Corona Must Lower Building Permit Fees

A judge has ruled that Corona’s method of charging for building permits and other construction services is illegal, and ordered city officials to cut fees a total of $332,129 for two years.

Next week, Corona’s mayor and City Council are slated to discuss whether to appeal the decision, according an attorney for the city, Jeffrey Dunn.

The ruling is the latest involving lawsuits that homebuilder Barratt American Inc. and Dick McCarthy, a retired developer from Palm Springs, have brought against several California cities and counties, charging that municipal building departments unfairly fatten their budgets with excessive permit fees.

As in many cities, Corona’s permit fees were based on the total cost of running its Building Department. But Riverside County Superior Court Judge E. Michael Kaiser ruled that state law requires permit fees to be based on the actual cost of providing a service.

Kaiser this month ordered Corona to “cease and desist using the current methodology” in determining Building Department fees and gave the city 90 days to come up with a new method for setting them. He also said those fees should be reduced over the next two years to make up for the $332,129 in excess revenue the city collected during a certain period.

“This is not to hurt the city; this is just to get them to obey the law,” said McCarthy, who started filing lawsuits over local building fees in the late 1990s and now is a consultant for Barratt American, a major Southland homebuilder. “I believe governments should set the example of honesty.”

The latest lawsuit was the third brought against Corona since 1997. The plaintiffs lost the previous two, then sued under a different section of state law this time, seeking up to $4 million for three years’ worth of back fees from the city, McCarthy said.

Corona officials referred questions about the ruling to Dunn, an Irvine-based attorney who represented Corona in all three lawsuits. Dunn insisted that the ruling was not a victory for the plaintiffs and stemmed from the city’s admission on the eve of trial that it had “temporarily overcharged” customers $332,129.

McCarthy said that though he was disappointed the judge had not agreed to return the full $4 million, he and Barratt American would not appeal the decision unless the city did.

“The principle of the win is more important to us than the money,” McCarthy said. “The big thing is ... the city of Corona is going to have to adopt a fee system that comports with cost of services.”

The city has filed a motion seeking to overturn the ruling, arguing that under state law, no judge can order changes in a city’s methodology for determining permit fees. Though such a motion is required before appealing to a higher court, city officials haven’t decided whether to actually appeal. The city has already paid Dunn roughly $160,000 to defend against the three lawsuits, he noted.

McCarthy and a co-plaintiff who lives in Corona are also seeking roughly $300,000 in attorney fees. McCarthy said he had tried to negotiate with city building officials for a year, and “if they had agreed to change their methods, I wouldn’t have charged them 10 cents.”

But Dunn said Corona, which has one of the highest rates of housing construction in the state, had already reduced its fees in previous years.

He noted that under California law, cities cannot go back and ask for additional fees if they find at year end that they have not charged enough to meet costs. He said Corona had a long-standing practice of reducing future fees by the amount they might have overcharged customers in earlier years. That practice is at the heart of nearly a decade’s worth of lawsuits.

After being sued or negotiating with McCarthy, other municipalities such as Moreno Valley and Riverside and Orange counties have agreed to cut their rates and charge on a “time and materials” basis instead.

Some cities have won similar challenges, though. The California Supreme Court agreed last October to review an appeal that Barratt American brought after losing to Rancho Cucamonga. That decision could ultimately determine how local governments across the state charge building fees.

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Times staff writer Jean O. Pasco contributed to this report.