Staff ReportMEETING DATE: 09/15/15
=' ITEM NO: 5
t
cos ca(o° COUNCIL AGENDA REPORT
DATE: SEPTEMBER 9, 2015
TO: MAYOR AND TOWN COUNCIL
FROM: ROBERT SCHULTZ, TOWN ATTORNEY 71t,
SUBJECT: DISCUSSION ON SCHOOL FACILITIES FEES:
A. CONSIDERATION OF ADOPTION OF AN ORDINANCE OF THE
TOWN OF LOS GATOS ADDING SECTION 25.60 TO THE LOS
GATOS TOWN CODE RELATING TO THE ADOPTION OF
MITIGATION FEES PURSUANT TO GOVERNMENT CODE
SECTIOIN 65970 TO RELIEVE CONDITIONS OF
OVERCROWDING IN THE LOS GATOS UNION SCHOOL
DISTRICT; AND
B. CONSIDERATION OF A REQUEST BY THE LOS GATOS UNION
SCHOOL DISTRICT TO ADOPT A RESOLUTION OF THE TOWN
COUNCIL OF THE TOWN OF LOS GATOS CONCURRING WITH
THE FINDINGS OF OVERCROWDING MADE BY THE BOARD
OF TRUSTEES OF THE LOS GATOS UNION SCHOOL DISTRICT
AND DENYING THE SETTING OF AN INTERIM SCHOOL
FACILITIES FEE
RECOMMENDATION:
1. Staff recommends Town Council not adopt the Ordinance; and
2. Staff recommends adopting a Resolution concurring with the School District's findings
of overcrowding and denying the School District's request to set an Interim School
Facilities Fee of $9.57 per sq, ft.
BACKGROUND:
On April 17, 2015 the Town received from the Los Gatos Union School District a Notice of
Findings of Overcrowding and a request pursuant to Government Code Section 65970 et seq.,
(SB 201) for the Town of Los Gatos to enact an Ordinance for additional development fees and
establish a fee of $9.57 per sq. ft. (Attachment 2).
PREPARED BY: ROBERT SCHULTZi
Town Attorney
Reviewed by:
Town
Town Manager
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
BACKGROUND (cont'd):
On September 1, 2015, the Town received a 19- page letter from the California Building Industry
Association and the Bay Area Building Industry Association ( "CBIA /BIA ") (Attachment 3). The
CBIA /BIA correspondence requests the Town Council to reject the School District's request and
instead adopt a resolution of non - concurrence with the District's Notice of Findings. The
CBIA/BIA principle contention is that the School Facilities Act of 1998 (SB 50) created
comprehensive school facilities financing and mitigation regime that preempted Government
Code Section 65970 et seq. (SB 201) relating to school facilities fees.
At the September 1, 2015 Town Council meeting, the Council approved the introduction and first
reading of an Ordinance adding section 25.60 to the Town Code related to Interim School
Facilities Fees (Attachment 1). However, the Town Council raised several legal issues that were
outlined in the CBIA /BIA correspondence, including but not limited to, the preemption and
applicability of SB 50, the maximum allowed school fee that can be assessed, and the use of
interim fees for the purchase of land.
On September 9, 2015, the Town received a 6 -page letter from the Los Gatos Union School
District in response to the CBIA /BIA letter and concerns stated by Town Council at the
September 1, 2105 meeting (Attachment 4). The School District's principle contention is that if
the Legislature intended that overcrowding fees have no force and effect following the enactment
of SB 50, it would have repealed SB 201 and that both types of fees are valid and permissible
methods of fees that can exist at the same time. However, the School District's correspondence
conspicuously avoids mentioning the clear maximum cap of fees that can be imposed. In
addition, the School District has confirmed that there is no other Town, City, County or School
District in the State of California that is collecting fees pursuant to SB 201.
After reviewing the materials and relevant statutes, the Town Attorney has concluded that the
proposed ordinance and resolution, in its current form, is legally problematic. If adopted in its
current form, the Town would certainly be vulnerable to litigation.
DISCUSSION:
On April 17, 2015 the Town received from the School District a Notice of Findings of
Overcrowding and a request for the Town to enact an Ordinance for additional school facilities
development fees in the amount of $ 9.57 per sq. ft (Attachment 2).
