Cities, towns, counties and other local government agencies in California routinely impose mitigation fees when properties are developed. The fees typically are attached to the property, meaning they “run with the land” and are owed by subsequent property owners. Under the Mitigation Fee Act (Gov’t Code §§ 66000 – 66025), a local agency imposing mitigation fees is required to make certain findings annually and every five years. If the findings are not made, the local agency must refund all unexpended fees to all current record owners of property against which the fee was imposed, even if the record owner did not actually pay the fee. (Gov’t Code § 66001, subd. (d)(2) and (e).) The purpose of these statutory provisions is to ensure that mitigation fees are expended promptly and for purposes for which they were originally imposed. In cases where the local agency fails to make the required findings, any current owner of property subject to the fee may seek a judicial order compelling the local agency to a) make the required findings and b) refund the unexpended funds to all current record owners of properties, as the Mitigation Fee Act commands.
The Mitigation Fee Act broadly defines “Fee” as:
“a monetary exaction other than a tax or special assessment, whether established for a broad class of projects by legislation of general applicability or imposed on a specific project on an ad hoc basis, that is charged by a local agency to the applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project, but does not include fees specified in Section 66477, fees for processing applications for governmental regulatory actions or approvals, fees collected under development agreements adopted pursuant to Article 2.5 (commencing with Section 65864) of Chapter 4, or fees collected pursuant to agreements with redevelopment agencies that provide for the redevelopment of property in furtherance or for the benefit of a redevelopment project for which a redevelopment plan has been adopted pursuant to the Community Redevelopment Law (Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code).” (Gov’t Code § 66000, subd. (b).)
The Mitigation Fee Act authorizes a local government agency to impose fees on specific development projects to defray the cost of new or additional public facilities that are needed to serve those developments. Common types of fees include tree mitigation fees, facilities fees, impact fees, among others. The Mitigation Fee Act establishes a variety of requirements to ensure local agencies timely use the fees to pay for the public facilities that serve those very developments rather than divert the fees for general revenue purposes. In fact, the Mitigation Fee Act prohibits a local government agency from levying, collecting, or imposing development mitigation fees for general revenue purposes. (Gov’t Code § 66008.)
The ”nexus” findings required by the Mitigation Fee Act are set forth in Government Code section 66001, subdivision (d)(1), which provides that: “For the fifth fiscal year following the first deposit into the account or fund, and every five years thereafter, the local agency shall make all of the following findings with respect to that portion of the account or fund remaining unexpended, whether committed or uncommitted:
(A) Identify the purpose to which the fee is to be put.
(B) Demonstrate a reasonable relationship between the fee and the purpose for which it is charged.
(C) Identify all sources and amounts of funding anticipated to complete financing in incomplete improvements identified in paragraph (2) of subdivision (a).
(D) Designate the approximate dates on which the funding referred to in subparagraph (C) is expected to be deposited into the appropriate account or fund.”
Section 66001, subdivision (d)(2) further provides, in part: “If the findings are not made as required by this subdivision, the local agency shall refund the moneys in the account or fund as provided in subdivision (e).” This statutory review and refund requirement prevents local agencies from collecting and holding a development fee for an extended period of time without a clear and demonstrable plan to use the fee for the purpose for which it was imposed.
In addition to the five-year nexus findings required by section 66001, section 66006 subdivision (b)(1)(F) requires that a local agency prepare an annual report that identifies the approximate date by which the construction of the public improvement will commence if the local agency determines that sufficient funds have been collected to complete financing and the public improvement remains incomplete.
Section 66001, subdivision (e) provides, in part: “[W]hen sufficient funds have been collected, as determined pursuant to subparagraph (F) of paragraph (1) of subdivision (b) of Section 66006, to complete financing on incomplete public improvements identified in paragraph (2) of subdivision (a), and the public improvements remain incomplete, the local agency shall identify, within 180 days of the determination that sufficient funds have been collected, an approximate date by which the construction of the public improvement will be commenced, or shall refund to the then current record owners…the unexpended portion of the fee.”
If the local government agency fails to comply with both the five-year nexus and the annual report finding, it has a self-executing duty to refund the balance of mitigation fees remaining in the mitigation fee account in accordance with the Mitigation Fee Act.