Annual Accounting for School Facilities Fees (K-12) - School & College Legal Services of California

Government Code sections 66001 and 66006 impose detailed requirements on public agencies which levy development fees. These sections require school districts collecting statutory school facilities fees to take certain actions prior to December 26, 2016. The purpose of this letter is to remind you of these statutory requirements and provide information and documents to assist you in complying with them.

LEGAL UPDATE

August 12, 2016

To: Superintendents, Member School Districts (K-12)

From: Steven P. Reiner, Assistant General Counsel

Subject: Annual Accounting for School Facilities Fees

Memo No. 23-2016

Stated briefly, section 66006 requires each local agency collecting development fees to make an annual accounting of those fees available to the public by December 26, 2016. This annual accounting must then be reviewed by the governing board at its next regularly scheduled meeting at least 15 days after the accounting was made available to the public. Section 66001 requires each local agency collecting development fees to make additional findings every five years for any fund in which those fees remained unexpended at the end of a fiscal year.

I. Annual Accounting

A. Government Code section 66006(b) requires local agencies, including school districts, which are collecting development fees (including statutory school facilities fees and other impact mitigation payments) to provide an annual accounting of such fees or payments. A separate accounting should be provided for each type of fee or payment, which is to say, for each separate account or fund into which those fees or payments were deposited.

Each accounting must include:

1. A brief description of the type of fee in the account or fund.

2. The amount of the fee.

3. The beginning and ending balance of the account or fund.

4. The amount of the fees collected and the interest earned.

5. An identification of each public improvement on which fees were expended and the amount of the expenditures on each improvement, including the total percentage of the cost of the public improvement that was funded with fees.

6. An identification of an 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 on an incomplete public improvement, as identified in paragraph (2), subdivision (a), of section 66001, and the public improvement remains incomplete.

7. A description of each interfund transfer or loan made from the account or fund, including the public improvement on which the transferred or loaned fees will be expended; and in the case of an interfund loan, the date on which the loan will be repaid and the rate of interest that the account or fund will receive on the loan.

8. The amount of refunds made pursuant to subdivision (e) of section 66001 and any allocations pursuant to subdivision (f) of section 66001. (Government Code section 66001(e) requires districts to refund developer fees that are not appropriated within a five-year period from date of collection. Government Code section 66001(f) provides a method for allocating such non-appropriated fees if the administrative costs of refunding exceed the amount to be refunded.)

B. Each fee-collecting district must make the accounting available to the public by December 26, 2016, which is within 180 days after the last day of the fiscal year as required by statute. In addition, the governing board must review the information at its next regularly scheduled board meeting held no earlier than 15 days after the information becomes available to the public. Notice of the time and place of this meeting, including the address at which the information may be reviewed, must be mailed at least 15 days prior to the meeting to anyone who has filed a written request with the district for such notice.

II. Every Fifth Fiscal Year

A. In addition, Government Code section 66001(d)(1) requires that for the fifth fiscal year following the first deposit into each account or fund, and every five years thereafter, the local agency must make certain findings. These findings must also be made available to the public by December 26th. The sanction for failing to comply with this requirement is a refund of the fees in question.

In Walker v. City of San Clemente (2015) 239 Cal.App.4th 1350, the city was ordered to refund $10.5 million in unexpended fees for failing to provide detailed information required in the five-year findings, specifically, it failed to demonstrate a reasonable relationship between the unexpended fee and the purpose for which the fee was originally charged. Further, the court in Walker required the city to make new findings every five years that demonstrated a continuing need for the improvements paid for by the fund.

B. Under Government Code section 66001(d)(1), for each account or fund, a district must make all of the following findings with respect to that portion of the account or fund remaining unexpended, whether committed or uncommitted:

1. Identify the purpose to which the fee is to be put.

2. Demonstrate a reasonable relationship between the fee and the purpose for which it is charged. The Walker decision interpreted this to include an assessment of the impact of the development on the local agency, the current status of the need for the fund, the status of any improvements identified when the fee was established, what has been done since the fee was imposed, and future plans.

3. Identify all sources and amounts of funding anticipated to complete financing and incomplete improvements identified in Government Code section 66001(a)(2), which states if the use is financing public facilities, the facilities shall be identified. It is optional, but identification can be made by reference to a capital improvement plan as specified in Government Code sections 65403 or 66002, or in other public documents that identify the public facilities for which the fee is charged.

4. Designate the approximate dates on which the funding referred to in paragraph (3) is expected to be deposited into the appropriate account or fund.