The School District relies on Government Code Section 65970 - 65981 for the imposition of
additional school mitigation fees. Originally enacted in 1977 as SB 201, Section 65970 —
655970 (The 1977 Act or SB 201) created a process by which a county or city may enact an
ordinance requiring the dedication of land or payment of an in -lieu fee for the provision of
interim school facilities as a condition of approval of a residential development project. One
precondition to such action by a city or county is the need for adopted findings from a school
district concluding, based on "clear and convincing evidence," that (i) "conditions of
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
DISCUSSION (cont'd):
overcrowding exist in one or more attendance areas within the district that will impair the normal
functioning of educational programs, including the reason for the existence of those conditions';
and that (ii) "all reasonable methods of mitigating conditions of overcrowding have been
evaluated and no feasible method for reducing those conditions exist." (Gov. Code, § 65971,
subd. (a)).
The key financing provision of the 1977 Act and SB 201 statutory scheme is Government Code
section 65974, which states:
(a) For the purpose of establishing an interim method of providing classroom
facilities where overcrowded conditions exist, as determined necessary pursuant
to Section 65971, and notwithstanding Section 66478, a city, county, or city and
county may, by ordinance, require the dedication of land, the payment of fees in
lieu thereof, or a combination of both, for classroom and related facilities for
elementary or high schools as a condition to the approval of a residential
development, if all of the following occur:
(1) The general plan provides for the location of public schools.
(2) The ordinance has been in effect for a period of 30 days prior to the
implementation of the dedication or fee requirement.
(3) The land or fees, or both, transferred to a school district shall be used only for
the purpose of providing interim elementary or high school classroom and related
facilities. If fees are paid in lieu of the dedication of land and those fees are
utilized to purchase land, no more land shall be purchased than is necessary for
the placement thereon of interim facilities.
(4) The location and amount of land to be dedicated or the amount of fees to be
paid, or both, shall bear a reasonable relationship and be limited to the needs of
the community for interim elementary or high school facilities and shall be
reasonably related and limited to the need for schools caused by the development.
However, the value of the land to be dedicated or the amount of fees to be paid, or
both, shall not exceed the amount necessary to pay five annual lease payments for
the interim facilities. In lieu of the dedication of land or the payment of fees, or
both, the builder of a residential development may, at his or her option and at his
or her expense, provide interim facilities, owned or controlled by the builder, at
the place designated by the school district, and at the conclusion of the fifth
school year the builder shall, at the builder's expense, remove the interim
facilities from that place.
(5) A finding is made by the city council or board of supervisors that the facilities
to be constructed from the fees or the land to be dedicated, or both, is consistent
with the general plan.
(b) The ordinance may specify the methods for mitigating the conditions of
overcrowding that the school district shall consider when making the finding
required by paragraph (2) of subdivision (a) of Section 65971.
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9.2015
DISCUSSION (cont'd):
(c) If the payment of fees is required, the payment shall be made at the time the
building permit is issued or at a later time as may be specified in the ordinance.
(d) Only the payment of fees may be required in subdivisions containing 50
parcels or less.
Notably absent from the District's original materials is any recognition of the statutory
limitations placed on the 1977 Act and SB 201 fees by the Leroy F. Greene School Facilities Act
of 1998 ( "SB 50 "). SB 50 sets forth the "exclusive methods of considering and mitigating
impacts on school facilities" resulting from any state or local planning and /or development
project, regardless of whether its character is legislative, adjudicative, or both. Govt. Code §
65996(a).
SB 50 expressly provides that "[t]he payment or satisfaction of a fee, charge, or other
requirement levied or imposed pursuant to Section 17620 of the Education Code in the amount
specified in Section 65995 ... are hereby deemed to be full and complete mitigation of the
impacts of any legislative or adjudicative act, or both, involving but not limited to, the planning,
use, or development of real property, or any change in governmental organization... on the
provision of adequate school facilities." Govt. Code § 65995(h).
In addition, SB 50 at Government Code §65995(b) expressly provides that the amount of any
fees, charges, dedications, or other requirements authorized under Section 17620 of the
Education Code [former §53080], or pursuant to Chapter 4.7 (commencing with Section 65970)
[the 1977 Act], or both, may not exceed the Level I, II, and III maximum fee amounts. The
School's original request for the Town Council to set a Fee at $9.57 and their correspondence
dated September 9, 2015 fails to address this clear maximum cap on fees.
