wilson, who joined the toll road board early this year, said he did not know about the settlements until a Times reporter told him about them. “I’m a bit surprised that there’s been a history that’s developed on this,” he said. “I would think that, if not after the first event certainly after the second, this would have received some attention.”

The biggest recipient of the settlements was Dahn Corp., which saw its fee for a facility in Newport Beach drop from $307,774 to $83,099 and from $273,744 to $200,000 for a project bordering Tustin and Irvine.

N.J.P. Enterprises Inc. saw its fee drop from $228,992 to $125,000, and Agencia La Esperanza Corp. Inc. had the fee for its facility in Mission Viejo dropped from $321,120 to $175,000.

At least one Orange County builders group supports the TCA’s position. The Orange County Building Industry Assn., whose 800 member companies mostly build homes, were involved in the original negotiations from which the fees emerged, said Christine Diemer, CEO of the group. “Our members have never complained,” she said.

Orange County also uses a flat-rate formula in determining commercial development fees, although it is generally lower than TCA’s. John Buzas, the county’s manager of current planning, said he did not know of any challenges.

Last month, when High and another developer filed administrative appeals of TCA’s assessments on their planned self-storage facilities, they found some support from, of all places, the San Joaquin Hills board of directors.

“It doesn’t seem fair at all,” said Christina L. Shea, mayor of Irvine. Shea said she knew of at least one company that had built elsewhere rather than pay the high fees. “Their argument is legitimate.”

Todd Spitzer, a county supervisor, agreed. “I feel that it’s important for there to be a nexus between the developer fees charged and the number of trips generated on the road.”

Instead of settling challenges out of court, Spitzer said, the agency ought to change its policy. “If there’s an equity argument out there it’s for the board to resolve, not the lawyers,” he said. “We shouldn’t have to make a storage facility sue us in order to get a remedy.”

At Spitzer’s urging, the board voted unanimously to postpone action on the two developers’ appeals while asking the TCA staff to come back in February with a report examining the fee structure and outlining alternatives.

High, meanwhile, said he will file a lawsuit. “It was very gratifying,” he said of the board’s action, “but they have turned down these petitions before.”

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Winning the Battles

Storage rental facilities have had success in battling the Transportation Corridor Agencies over charges. The plaintiff withdrew one lawsuit before a hearing, but four others have resulted in out-of-court refunds or reductions for storage facility owners:

1994

* Dahn Corp.

Facility: Mini-storage facility in Newport Beach

Outcome: Received a $224,675 refund on an original fee assessment of $307,774

1995

* N.J.P. Enterprises Inc.

Facility: Mini-storage facility in the city of Orange

Outcome: Received a $103,992 refund on an original fee assessment of $228,992

1996

* Dahn Corp.

Facility: Storage facility in Tustin/Irvine

Outcome: Received a $73,744 refund on an original fee assessment of $273,744