Introduction. Governor Newsom signed AB 602 (Grayson, D-Concord) on September 28, 2021 to change how cities and counties impose impact development impact fees on housing. It is effective January 1, 2022, with some provisions deferred to July 1, 2022.

The new statute. Cities and counties may levy impact fees on new housing to pay for the services needed to support those developments and to mitigate the impacts of growth. Assemblyman Grayson identifies impact fees as a constraint on housing development, citing a report from UC Berkeley’s Terner Center for Housing Innovation which found such fees “can amount to anywhere from 6 percent to 18 percent of the median price of a home depending on location.”[1]

Impact fees are subject to the Mitigation Fee Act (1987’s AB 1600) and must be justified with a “nexus study”[2] demonstrating the relationship between a development project and the fee designed to mitigate its impacts on a community’s infrastructure. The new bill establishes new:

  • transparency requirements such as requiring cities and counties to post impact fees to the web;
  • standards for the nexus studies; and
  • public comment procedures for new or increased impact fees.[3]

a.  New Transparency Requirements

 By January 1, 2022, cities and counties must post the following information to the web:

  • A current schedule of fees, exactions, and affordability requirements.[4]
  • All zoning ordinances and development standards that apply to each parcel.[5]
  • A list of all requirements for a development project.[6]
  • The current and five previous annual fee reports covering AB 1600 (development impact) fees as well as water and sewer connection fees.[7]
  • An archive of impact fee nexus studies and cost of service studies performed since January 1, 2018.[8]

Cities and counties update these website postings within 30 days of any change to the information posted.[9]

Starting January 1, 2022, upon the later of a certificate of occupancy or final inspection of a new housing unit, a city or county must also request from the developer the total amount of impact fees levied on the project and post that information on the City website.[10] The city or county must update that information twice a year and may state that it is not responsible for the accuracy of the information the developer provided.[11]

b.  New Nexus Fee Standards

AB 602’s new standards for nexus studies take effect in two steps. Cities and counties conducting nexus studies on or after January 1, 2022 must identify the existing level of service for each public facility studied and the proposed new level of service the fee will fund and explain why the new level of service is appropriate.[12]

Starting July 1, 2022, new nexus studies must provide for fees that are proportional to the square footage of new development unless the study establishes one of the following.[13]

  • Square footage is not an appropriate metric to calculate impact fees for a project.
  • An alternative method of calculating the fee establishes a reasonable relationship between the fee charged and the burden the development poses; and
  • Smaller developments will not be charged disproportionately.[14]

AB 602 does not prevent a city or county from establishing different impact fees for different types of developments.[15]

Beginning January 1, 2022, cities and counties must update nexus studies every eight years, therefore existing studies need not be updated until 2030.[16]

AB 602 also requires “large jurisdictions” — counties with more than 250,000 people and cities in those counties, no matter how small — to adopt a capital improvement plan as part of any nexus study.[17]

c.  New Public Comment Procedure

The Mitigation Fee Act requires cities and counties to mail notice of the time and place of a meeting regarding any new or increased impact fees at least 14 days before the meeting to any interested party who files a written request for notice, as building industry groups often do. AB 602 would authorize any member of the public to submit evidence that a proposed impact fee violates the Mitigation Fee Act before these meetings.[18] A city or county must consider all evidence timely submitted.[19]

d.  Model Nexus Study Coming in 2024

AB 602 also requires the Department of Housing and Community Development to develop a model nexus study by January 1, 2024.[20] The template will include a method for calculating the feasibility of building housing on a site given the proposed impact fee.[21]

e.  Other Development Fees

AB 602 does not affect the City’s ability to impose water or sewer connection fees or capacity charges under Government Code section 66013, nor does it apply to any exactions, including taxes, public art fees or in-lieu payment requirements, Mello-Roos special taxes, and parkland in-lieu fees or dedication requirements such as Quimby Fees.[22]

Conclusion. The housing crisis has allowed development interests to make common cause with housing advocates and the loss of local control over land use policy is expanding into local government’s ability to fund facilities to service housing development. Nor is the State providing funding for those purposes. It is not clear how Sacramento expects local governments to square that circle.

AB 602 will attract greater scrutiny of the annual and five-year reports required for development impact fees. Accordingly, this is a good time for cities and counties to confirm the currency and adequacy of those reports.

[1] Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 1324 (2020-2021 Reg. Sess.), as amended Aug. 26, 2021.
[2] Gov. Code, § 66000 et seq.
[3] Stats. 2021, ch. 347; Assem. Bill No. 602 (2021–2022 Reg. Sess.) (“AB 602”).
[4] Gov. Code, § 65940.1, subd. (a)(1)(A)(i).
[5] Gov. Code, § 65940.1, subd. (a)(1)(B).
[6] Gov. Code, § 65940.1, subd. (a)(1)(C).
[7] Gov. Code, § 65940.1, subd. (a)(1)(D).
[8] Gov. Code, § 65940.1, subd. (a)(1)(E).
[9] Gov. Code, § 65940.1, subd. (b).
[10] Gov. Code, § 65940.1, subd. (a)(3)(A).
[11] Gov. Code, § 65940.1, subd. (a)(3)(A)-(B).
[12] Gov. Code, § 66016.5, subd. (a)(2).
[13] Gov. Code, § 66016.5, subd. (a)(5)(A).
[14] Gov. Code, § 66016.5, subd. (a)(5)(B)(i)-(iii).
[15] Gov. Code, § 66016.5, subd. (a)(5)(C).
[16] Gov. Code, § 66016.5, subd. (a)(8).
[17] Gov. Code, § 66016.5, subd. (a)(6). Gov. Code, § 66016.5, subd. (c)(2) (“’Large Jurisdiction’ has the same meaning as defined in subdivision (d) of Section 53559.1 of the Health and Safety Code.”) Health & Saf. Code, § 53559.1, sub. (c)-(d) ((c) “‘Small jurisdiction’ means a county with a population of less than 250,000 as of January 1, 2019, or any city within that county. (d) ‘Large jurisdiction’ means a county that is not a small jurisdiction, or any city within that county.”)
[18] Gov. Code, § 66019, subd. (d)(1).
[19] Gov. Code, § 66019, subd. (d)(2).
[20] Health & Saf. Code, § 50466.5 subd. (a).
[21] Id.
[22] Gov. Code section 65940.1, subd. (b)(2).