Development-related fees help fund the infrastructure special districts and other local governments build to support housing and provide essential services to growing communities. This year, Governor Gavin Newsom signed two bills that will impact how local governments implement these fees, starting January 1, 2025.

AB 1820: Fee Estimates

Assembly Bill 1820 is intended, according to proponents, to increase the level of transparency for development-related fees in response to a 2018 study that found that fees and exactions can comprise up to 18% of the median home price. The new requirement for estimates of fees and exactions both at preliminary application and final approval for certain developments are meant to provide developers with financial certainty, with the aim of encouraging more affordable housing.

AB 1820 changes the Government Code to establish a procedure wherein a development proponent that submits a preliminary application (as described in Government Code § 665941.1 (a)) may request an estimate of fees and exactions. Such estimate shall be provided to the development proponent by a City, County or City and County within 30 business days. For development fees of a School District or Special District, the development proponent shall request only the fee schedule from such District and the District shall provide the fee schedule without delay for the fees imposed by that agency. The estimates are for informational purposes and are not binding.

AB 1820 further changes the Government Code to require a City, County or City and County to provide an itemized list and good faith estimate of the total sum of all fees and exactions, upon final approval of a housing development project, within 30 business days. Upon final approval of a housing development project and upon request of the development proponent, a School District or Special District shall provide a good faith estimate of the total sum of all fees and exactions imposed by that agency. The itemized list and good faith estimates are for informational purposes and are not binding. Note that “Exaction” in this section includes: construction excise tax, art in-lieu payments, park in-lieu fees, Community Facilities District Special Taxes. “Fee” includes fees or charges described in the Mitigation Fee Act and does not include electrical or gas utility costs.

SB 937: Fee Delays

Effective January 1, 2025, Senate Bill 937 changes the Mitigation Fee Act by creating a category of housing development called “designated developments” which consists of several existing code sections that focus on density bonus, small, affordable, and other types of residential developments. The measure then generally prohibits local agencies from collecting specific development-related fees and charges on designated developments until a Certificate of Occupancy (COO) is issued, with some limited exceptions as follows: a) fee/charge to reimburse agency for previously made expenditure, b) if construction does not begin within five years of the date the building permit is issued, c) if the local agency has appropriated funds for improvements related to the following services to the residential development: water, sewer, fire, public safety, emergency services, roads, sidewalks, transportation improvements, or school facilities, d) utility services for connections may be collected when an application for service is received and it is unclear if the delayed collection applies to utility capacity charges. Some of the exceptions do not apply to certain affordable housing developments.

Additionally, local agencies cannot charge interest or other fees on any amount of the fees deferred by this law. If the development contains more than a single dwelling, the local agency may determine whether the fees will be paid on a pro-rata basis for each dwelling when a specified percentage of dwellings have received COOs, or on a lump sum basis when all dwellings have received COOs.

Proponents claim that by delaying payment of certain fees in accordance with SB 937initial costs of housing development will be reduced, thereby decreasing developer reliance on high-interest construction loans. Local agencies are concerned that this move to a reimbursement model will shift the initial costs of new development to public agencies. It may become difficult to fund the cost of capacity upgrades if payment of fees does not occur until the COO is issued, particularly for a School District or a Special District. As these districts do not issue COOs, these entities may be required to track individual projects on a development-by-development basis, across all of the land use agencies in their jurisdiction, to initiate collection of fees.

By Sara Mares, Director,  NBS

This article originally appeared on the CSDA online blog and is reproduced here with the permission of NBS.