Building Fees Are Under Attack

A legal fight over whether a Riverside County city overcharged for building inspections and then misspent the surplus could reshape the fees that cities and counties collect from developers and home builders.

The suit alleges that since 1993, Corona has overcharged builders up to $16.5 million for inspections, money that went into its general fund to pay for law enforcement and other city services. The trial is set to begin today.

The accusation is identical to that lodged against Orange County, which spent its way through $18.5 million in surplus building fees in the last three years. An Orange County judge will decide whether that money was properly spent.

Both cases hinge on a state law that restricts what local governments can charge for services such as plan checking and building inspections. Cities and counties are allowed to recover only their costs for those services. Any excess must be used to reduce future fees. Using the money for anything else constitutes a “special tax.”

Depending on the outcomes, the lawsuits could bring sweeping changes in how much builders throughout California -- from large developers to homeowners -- pay cities and counties.

Though there has yet to be a definitive court ruling, the legal challenges already have had an effect. Riverside County and five cities in Southern California revamped their fees in recent years, either voluntarily or through court settlements.

San Marcos, for instance, dropped its tract-home inspection fee from $3,150 to $750.

Corona, like Orange County, has for decades set building-inspection fees based on tables created by the International Conference of Building Officials, an association of government officials that develops building codes. For homes, the amount of the fee is based on the future sales value: The higher the value, the higher the fee.

In 1993, state Atty. Gen. Dan Lundgren ruled that local governments were prohibited from using valuation-based fee tables unless they produced evidence showing they were justified.

To justify its fees, Corona hired a professional cost consultant whose work will be examined in the upcoming trial.

Jeff Dunn, the attorney representing both Orange County and Corona, contends his clients aren’t breaking the law and that cities and counties need not justify dollar for dollar how the fees are spent. Fees need to be justified only when they are raised, he said. Corona’s fees challenged by the lawsuit either went down or stayed the same.

That’s not good enough, said Jason Brent, an attorney representing Corona resident George Jenkins and Dick McCarthy, a retired Palm Springs developer. McCarthy has filed a half dozen lawsuits in Southern California challenging inspection fees, including those in Corona and Orange County.

Brent said Corona’s consultant failed to track a critical component: how much time was spent on each job. Without knowing whether an inspector spent three or 30 hours on a job, the justification becomes meaningless, he said.

The city’s own books reveal years of overcharges, Brent added. For example, Corona spent $1.5 million on its building department in the last fiscal year while taking in $2.9 million. The previous year, it received $2.5 million more in fees than its costs, according to city financial documents.

“They’re fighting us because this generates huge profits for the city,” Brent said.

In Orange County, controversy over the fees has led the Board of Supervisors to reexamine its building fees.

In a proposal to be presented Tuesday to supervisors, the flat fee now collected would become a deposit. The money would be used to cover the time and materials used for each job, which would be tracked much like attorneys and other professionals bill for their services. Any surplus would be reimbursed.

Though barely noticed outside government circles, what’s happening in government offices and in courtrooms across California is a tax revolt, said Jon Coupal, president of the Howard Jarvis Taxpayers Assn., the group that launched California’s watershed property tax reforms in 1978. Developers, like other taxpayers, shouldn’t overpay for inspections and permits to support unrelated government services, he said. “The developers are absolutely right on this one.”