2d DCA Rejects Ill-Considered Attack on School Funding Ordinance

Polk County Builder’s Ass’n et al v. Polk County, _34 Fla. L. Weekly D455 (Fla. 2d DCA 2009)
The Polk County Builders and allies challenged a local ordinance that helped fund class size reductions as being in conflict with the class size reduction amendment. It failed, predictably.
Note – there is a very significant issue as to whether and how to address the capital spending required by the class size amendment in impact fees and school concurrency. Having reviewed a few local school concurrency ordinances and plans, I suspect that most would not survive attack as an invalid impact fee or exaction – particularly after the new “burden shifting” bill (more on that later). But this case does not appear to have argued that issue in a way that the courts understood.

Illegal Exactions Protected by Bond Validation

In Frederick et al v. Northern Palm Beach County Improvement District et al, the District Court upheld the circuit court's dismissal of claims raised by various homeowners who claimed that they were subjected to unconstitutional exactions.

The homeowner's predecessors in interest (the developer) cut a deal with the county to set up an improvement district to fund not only the roads internal to the project, but also to build a major section of arterial road. While the project was still under the developer's control, an assessment was levied (for 20 years) against property in the development and the bonds were validated.

None of the other developments who benefit from the improved major road were assessed. Later, homeowners subject to the assessment -- understandably annoyed when they realized they were paying for infrastructure for the entire area, and effectively subsidizing the other developments-- sued to establish that the assessments were illegal because they were not proportionate to the impacts of the paying development.

The circuit court dismissed, holding that the statute of limitations had run the validation of the bonds precluded later challenges to the assessments. The District Court affirmed, holding that the homeowners were bound by their predecessor's knowledge of the date of the validation/action.

In the case now before us, we must balance the interests of the Homeowners in
receiving notice of the exclusive nature of the Unit 18 assessments against the
public policy concerns highlighted in H&B Builders. Weighing these competing
interests, we find that, on these facts, the Homeowners interests are outweighed
by the need of the District for certainty in creating water management plans and
funding those plans. As a result, the approval and creation of the assessments
and impact fees here by the District provided sufficient notice to then existing
and future homeowners of their obligations. This is true even if the assessments
and impact fees were improperly levied. See Ves Carpenter, 422 So. 2d 342;
Spring Lake Improvement District, 814 So. 2d 1077.

So, clearly, sue before you buy - or at least be sure that your developer did.

The Fla Supremes Dodge the Real Question and Approve a Bond Issue

In Citizens Advocating Responsible Environmental Solutions v. City of Marco Island, the Supreme Court validated a bond issue for wastewater improvements backed by special assessments on existing and future development in currently unserved areas of the City. The real challenge was to the improvements funded by the assessments.

Here's the problem: CARES claimed that the City was playing a major funding shell game and mixing up the costs of rehabilitating its aging 3.5 MGD existing plant with the costs of expanding the plant to 5 MGD.

The circuit court and Supremes found that there was enough evidence before the City Commission to support its legislative finding that the assessments reasonably benefit the properties to be served and were reasonably attributable and assigned to those properties.

And of course there was testimony that (a) the plant would not have had to be expanded (or new lines run) absent service to the new areas; (b) the bond proceeds were pledged to "expansion costs" for lines and treatment capacity; and (c) the existing users would get no special benefits from the expansion. The Supremes found that to be enough to meet the 2 part test for a valid special assessment in a bond validation proceeding where the bonds are funded by the assessments.

The problem, of course, is that we don't know (from this kind of appellate opinion) how much the local government was hiding, and what CARES was really asking for was meaningful cost accounting to distinguish between capacity improvements and rehabilitation of the plant. If the City had been charging pure impact or hookup fees instead of special assessments, that kind of inquiry would have been required (see the Sarasota County case from a couple months back, or the Volusia County school impact fee case). But by playing a switcheroo game, labeling the charges "special assessments" and pledging them to bonds, the City gets away with minimal scrutiny of its cost accounting.

This is wrong. Maybe the City is playing fair, but based on what I've seen of public finance lately, I don't believe it. All over the state, local governments are refusing to hand existing residents the bill for the service upgrades they want (wider roads, better drainage, better equipped parks) and pretending that the "need" for additional capital investment is entirely attributable to new development.

The Supreme Court, whether intentionally or not, made this problem worse with this decision. The Court -- and the abusive local governments - are simply daring the legislature to adopt meaningful legislation to provide minimal, uniform standards of accounting for capital improvements, and a standard approach for impact fees and other exactions.

