BUILDING INDUSTRY ASSOCIATION OF CENTRAL CALIFORNIA v.

CITY OF PATTERSON











Filed 1/30/09; part. pub. & mod. order 3/2/09 (see end of opn.)






IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT

BUILDING INDUSTRY ASSOCIATION OF CENTRAL CALIFORNIA et al., Plaintiffs and Appellants, v. CITY OF PATTERSON, Defendant and Respondent.

F054785 (Super. Ct. No. 610611) OPINION

APPEAL from a judgment of the Superior Court of Stanislaus County. David G. Vander Wall, Judge.
Sheppard, Mullin, Richter & Hampton, David P. Lanferman and Margaret J. Pak for Plaintiffs and Appellants.
Law Office of George G. Logan and George G. Logan for Defendant and Respondent.


Morrison Homes, Inc. (Developer) obtained a development agreement and tentative subdivision maps for the construction of two residential subdivisions in Patterson, California. At the time those documents were approved, the City of Patterson (City)^[1] allowed developers to pay a fee of $734 per house in lieu of building affordable housing. About three years later, City increased this fee to $20,946 per house and sought to apply the increased fee to Developer’s two residential projects among others.
Developer sued City claiming that the increased fee violated (1) its vested property rights, (2) its contractual rights under the development agreement, (3) various statutory provisions, and (4) constitutional provisions requiring voter approval of special taxes. The trial court found that the increased in-lieu fee was permitted under section 4.5(d)(ii) of the development agreement and the amount of the increase was reasonably justified. The court entered judgment accordingly, and Developer appealed.^[2]
We will conclude that the meaning of the contractual term “reasonably justified” presents a question of law and that, under an objective test, the term is meant to incorporate the legal standards generally applied to such fees. Those legal standards require that the amount of a development fee be limited to the cost of that portion of a public program attributable to the development. City has failed to show that the increase in its in-lieu fee satisfies this standard and, therefore, has failed to show that the increase was “reasonably justified” as required by the development agreement.
The judgment is reversed and the matter remanded for further proceedings.
FACTS
Development Project
Developer owns two residential subdivisions, known as Magnolia and Bella Flora and consisting of 214 single family residential lots. The subdivisions are part of a larger development known as Patterson Gardens, which contains 305.3 acres that were divided into seven different areas or phases. Plans for Patterson Gardens included five areas of low density residential housing that covered 228.5 acres and contained a total of 985 dwelling units.
City conducted environmental and land use review in connection with its approval of the proposed development of Patterson Gardens. Also, pursuant to Government Code section 65864 et seq., City entered into a development agreement with Developer’s predecessor-in-interest, dated January 21, 2003 (Development Agreement). That agreement provides for the development of Patterson Gardens and establishes certain development rights in that project.
The City Council approved the Development Agreement in January 2003, and that approval became ordinance No. 648.
Section 5.1 of the Development Agreement states that, except as the agreement provides otherwise, the developer shall pay only those fees in effect prior to the effective date of the Development Agreement and specifically listed in exhibits D-1 (residential development) and D-2 (retail/office development). Those exhibits list certain capital facility fees, connection fees, and use fees. Exhibit D-1 lists over 20 fees, including an affordable housing in-lieu fee at $734 per unit. Exhibit D-1 also states that the affordable housing in-lieu fee is referenced in section 4.5 of the Development Agreement.
Section 4.5 of the Development Agreement addresses how the parties will satisfy City’s affordable housing objectives. The developer has four alternatives: (1) build affordable housing units; (2) develop senior housing within the project; (3) obtain a sufficient number of affordable residential unit credits from other residential developments within City; or (4) pay an in-lieu fee at the time the building permit is issued for a nonaffordable housing unit.
Section 4.5(d)(ii) of the Development Agreement, which is central to the contractual issues, provides in full:
“Developer shall pay an in-lieu fee in an as-yet undetermined amount per EDU [equivalent dwelling unit] for moderate-income housing and an as-yet undetermined amount per EDU for low and/or very low-income housing, but in no event less than the current fee of $734.00 per EDU. Developer acknowledges that the City is currently preparing an updated analysis of its Affordable Housing fee and hereby agrees to be bound by the revised fee schedule, including indexing as provided by ordinance at the time of adoption of the fee, providing the same is reasonably justified. Said fee shall be paid at the time a building permit is issued for each Non-Affordable Unit.”
The City Council also adopted resolution No. 2003-05 in January 2003. The resolution approved “the combined preliminary/final development plan and vesting tentative subdivision map for the Patterson Gardens project … subject to the conditions set forth in Exhibit E hereto.” Condition No. 1 provided: “Development of Patterson Gardens shall be in accordance with the approved Final Development Plan, as modified by these conditions and as may be modified by a development agreement between the City and developer.” Condition No. 1 also stated that “the terms of the development agreement will control” in the event of a conflict with the conditions.
In-Lieu Fee
City first adopted an “affordable housing in-lieu fee” in 1995. The fee originally was set at $319 per new single family home, payable as a condition to the issuance of a building permit for such construction.
