Ruling Takes Middle Path on Developer Fees

SAN FRANCISCO —  The California Supreme Court, ruling on a key property rights case, held Tuesday that cities must clearly justify any special mitigation fees they impose on developers in exchange for permission to build on their land.

The decision was not a complete victory for either cities or property rights activists because the court neither rejected such fees outright nor gave cities the freedom to assess them at will.

The court ruled that cities must show that a fee charged to a developer as a condition of permit approval must be roughly proportional to the losses the public will suffer as a result of development.

The justices stepped into the highly charged “takings” debate in a dispute from Culver City. The city charged Richard K. Ehrlich a special $280,000 recreation fee and a $32,000 fee for community art in return for permission to build condominiums on land where Ehrlich previously operated private tennis courts and a sports club. The land was zoned for recreational purposes.

Ehrlich challenged both the recreation fee and the community art assessment as unconstitutional taking of his private property. While litigation over the fees proceeded, Ehrlich was allowed to develop the condominiums.

The Supreme Court unanimously upheld the charging of the art fee. Such a fee was routinely charged to new residential developments of more than four units and to all commercial, industrial and public building projects valued at more than $500,000.

A requirement to provide a city with art or the cash equivalent is akin to traditional land use regulations that mandate parking, landscaping and lighting conditions, the court found.

But a majority of justices found that the special recreation fee could amount to an unjustified taking. The fee was not generally charged to developers but limited to Ehrlich. The city said it represented a portion of the cost of replacing the recreational facilities Ehrlich had torn down.

The court concluded that Culver City had provided insufficient evidence to justify the $280,000 charge and referred the matter back to city authorities.

Culver City officials must now determine to what extent approval of the condominium project justifies a fee to compensate the city for losing recreational facilities. The city will have to show that any fee is based on specific findings and supported by “substantial” evidence, the court said.

The ruling follows two landmark property rights cases decided in recent years by the U.S. Supreme Court. The high court ruled in those cases that mitigation requirements for developments, such as transfers of property, must be “roughly proportional” to the impact of the development.

The state court said Culver City’s recreation fee fell under the U.S. Supreme Court precedents because the city extracted it from a single developer whose project would have been rejected otherwise.

Imposition of these kinds of charges presents “an inherent and heightened risk that local government will manipulate the police power to impose conditions unrelated to legitimate land use regulatory ends,” wrote Justice Armand Arabian, whose opinion--written before he recently retired--was signed by Chief Justice Malcolm M. Lucas and Justice Ronald M. George.

In a concurring opinion, Justice Stanley Mosk stressed that most development fees would not require such justification. “The present case is thus more the exception than the rule,” Mosk wrote.

A Superior Court judge had struck down Culver City’s recreation fee but a Court of Appeal upheld it, ruling that Ehrlich was not entitled under the Constitution to develop his property to its most profitable use. The state Supreme Court’s ruling reversed the Court of Appeal decision.

Justices Joyce L. Kennard and Marvin R. Baxter, in a separate opinion, said they would have upheld the trial court decision flatly rejecting the recreation fee as a clear taking of private property. Justice Kathryn Mickle Werdegar wrote a separate concurring opinion on a more technical point.

The Pacific Legal Foundation, a nonprofit group that takes on conservative causes, applauded much of the court’s decision.

“It is going to force cities to demonstrate that there truly is a negative impact,” said Robin Rivett, the group’s director of environmental law. Ben Kaufman, a lawyer for Culver City, interpreted the decision as a victory for cities because the court did not rule out such fees altogether.