Ruling Weakens O.C. Permit Fee Challenge

A lawsuit by developers arguing that the Orange County planning department charged too much for permit fees has been weakened by an appeals court decision in a similar Rancho Cucamonga case.

Both suits were brought by national homebuilder Barratt American and the Paladin Fair Housing Coalition, a private, nonprofit organization. The two have filed half a dozen lawsuits targeting building permit fees in Southern California.

They argue that officials have charged excessive fees -- amounting to a hidden tax -- despite state laws requiring fees to be based on the costs of services performed. The fees, which were then passed on to buyers, increased the prices of new homes, they contended.

Appellate justices in San Bernardino ruled against Barratt in late May in the Rancho Cucamonga case.

In a published opinion, the judges ruled that government procedures for setting building and planning fees are “entirely discretionary.” They further ruled fees could only be challenged within 180 days of adoption. If any fees were later deemed excessive, the court ruled that they weren’t refundable.

“[Barratt] had other alternatives,” the three-judge panel said. “It could have built its development elsewhere. It could have challenged the fee ordinance before [building]. It could have tried to negotiate with the city. But, having accepted the benefits of the permit, it has no right to a refund.”

Barratt’s attorney, Walt McNeill, has asked the state Supreme Court to review the ruling. He called the decision “pretty amazing” because it flies in the face of several state laws and would give elected officials statewide a blank check for setting fees.

Because of the Rancho Cucamonga ruling, an expected courtroom showdown over Orange County fees fizzled earlier this month. The Orange County case was delayed until October to allow the state Supreme Court to decide whether it will wade into the issue.

Dick McCarthy, the retired Palm Springs developer who formed the Paladin Group, called the Rancho Cucamonga decision Orwellian.

“It says elected officials can do whatever they want, so why have any laws?” he said. “It proves everything I’ve said -- that the citizen doesn’t have a chance against government. This fight is not about fees, it’s about good government and honest government.”

Attorney Jeffrey Dunn, who represents Orange County and two cities sued by Barratt, said the fees in Orange County properly recovered the cost of providing the services plus the overhead needed to run government. He has argued that the law doesn’t require governments to justify how they set every dollar of fees, and that it would be improper for the court to do so.

In a court filing last week, Dunn cited another element of the Rancho Cucamonga decision. The appeals court said fees could be challenged only if they were new or increased. The lawsuit against Orange County, filed in 1999, came after the county had lowered its fees -- though not by enough, the suit alleged.

Orange County dropped its fees by nearly a third after McCarthy challenged them in 1997. A consultant hired by the county also concluded they were too high, particularly since the Planning and Development Services Department had amassed a surplus that at its peak reached $18.5 million.

The lawsuit against Orange County also focused on the depletion of that surplus, which had been drained by June 2002. The department needed an additional $8 million in an emergency loan from the county’s general fund before county supervisors stepped in to stop the unchecked department spending.

In January, the head of the department retired and 20% of the workforce was laid off. Supervisors later adopted a new fee system based on the amount of staff time and materials used to check plans, issue building permits and inspect new residential and commercial construction.

Superior Court Judge C. Robert Jameson was to decide later this year whether the planning department should restore all or part of the $18.5-million surplus, and further reduce fees. State law requires excess fees to be used to reduce the fee or service charge that created the surplus.

Barratt and Paladin have filed several similar lawsuits to challenge fees in Corona, Encinitas and other cities. Court decisions have been mixed.

A judge in the Encinitas case dismissed the challenge because it hadn’t been filed within 180 days of the fee’s adoption.

In March, a Riverside County Superior Court judge upheld Corona’s discretion to set fees, but said officials had failed to show that the method used to determine the fees had any “reasonable relationship to the cost.”

Corona officials testified that they set fees based on how much it had cost to run the department in the past, the estimated cost for the current year and time estimates developed for each service it provided.

Until this year, Orange County set its building fees based on the value per square foot of the finished structure. After that was questioned in the Barratt lawsuit, supervisors scrapped it in favor of charging for actual staff and material costs.

The former fee was renamed a deposit, with developers promised a refund if the costs ultimately were less. For example, developers must place a $2,335 deposit with the county to process a 2,000-square-foot model home in Orange County, a 64% increase over the current fee.

Barratt filed another lawsuit this month against that new fee structure, alleging that the hourly amount the county charges is too high and includes expenses that should be covered by general revenue. The new suit also cites the spending of the $18.5-million surplus and alleges that county officials breached their fiduciary duty.