In May 2001, City received a study prepared by its consulting firm, Crawford Multari & Clark Associates, which addressed certain fees and recommended raising the affordable housing in-lieu fee. That study reviewed four different approaches to calculating the affordable housing in-lieu fee. One approach, the “leverage” analysis, considered the cost of providing an affordable single family house and assumed federal or state funding would require the local government to provide only 9 percent of the total amount needed. It produced a fee of $734 per unit.
In July 2001, the City Council adopted resolution No. 2001-53, which increased the affordable housing in-lieu fee to $734 per new single family home.
In November 2005, the City Council adopted resolution No. 2005-114, which adjusted the fees allowed under certain development agreements, including the agreement for Patterson Gardens. The resolution stated that the fees assessed under the development agreements could be adjusted periodically to reflect increases in the current construction cost index.^[3] The resolution also stated that the index had experienced larger than normal increases and these increases warranted an adjustment to the fees allowed under the development agreements. The resolution adjusted certain fees, but not the affordable housing in-lieu fee.
A declaration of David Moran^[4] states that, by 2003, City’s strategies for supplying affordable housing were falling short. He further states that in 2003 City investigated ways to improve the supply of affordable housing, including revisions to the development impact fee. An outcome of the investigation was a “Development Impact Fee Justification Study 2005/06 Update” prepared for City by Crawford Multari & Clark Associates (Fee Justification Study). Moran is listed as one of the authors of this study.
The Fee Justification Study recommended increasing the affordable housing in-lieu fee up to $20,946 per market rate unit. This recommendation did not rely on the prior assumption (part of the “leverage” approach to calculating the fee) that the local fee could be used as leverage to obtain federal grants and loans. Instead, the recommendation was based on bridging the so-called “affordability gap” between the cost of a new market rate unit^[5] and the cost of units affordable to very low, low, and moderate income households. The affordability gap analysis compared the cost of units to an estimate of what the three different income levels could afford. The difference was an estimate of the subsidy someone of that income level would need to be able to obtain housing. The analysis estimated a subsidy of $55,280 was needed for each unit of moderate income housing, a subsidy of $119,280 was needed for each unit of low income housing, and a subsidy of $167,280 was needed for each unit of very low income housing.
The next step in the calculation involved multiplying the amount of the subsidy for each income level by the number of units needed for that income category. When the three products of this multiplication were added together, the sum was the total amount of the subsidy needed for affordable housing. The Fee Justification Study identified the number of units needed for each income level by referring to Addendum No. 1 to the 2001-2002 Regional Housing Needs Assessment for Stanislaus County prepared by the Stanislaus Council of Governments.^[6] That document allocated 642 units of affordable housing to Patterson, consisting of 235 units of very low income, 182 units of low income, and 225 units of moderate income housing.^[7]
The Fee Justification Study treated the allocation as establishing City’s need for affordable housing at 642 units. The prior approach had defined the need for affordable housing by assuming that 5 percent of all new dwellings in a project should be affordable to low or very low income households and that another 5 percent should be affordable to moderate income households.
The estimates of the subsidy required per unit of affordable housing multiplied by the number of units needed for each income level produced a total subsidy of $73.5 million. The study spread this total subsidy over the 3,507 unentitled units in Patterson as of January 2005.^[8] The result was the per unit fee of $20,946.
In March 2006, the City Council relied on the Fee Justification Study and adopted resolution No. 2006-19, which set the affordable housing in-lieu fee at $20,946 per new single family home.
PROCEEDINGS
In October 2006, Developer filed a complaint and writ petition challenging City’s imposition of the $20,946 per unit exaction as well as City’s characterization that it was an increase in the affordable housing in-lieu fee.
After an initial hearing in May 2007, the trial court allowed the parties to submit additional evidence. City submitted the declaration of Moran discussed above. (See fn. 4, ante.) Developer objected to the declaration on a number of grounds, all of which the trial court later overruled.
After another hearing, in August 2007, the trial court reopened the case and directed the parties to provide a stipulation that attached a copy of the Regional Housing Needs Assessment for Stanislaus County prepared by the Stanislaus Council of Governments during 2001-2002 and adopted in October 2002. The parties submitted the stipulation in October 2007.
The trial court issued its written decision on December 20, 2007. The court denied Developer’s petition for writ of mandate, found for City on all causes of action, and overruled all objections. The court found that “the methodology used by [City] in determining the amount of the affordable housing fee at issue is reasonable [and] … the absolute amount of the per-lot fee here is clearly reasonable compared to that charged in other localities, using the comparisons the parties agreed the Court could consider.”^[9]
DISCUSSION

