Maximizing School Impact Fees in Declining Enrollment Districts

Declining enrollment poses myriad challenges for California school districts.[1]  One often overlooked challenge is assessing the maximum school impact fee authorized by Government Code section 65995 in a declining enrollment district.  Many declining enrollment districts struggle to justify charging the school impact fee rates authorized by Section 65995, currently $5.17 per square foot for residential construction and $0.84 for commercial/industrial construction.  However, if districts identify sufficient facilities costs, they can justify charging the maximum allowable school impact fee rates.

Education Code section 17620 authorizes school districts to assess school impact fees on residential and commercial/industrial construction within their boundaries.  For most districts, Government Code section 65995 establishes the maximum permissible fee, known as a Level 1 school impact fee.  Level 1 fees are increased every two years by the State Allocation Board to account for increased construction costs.

To assess school impact fees, Districts must calculate the cost of providing school housing for studentsgenerated by residential and commercial/industrial construction.

For Districts to justify assessing the maximum rates allowed, their facilities costs per square foot must equal or exceed the maximum residential and commercial/industrial school impact fee rates.  Meeting that threshold can be a challenge for declining enrollment districts because generally they do not need to construct costly new schools.  As a result, they may struggle to identify facilities costs adequate to justify assessing the maximum rates.  This leads some Districts to levy less than the maximum school impact fee rates or opt not to update their fees.  Not updating fees can expose districts to litigation if their old fee assessments are based on school facilities plans that are outdated, since districts cannot collect fees for projects they no longer plan to build.

The solution to this problem may be found in Government Code section 65995 and Education Code section 17620.  Those statutes provide that school impact fees can be collected to fund the “reconstruction” of school facilities.  Through a facilities master plan, or by listing facilities costs in a fee justification study, districts can use the estimated costs associated with modernizing their schools to establish higher per square foot facilities costs.  Including the full cost of modernizing school facilities in their cost analysis will generally enable districts to justify levying the maximum school impact fee rates.

Tao Rossini lawyers have experience helping districts maximize their school impact fees.  For questions regarding school impact fees, or other school facilities questions, contact the authors of this article or your regular Tao Rossini counsel.

==================================================================================

[1] Since peaking at 6.32 million in 2004-2005, statewide K-12 enrollment has fallen more than 7 percent, to 5.85 million in 2022-2023, the most recent year for which data is available.  In the last few years, thanks in part to the pandemic, the decline in enrollment has been particularly stark; since 2019-2020, enrollment has declined by more than 300,000.  In many districts, the decline has been even more dramatic; LAUSD’s enrollment fell from 746,831 in 2002-2003 to 422,276 in 2022-2023.  The California Department of Finance projects enrollment falling to about 5.4 million statewide in 2030-2031.

By Barry Nutovic and Jeremy K. Brust