The California Department of Education (CDE) has received a significant number of inquiries from school districts and their counsel regarding how Senate Bill (SB) 937 impacts the ability of school districts to collect developer fees on residential projects before the final inspection or certificate of occupancy. In response, the CDE is publishing this statement. Please note this statement is for informational purposes only and does not constitute legal advice. School districts are strongly encouraged to consult with their own legal counsel with any questions they may have regarding the impacts of SB 937 and the available options.
SB 937 was signed into law on September 19, 2024, and is effective January 1, 2025. SB 937 makes significant changes to the Mitigation Fee Act (California Government Code (GC) Section 66007), affecting a school district’s timeline for the collection of developer fees, also known as impact fees or mitigation fees.
Under the prior law, a school district was generally prohibited from requiring the payment of fees or charges on a residential development for public improvements or facilities until the date of the final inspection or the issuance of the certificate of occupancy, whichever occurred first. However, an exception to the general rule allowed a school district to require payment of developer fees at an earlier time (usually upon the issuance of building permits by a city or county) “if (A) the local agency determines that the fees or charges will be collected for public improvements or facilities for which an account has been established and funds appropriated and for which the local agency has adopted a proposed construction schedule or plan prior to final inspection or issuance of the certificate of occupancy or (B) the fees or charges are to reimburse the local agency for expenditures previously made.” (GC Section 66007(b)(1))
SB 937 imposes significant new limitations on the ability of local agencies—including school districts, in certain cases of residential developments—to collect developer fees at an earlier time than certificate of occupancy. SB 937 establishes a new category of “designated residential development project” (DRDP), which it defines, per GC Section 66007(c)(4), as one that meets any of the following conditions:
- The project dedicates 100 percent of units to lower income households, as defined.
- The project is a low barrier navigation center (a shelter providing temporary living facilities with reduced barriers to entry focused on moving people into permanent housing).
- Affordable housing developments in commercial zones.
- A mixed-use development under GC Section 65913.4, which provides for streamlined, ministerial approval of affordable housing projects meeting specified requirements and conditions.
- Affordable housing projects located on land owned by a religious or higher education institution meeting the criteria in GC Section 65913.16(c).
- The project is entitled to a density bonus under GC Section 65915(b).
- Housing projects with 10 or fewer units.
If a project is a DRDP, GC Section 66007(c)(1)(A)(i) “notwithstanding any other law” prohibits a school district from requiring the payment of developer fees until the date the first certificate of occupancy or first temporary certificate of occupancy is issued, whichever occurs first, unless construction of the development does not begin within five years of the date upon which the building permit is issued. (Subdivision (c)(1)(A)(iii)) Moreover, the amount of the developer fees shall be the same amount as the fees that would have been paid had the fees been paid prior to the issuance of building permits, and the district shall not charge interest or other fees on any amount deferred. (Subdivision (c)(1)(B))
The only exceptions are set forth in GC Section 66007(c)(2)(A), namely (i) The developer fees are to reimburse the district for expenditures previously made to the extent those expenditures have not been paid or reimbursed by another party; or (ii) The district determines the developer fees will be collected for any of various enumerated public improvements or facilities (regarding the reference in Subdivision (c)(2)(A)(ii)(I)(ie) to California Education Code (EC) Section 17017.5(c), see discussion below); and an account has been established and funds appropriated (as defined) for the public improvements or facilities involved. In the case of a DRDP, the “notwithstanding any other law” language precludes the use of the original exception in Subdivision (b). It was clearly the Legislature’s intent to prohibit the early collection of developer fees in the case of DRDPs except as provided in the amendments to GC Section 66007.
In the case of residential projects that do not meet the definition of a DRDP, or commercial projects, then developer fees may be charged earlier in accordance with existing law. Some confusion has arisen around GC Section 66007(g) (formerly Subdivision (f)), which provides, “Methods of complying with the requirement in Subdivision (b) that a proposed construction schedule or plan be adopted, include, but are not limited to, (1) the adoption of the capital improvement plan described in GC Section 66002, or (2) the submittal of a five-year plan for construction and rehabilitation of school facilities pursuant to Subdivision (c) of Section 17017.5 of the Education Code.”
First, as noted above, the Legislature’s intent in amending GC Section 66007 was to end the practice of local agencies (including school districts) charging developer fees in the case of DRDPs before the certificate of occupancy, with very limited exceptions. Allowing local agencies to continue charging those fees under the original exception in Subdivision (b) is inconsistent with the Legislature’s clear intent.
Second, the legislative history of Subdivision (g), formerly Subdivision (f), shows that it was first added to GC Section 66007 in 1989 (Statutes 1989, Chapter 1217, Section 3 – Assembly Bill (AB) 2299). At that time, the Leroy F. Greene State School Building Lease-Purchase Act of 1976 (EC Section 17000 et seq.) was still operative, including EC Section 17017.5(c). Under EC Section 17017.5(c), a school district applying to the State Allocation Board (SAB) for approval of a project was required to submit a five-year plan for construction and rehabilitation of school facilities to the SAB and to the State Department of Education for the CDE’s written approval. In 1998, the Legislature ended the program by passing EC Section 17009.3: "The [SAB] may not approve any projects pursuant to this chapter on and after November 4, 1998." In consequence, EC Section 17017.5(c)’s requirement of a five-year plan for construction and rehabilitation of school facilities became redundant. This program is no longer funded and regulations enacted thereunder have long since been repealed.
Since the end of the Greene Act program in 1998, the CDE no longer reviews five-year plans under this section and therefore has no role in the early collection of developer fees under subsection (f)/(g), or now, Subdivision (c)(2)(A)(ii)(I)(ie), above. Nonetheless, EC Section 17017.5 remained in GC Section 66007 despite amendments to GC Section 66007 in 1998, 2007, 2008, and now 2024. When considering these amendments, the Legislature does not appear to have recognized the ending of the Greene Act program in 1998 along with EC Section 17017.5.
In the case of non-DRDPs and commercial properties, school districts should continue to meet the requirements of Subdivision (b) using the same methods of compliance they have used up until now. It should be noted that Subdivision (f)/(g) is a nonexclusive list of ways to meet the requirements of Subdivision (b). This may be an area for legislative action. AB 247, which became law on July 3, 2024, requires a five-year school facilities master plan as a condition of participating in the program (see new EC Section 17070.54). This master plan provision could replace references in GC Section 66007 to EC Section 17017.5; however, this would require further legislation.