Sarasota County Claims Concurrency Allows It to Retire Existing Capacity Debts on Backs of New Users - Big Case Coming

In Save Our Septic Systems v. Sarasota County, the 2d DCA reversed (in part) summary judgment granted to Sarasota County in a case involving mandatory hook up fees being charged to sewer system customers. A key issue is Sarasota County plan to use a bunch of the money to pay back existing debt in the system and the relation of that to the calculation of the connection fee.

It is unclear how much the 2d DCA understood of the County's arguments, but the court thought the County argued that because of the concurrency requirement, the County must provide new infrastructure and in that case, if bonding or financing requirements demand that old debt (for old capacity for existing users, not future users) must be retired, such payments are a "cost" for the new infrastructure that can be charged to the new users.

This is radical!!! Understand -- the County is claiming that the requirement that impact fees be used to provide new capacity and not be used to cover costs for existing users is trumped by "financing requirements" and the concurrency requirement. The County attempted to use this to avoid providing the actual cost-accounting type approaches that would distinguish the actual capacity used by the new users and paid for by previous debt and force a blanket pay back.

The 2d DCA reversed summary judgment for the County, requiring the circuit court to make a record and reach conclusions on the cost-accounting issue, but clearly was a bit non-plussed about the nature of the cost accounting arguments:

Although the record does not conclusively establish how this impact fee was calculated and the intentions regarding the specific allocation of any revenues received from the fee, the parties have presented general arguments regarding the proper calculation of the fee or the proper use of revenue collected from the fee. SOSS argues that the capacity fee cannot be used to pay off any existing County debt or to pay for expansion other than in an amount that directly and strictly relates to the impact of these new users.

The County, however, points out that modern financing requires the payment of existing debt to permit further expansion. The County notes that other states have expressly recognized that impact fees can be used to pay the debts incurred in building capacity for the future. See, e.g., Airwick Indus., Inc. v. Carlstadt Sewerage Auth., 270 A.2d 18 (N.J. 1970). In addition, the County argues that concurrency now requires that an expansion of the sewer system must include a provision for excess capacity to ensure the efficient use of capital and to ensure that the County can accommodate new growth as it occurs.

Given the concurrency requirements now in place and the modern requirements for financing capital expansion as discussed above, we are inclined to reject SOSS's arguments that the revenues from an impact fee can never be used to pay existing indebtedness or that the amount of the impact fee cannot be based in part upon a recognized need for future capacity. Nevertheless, the supreme court's distinction between the proper use of impact fees to finance reasonably anticipated costs of expansion versus the prohibited use of such fees to pay for the existing system as a whole remains in place. See Contractors & Builders Ass'n, 329 So. 2d at 320-21; St. Johns County, 583 So. 2d 635, 637-39; Volusia County v. Aberdeen
at Ormond Beach, L.P., 760 So. 2d 126, 134-36 (Fla. 2000).

This distinction requires the circuit court to carefully review the calculation of the impact fee and the intended expenditures from the revenue generated by that
fee to assess whether the fee meets the dual rational nexus test. That is, the circuit court must assess whether the County has met its burden of demonstrating a reasonable connection or rational nexus between the need for additional capital facilities because of the anticipated new users of the system who will pay this fee, and a reasonable connection or rational nexus between the intended expenditures of the collected funds and benefits accruing to those new users. See Aberdeen at Ormond Beach, L.P., 760 So. 2d at 134.2 Because disputed issues of material fact remain in this record as to the calculation of the fee and the intended use of the revenues
from the fee, summary judgment on this count was improper.

To clarify. If a local government at time 1 takes on 10M debt in order to provide future infrastructure for 20 years, there is nothing wrong in having an impact fee paid by users who come on in years 1-20 used to retire that debt.

However, if the year 1 debt provides capacity and quality improvements for existing users AND provides additional capacity for new users, the existing users must repay that portion of the cost applicable to the existing user base.

What Sarasota County and a number of other jurisdictions are doing is playing a game where they claim that quality improvements (like bringing drainage, sidewalks and lane width) to existing roads to meet current standards can be 100% charged to new development in the impact fees. So far, they are getting away with it by claiming that they wouldn't bring their own infrastructure up to these standards (ever) and that it's new development that "triggers" the need to spend the extra money. Right. This is just another approach to the political game of "existing residents don't to pay for the quality of roads, environment (storm water), water and sewer that they want, so the politicians conveniently blame it on new development and hand the new development the bill."

It appears to me (but we won't know until the circuit court reviews this case on remand) that Sarasota County tried to play a similar game with these charges. We'll see what happens next.