California supreme court: affordable housing mandates are exactions

October 18, 2013 | By TONY FRANCOIS

Yesterday the California Supreme Court decided an important case in the field of exactions law, Sterling Park v. City of Palo Alto.  The issue in the case was in a sense rather mundane: what is the deadline for filing suit to challenge an affordable housing set aside as a condition of a development permit?  But the case required the court to determine whether an affordable housing set aside is an “exaction” within the meaning of California’s Mitigation Fee Act.  If so, then the suit was timely, but it not then the suit was filed too late and would have to be dismissed.

Palo Alto argued, based on a prior decision of the California Court of Appeal, that the term “exaction” in the Mitigation Fee Act is technical and narrow, and only included fees and other conditions related to project related infrastructure (roads, parks, new or improved schools, etc).  Fortunately, the California Supreme Court unanimously rejected this reading, and instead ruled that the term “exaction” in the statute has the ordinary, broader meaning of the term, and that the affordable housing set asides being challenged were clearly within the meaning of term.

In what may prove a very important piece of analysis, the Court offered a framework for distinguishing between exactions, one the one hand, and land use restrictions on the other.  The Mitigation Fee Act allows a developer to pay or comply with a fee or other exaction under protest, receive the development permit, and then work out the legality of the exaction later in the court.  If the property owner wins, the fee is refunded.  Writing for the Court, Justice Chin observed that exactions usually do not prevent the project from being built as desired, and hence are amenable to payment under protest while the project proceeds.  They can be refunded, essentially.  On the other hand, land use restrictions cannot be “complied with under protest” while the project is built and then “restored” to the builder.  Set backs and height restrictions (land use restrictions) constrain the actual project, and cannot feasibly be undone if they are later determined to be illegal impositions on the builder.  An exaction such as an exorbitant or unrelated fee, on the other hand, may not need to be resolved in order to build the project as designed.

This analysis may not stand up to all scenarios (Coastal Commission exactions of easements and other property interests come to mind), but it is an interesting approach, and indicates that the Court will be skeptical of the underlying claim in Sterling Park, which is actually under review in PLF’s pending case before the California Supreme Court, CBIA v. City of San Jose, that affordable housing set asides are unconstitutional exactions.