Under SB 50 it certainly appears that the Legislature created a comprehensive school facilities
financing and mitigation regime. The effect of these SB 50 provisions is to limit the school fees
that can be charged to new development and to remove the ability of local agencies to make land
use decisions based on the inadequacy of school facilities or school overcrowding. Currently,
school fees cannot exceed so- called Level II fees, which provide only half the cost of the needed
facilities. SB 50 contemplated that the State of California would assume the other half of the
cost, and since 1998, the State's voters have approved approximately thirty-five million dollars
in statewide general obligation bonds for schools.
In light of SB 50 and the above analysis, the Town Attorney finds the District's proposal to be
legally problematic. There is no indication that, the new fees created by the proposed ordinance
and resolution would remain under the statutory cap. Indeed, the new fee would be $9.57 per sq.
ft, whereas the legal maximum is $3.29 per square foot. The Town Attorney's opinion has been
verified by outside counsel and also by Barbara Kautz, Esq. an expert in the field who has
PAGE 5
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
DISCUSSION (cont'd):
spoken at our Council meetings on the subject of fees. Her article in the July 2015 issue of the
State Bar Real Property Journal states:
[T]he ability of local jurisdictions to consider school overcrowding in their
planning and zoning decisions has been virtually eliminated by the passage of the
Leroy F. Greene School Facilities Act of 1998 ( "S.B. 50 ").That legislation limits
local authority to require developers to mitigate school impacts; now, developers
can only be required to pay school impact fees equal, at most, to fifty percent of
the cost of providing new facilities. SB 50 prohibits cities and counties from
requiring additional contributions.
However, assuming arguendo, that SB 50 does not preempt the 1977 Act and that there is no
maximum cap of fees, the School District's findings fail to comply with the requirements of the
1977 Act for the following reasons:
The 1977 Act is limited to funding temporary /interim school facilities as defined in
Section 65980(c). The School District's findings state that interim school fees are based
on land acquisition costs for "a small school with capacity of 305 students" and
expending the fees on "expand[ing] school facilities to educate the additional 305
students." The District's findings fail to limit the fee expenditures to the authorized
interim school facilities.
2. The 1977 Act requires a school district to identify the temporary /interim facilities to be
funded and, if land acquisition is necessary, identification of the land to be acquired.
(Section 65976) The District's findings fail to identify any land or temporary classrooms
with the required specificity. Instead, the proposal merely provides that "the additional
mitigation fees are expected to only cover the cost to expand school facilities to educate
the additional 305 students."
3. The 1977 Act requires a city to find that the specified land and interim facilities are
consistent with the jurisdiction's General Plan. Section (65974(5)). Because the District
has failed to comply with the statutory requirement to identify the interim facilities with
sufficient specificity, the Town is unable to make a legally defensible finding of
consistency as mandated by the 1977 Act.
4. The 1977 Act establishes that "the value of the land to be dedicated or the amount of fees
to be paid, or both, shall not exceed the amount necessary to pay five annual lease
payments for the interim facilities." Section 659749a)(4). There is no evidence in the
information provided by the District suggesting that the proposed fee of $9.57 per sq. ft.
is limited to the amount necessary to pay five annual lease payments for interim facilities.
To the contrary, the District's proposed fee appears to be based on the permanent cost of
acquiring land and expanding school facilities to accommodate 305 students.
PAGE 6
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
DISCUSSION (cont'd):
A final issued raised by the School District's request to set additional mitigation fees is that AB
1600 requires that any school district which establishes, increases or imposes a fee as a condition
of approval of development shall make specific findings as follows:
1. A cost nexus must be established. A cost nexus means that the amount of the
fee cannot exceed the cost of providing adequate school facilities for students
generated by development. Essentially, it prohibits a school district from charging
a fee greater than their cost to construct or reconstruct facilities for use by
students generated by development.
2. A benefit nexus must be established. A benefit nexus is established if the fee is
used to construct or reconstruct school facilities benefiting students to be
generated from development projects.
3. A burden nexus must be established. A burden nexus is established if a project,
by the generation of students, creates a need for additional facilities or a need to
reconstruct existing facilities.