These findings require the local agency to affirmatively demonstrate that it still needs the unexpended fee to achieve the purpose for which it was originally imposed, and that the agency has a plan on how to use the unexpended balance to achieve that purpose.

C. The findings required by this subdivision need only be made for moneys in possession of the local agency and need not be made with respect to letters of credit, bonds, or other instruments taken to secure payment of the fee at a future date. As noted above, if the findings are not made as required by this subdivision, the local agency must refund the moneys in the account or fund as provided in Government Code section 66001(e).

III. Additional Information and Suggestions

A. Enclosed with this letter are three forms which will assist in complying with Government Code sections 66001 and 66006, as follows:

1. A resolution related to statutory fees collected under Education Code section 17620 (For districts which still have fees collected under “SB 201″—Government Code section 65970, et seq.—a separate resolution can be made available upon request.)

2. Exhibit A, which would be completed and attached to the resolution, and covers the information required by Government Code section 66006.

3. Exhibit B, which would also be completed and attached to the resolution and covers the information required by Government Code section 66001 for the fifth year accounting.

These three documents were drafted with the assumption that there were funds remaining in the account or fund in question for which a report under Government Code section 66001 was necessary. If this is not the case, contact us so that we can provide a modified form of resolution.

Even if funds remaining at the end of the fiscal year have been spent prior to the date of the accounting, it remains necessary to comply with Government Code section 66001, although the fact that the funds remaining have been spent should be reflected on both Exhibit A (reference (F)) and Exhibit B (references (C) and (D).)

B. With respect to section (A) of Exhibit A, the fees could be described as follows:

Statutory school facilities fees

C. With respect to section (B) of Exhibit A, the amount of the fee could be generally described as follows:

1. For unified districts (or districts not sharing the fee with another district):

2. For elementary or high school districts (sharing the fee with another district):

$3.39 per square foot of assessable space of residential construction; and $0.55 per square foot of covered and enclosed space of commercial/industrial construction; but subject to the district’s determination that a particular project is exempt from all or part of these fees. Pursuant to Education Code section 17623 and an agreement with the district(s) sharing territory with the district, generally only _____ % of the maximum fee specified above is distributed to this district. *

*Note: The $3.39 and $0.55 amounts are based upon the January 27, 2016, State Allocation Board fee adjustment. Districts which have not increased their fees should use the actual amount of their fees. However, if your district is interested in adjusting its fees to reflect this increase, please contract our office and we will provide you with the necessary documents.

D. With respect to section (E) of Exhibit A, identification of each public improvement on which fees were expended must be as specific as possible. This can be done by referring to the project’s name if it has one (e.g., “construction of comprehensive high school #4, ABC High School), or a description of the project which identifies the nature and scope of the improvement (e.g., “construction of one new classroom of approximately 1000 square feet at ABC Elementary School”). This section should also indicate those amounts spent for administration costs associated with adopting, collecting, and reporting the fees, and any refunds made (other than those reported in section (H) of Exhibit A).

E. With respect to section (F) of Exhibit A, if the district has not made the determination identified, the following may be inserted:

N/A. The District has not made this determination.

F. With respect to section (G) of Exhibit A, if the district has not made any transfers or loans, the following may be inserted:

N/A. The District has not made any such interfund transfers or loans.

G. With respect to section (H) of Exhibit A, we have assumed that no refunds or allocations under the specified statutes have been made. The refunds referred to are not refunds made under the district’s exemption procedures, but refunds made if the district fails to identify an approximate starting date for a project once it has determined that there are sufficient funds to complete it.

H. With respect to Exhibit B, remember that this report only applies to any money remaining unexpended in the fund or account at the end of the fiscal year.

I. With respect to section (A) of Exhibit B, information as to how any money remaining unexpended in the fund or account at the end of the fiscal year will be spent must be inserted. This information must be as specific as possible, referring to the particular project or projects on which the money will be spent. (See paragraph D, above, for additional guidance).

J. With respect to section (B) of Exhibit B, information demonstrating a reasonable relationship between the fee and the purpose for which the fee was originally changed should be as specific as possible. (See paragraph D, above, for additional guidance).

K. With respect to sections (C) and (D) of Exhibit B, the information to be provided relates to the project or projects identified in section (A) of Exhibit B.

Please contact our office with questions regarding this Legal Update or any other legal matter.

The information in this Legal Update is provided as a summary of law and is not intended as legal advice. Application of the law may vary depending on the particular facts and circumstances at issue. We, therefore, recommend that you consult legal counsel to advise you on how the law applies to your specific situation.

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