I. Standards of Review

When an appellate court reviews a decision issued after a court trial, the trial court’s findings on questions of fact are reviewed under the substantial evidence standard and its conclusions of law are subject to independent review. (Brewer v. Murphy (2008) 161 Cal.App.4th 928, 935-936; Kelly v. County of Los Angeles (2006) 141 Cal.App.4th 910, 918-919 [these standards are used when reviewing a decision on a traditional writ of mandate].)

II. Vested Rights Claim

Developer contends that the $20,946 fee violates its rights under the vesting tentative map and under Government Code section 65961.
We recognize that vested rights protection extends to a property owner who has obtained a vesting tentative map. (Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 322, fn. 3.) We conclude, nonetheless, as discussed below, that in the circumstance presented by this appeal Developer’s contention about vested rights does not require a separate analysis.

A. Rights Vested by Vesting Tentative Map

City’s approval of the vesting tentative map^[10] was subject to conditions, and those conditions explicitly state that in the event of a conflict between the Development Agreement and the vesting tentative map, the terms of the Development Agreement shall control. Therefore, if the increased fee is authorized by the Development Agreement, it will not offend the rights established by the approval of the vesting tentative map. In other words, the right that vested when the map was approved was the right to have any increase in the affordable housing in-lieu fee comply with the terms of the Development Agreement.^[11]
Consequently, the critical question in this appeal is whether the increased fee complied with the terms of the Development Agreement. If it did, then the increase will not violate any right vested under the vesting tentative map.

B. Government Code Section 65961

Government Code section 65961 prohibits local government from imposing any new condition on the issuance of a building permit when that condition could have been imposed when the vesting tentative map was approved.
In this case, if the increased fee complies with the Development Agreement, it will not be a new condition. Instead, the increased fee will have been imposed in accordance with the conditions under which the vesting tentative map was approved. As such, the increase would fall outside the scope of Government Code section 65961.
Conversely, if the increased fee violates the Development Agreement, we will invalidate it on that ground and need not address whether it also violated Government Code section 65961.

III. Violation of the Terms of the Development Agreement

A. Contractual Language in Dispute

The Development Agreement clearly stated that (1) the amount of the affordable housing in-lieu fee was “as-yet undetermined” when the agreement was made, and that (2) the new amount would “in no event [be] less than” $734 per unit. Whether the $20,946 fee subsequently imposed by City violated the Development Agreement centers on the meaning of the following sentence from section 4.5(d)(ii):
“Developer acknowledges that the City is currently preparing an updated analysis of its Affordable Housing fee and hereby agrees to be bound by the revised fee schedule, including indexing as provided by ordinance at the time of adoption of the fee, providing the same is reasonably justified.” (Italics added.)

B. Meaning of Developer’s Acknowledgement

Developer contends its acknowledgement of the preparation of an updated analysis should be interpreted to mean that City was not allowed to change the method of analysis upon which it based the affordable housing fee. In Developer’s view, City was allowed only to update that method of analysis and, thus, was bound to continue to use the leverage approach when calculating revisions to the affordable housing fee.
We conclude that the language in section 4.5(d)(ii) of the Development Agreement cannot be interpreted as compelling City to use a particular methodology when calculating revisions to the in-lieu fee. The reference to an “updated analysis” is not accompanied by language indicating it is a binding requirement or condition imposed on City. Instead, it is stated merely as an acknowledgement by Developer. In contrast, when the parties intended to impose a requirement or condition on the revised fee, they expressed this intent clearly. Specifically, Developer agreed to be bound by the revised fee provided it was reasonably justified. Accordingly, we reject the view that the Development Agreement required City to use the leverage approach when calculating the revised fee.

TO BE CONTINUE AS PART II………

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