School District's request specifically states the following:
The District has grown annually from 2,587 students in the 2006 -2007 school
year to 3,345 students in the 2014 -2015 school year. During that this timeframe,
there was only a minimal amount of new housing units built within the District
boundaries, suggesting growth was caused by other factors than new
development. (Los Gatos Union School District, Notice of Written Findings,
April 17, 2015, p.5).
The above statement by the District has failed to provide sufficient documentation to comply
with AB 1600's requirement to establish a reasonable nexus between the amount of a proposed
fee and the impacts of the development on which it will be imposed.
Based upon the above analysis, it is the Town Attorney's position that the School District would
be better advised to try to lay the groundwork for putting in place Level II fees pursuant to
Government Code section 65995.5. Under this statute, qualifying school districts may impose
Level II fees to recover up to 50 percent of construction costs, based on a fixed statewide average
for costs of construction, site acquisition, and development, rather than actual costs. In order to
qualify to recover these higher costs, the following conditions must be met:
(1) The school district must complete a specified facility needs analysis (see
Gov. Code, § 65995.6);
(2) The school district must apply to the State Allocation Board, and is
determined to be eligible for state funding; and
(3) The school district must satisfy two of the following requirements:
PAGE 7
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
DISCUSSION (cont'd):
(a) the district has 30 percent of its K -6 enrollment on a multi- track, year -
round calendar (high school districts would meet this requirement if 30
percent of its students are on a multi- track, year -round calendar, or 40
percent of the K -12 students in the high school attendance area are on a
multi - track, year -round calendar);
(b) the district has placed on the ballot in the previous four years a local
general obligation bond to finance school facilities and the measure
received at least 50 percent plus one of the votes cast;
(c) the district has passed local bonds equal to 15 percent of its bonding
capacity or 30 percent of its capacity if it uses a landowner- approved
Mello -Roos District approved after November 4, 1998; or
(d) at least 20 percent of the district's teaching stations are in "relocatable"
or portable classrooms. (Gov. Code, § 65995.5, subd. (b).)
The State of California would match the funds collected under this scheme, so that qualifying
school districts would recover 100 percent of average costs. Dublin and Fremont were recently
approved for Level II Fees. Dublin is currently at $4.79 per square foot and Fremont is at $5.70
per sq. ft. of new residential development.
If state education bond funds are exhausted, districts that satisfy Level II conditions are
permitted to charge developers "Level Ill" fees sufficient to cover 100 percent of the average
statewide cost of new school construction, including land, necessitated by the residents of those
developments. Gov. Code, § 65995.7.
ALTERNATIVE:
If The Town Council decides to adopt the Ordinance for Fee Dedication for Interim School
Facilities, then Staff would return with a Resolution concurring with the findings of
overcrowding made by the Board of Trustees of the Los Gatos Union School District based upon
the deliberation and discussion that occurs during the public hearing and set the fee at $9.57 per
sq. ft. Due to the litigation risk of adopting such a fee, the Town Attorney would strongly
recommend that the Town Council require the School District to indemnify and hold harmless
the Town for the expense of litigation.
CONCLUSION:
The above analysis is not intended to minimize the problem of school overcrowding facing Los
Gatos Union School District. The problem of overcrowding at our schools is real. The proposed
resolution for adoption (Exhibit 5) allows for the Town Council to concur with School's
District's findings of overcrowding. However, the Legislature, in passing SB 50, limited the
ability of cities and counties to impose school impact fees. Here, the District appears to be
PAGE 8
MAYOR AND TOWN COUNCIL
SUBJECT: ORDINANCE REGARDING FEES FOR SCHOOL OVERCROWDING
SEPTEMBER 9, 2015
CONCLUSION (cont'd
relying on a dubious interpretation of SB 201 and SB 50 that is not shared by any other Town,
City, or School District in the State by disregarding the statutory maximum cap on school impact
fees and dedications. The Town Attorney, therefore reluctantly concludes that the Town Council
should not adopted a school facilities fee of $9.57 per sq. ft. since to do so would probably lead
to costly ligation and the fee being struck down by the courts.
ENVIRONMENTAL ASSESSMENT:
The action is not a project defined under CEQA and no further action is required
FISCAL IMPACT:
The adoption of this agreement results in no fiscal impact.
Attachments:
1: Ordinance
2: LGUSD Letter and Findings dated April 17, 2015
3: CBIA /BIA Letter dated September 1, 2015
4: LGUSD Letter dated September 9, 2105
5: Resolution