Invalid Capital Improvement Fee Review In California
On July 21, 1986, the Supreme Court filed its opinion in San Marcos Water Dist. v. San Marcos Unified School Dist. (1986) 42 Cal. 3d 154 228 Cal. Rptr. 47, 720 P.2d 935 and held that a fee charged by a public water district to defray the costs of capital improvements was a special assessment from which a school district was exempt in the absence of express legislative authorization. (Id. at pp. 164-165.)
The court reviewed various sections of California codes, found no existing legislative authorization, and therefore ruled the fee to be invalid. ( Id. at pp. 165-167.)
The court's ruling in San Marcos I had the potential to undermine the fiscal stability of public utilities which had, in good faith, already collected and spent capital improvement fees which might now have to be refunded.
To prevent that from occurring, and to avoid a flood of refund actions, the Legislature erected a statutory seawall of sorts, which the parties describe as the "San Marcos Legislation." ( 54999 et seq.)
Under that legislation, capital improvement fees that had been paid without protest generally were "not . . . subject to refund . . . ." ( 54999.4.) Furthermore, municipal utilities were authorized to "continue to charge, or . . . increase . . . existing capital facilities fees, or . . . impose . . . new capital facilities fees . . . ." ( 54999.2.)
The San Marcos Legislation contained various special rules that were applicable to school districts, among other public agencies.
A public agency providing public utility service could continue to impose capital facilities fees which had been imposed prior to July 21, 1986 (the date San Marcos I was filed) only "where necessary to defray the actual construction costs of that portion of a public utility facility actually serving a public agency . . . ." ( 54999.3, subd. (a).)
Such fees could be increased, but only "in an amount not to exceed the percentage increase in the Implicit Price Deflator for State and Local Government Purchases, as determined by the Department of Finance . . . ." ( 54999.3, subd. (a).)
If a public utility wanted to increase a capital facilities fee in an amount greater than that determined by the "Implicit Price Deflator," it could only do so by negotiation and agreement with the affected school district. ( 54999.3, subd. (b).)
The San Marcos Legislation also authorized certain types of refund actions.
Section 54999.4 authorized school districts to seek a refund of "capital facilities fees paid after July 21, 1986 . . . which are in excess of the maximum amount authorized by Section 54999.3."