Judge James C. Chalfant, Case Number: 21STCV37436, Date: 2023-10-10 Tentative Ruling

Petitioner Highroad, LLC (“Highroad”) seeks a writ of traditional mandate compelling Respondents City of Los Angeles and the Los Angeles Department of Building and Safety (“LADBS”) (collectively, “City”) to set aside the linkage fees imposed on Highroad’s Assignors.

The court has read and considered the moving papers, oppositions, and replies, and renders the following tentative decision.

Petitioner Highroad commenced the proceeding by filing a Complaint and Petition on October 10, 2021. The operative pleading is the First Amended Petition (“FAP”), filed on February 28, 2022 and alleging in pertinent part as follows.

Highroad is the assignee of the rights of claimants identified on an attached spreadsheet (“Assignors”) who were assessed and paid LADBS a linkage fee for a residential building permit. The total linkage fees charged to the Assignors exceed $10 million. Highroad, as assignee, seeks judicial review of, and relief from, the imposition and payment of the linkage fees.

The Legislature passed the Mitigation Fee Act (“MFA”) (Government Code (“Govt. Code”) §66000 et seq) in response to developer concerns that local agencies were imposing development fees for purposes unrelated to development projects. The MFA embodies a statutory standard against which monetary exactions by local governments are measured. The MFA requires the City to establish a need for a development impact fee before it is charged. Govt. Code section 66001(a) requires the local agency to identify the purpose of the fee and its use, determine how there is a reasonable relationship between the fee's use and the type of development project for which it is imposed, and determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed.

In 2016, the City commissioned a nexus study from BAE Urban Economics (“BAE”) to demonstrate a nexus or linkage between market rate development and reduced housing affordability. BAE’s 2016 study was limited to new housing, but it would not generate significant linkage fee revenue. In 2017, BAE issued a supplement to the 2016 study to justify a linkage fee for the common event of replacement housing.

As supplemented, the nexus study relied on a speculative causal chain-reaction. The nexus study contains the following steps and assumptions: (1) if a residential housing project adds more than 1,501 square feet, (2) this results in a wealthier occupant who can afford the new/larger housing, (3) this wealthier occupant will spend more locally, independent from the housing, and (4) this increased local spending requires more low wage workers such as "cashiers and baggers" to process the purchases. From these assumptions, BAE concluded that the City will need more low wage workers, thereby increasing housing costs for low wage residents.

The nexus study fails to establish a low-cost housing need created by these new housing additions and is unlawful under the MFA. On its face, BAE's attenuated, five-step causal chain of assumptions is the opposite of the requisite nexus that must be established to show that new development causes a need.

The nexus study turns fundamental economic principles upside down by concluding that increasing the supply of housing will increase the price of housing. In one of its five chain-reaction steps, the nexus study contends that the increased housing cost to an occupant who can afford the new/bigger home means that the occupant is wealthier and will therefore spend more locally. BAE does not even assert the requisite nexus that the new/bigger home has any causal effect on spending or jobs. Instead, BAE uses the new/bigger home to label its occupant as a wealthier person and to conclude that wealthier people spend more money locally independent from a new/bigger home.

To manufacture a nexus, BAE's nexus study improperly considered low wage jobs outside the City instead of those generated in the City where the linkage fee is imposed. The nexus study incorrectly assumes that the low wage workers who service the increased spending do not already live in the City and that new low wage jobs will not be filled by unemployed people in the City.

In or about June 2018, the City enacted Ordinance No. 185342 (“Linkage Fee Ordinance” or “Ordinance”) and started charging and imposing the linkage fee. Prior to doing so, the City's fees for residential building permits were about $5.50 per square foot. The new linkage fees on residential development for most City locations are an additional $8.60 to $19.36 per square foot, a 500% increase of the pre-linkage fee cost of building permits and by far the most expensive line item on the building permit. With their building permits held hostage, Highroad’s Assignors were forced to pay in excess of $10 million in linkage fees under duress.

The City has not demonstrated the requisite need or real and substantial relation that the residential projects of Highroad's Assignors would cause any increased housing costs for low wage residents. Nor has the City demonstrated that the linkage fees were reasonably related to the reasonable costs of addressing the City's perceived needs for additional affordable housing caused by the impacts of these residential projects.

As determined by the California Attorney General in a published Opinion (62 Ops. Cal. Atty. Gen. 673 (1979), the City's imposition of the linkage fee in excess of the reasonable costs of providing affordable housing facilities attributable to the residential projects of Highlands’ Assignors constitutes a disguised special tax which is unlawful in the absence of the requisite 2/3 voter approval, pursuant to Articles XIIIA and XIIIC of the California Constitution and Govt. Code section 50076. Additionally, because it is a taking without compensation, Proposition 218 requires the City to obtain 2/3 voter approval before passing such an ordinance.

Petitioner Highroad alleges that the City will continue to demand linkage fees for residential building permits unless it is enjoined and restrained by the court. Highroad has no adequate remedy at law for its claims. Highroad and its Assignors have exhausted any administrative remedies available relating to the claims alleged in this action, or such efforts have been excused by the doctrine of futility or the City's waiver and failure to follow statutory requirements.

Petitioner Highroad seeks (1) declaratory relief that the City’s imposition of the linkage fees on Highroad and its Assignors is invalid; (2) a judgment directing the City to reimburse Highroad and its Assignors with 8% interest and attorney’s fees; (3) injunctive relief restraining the City from imposing or collecting linkage fees; (4) a writ of mandate compelling the City to set aside the linkage fees; and (5) attorney’s fees and costs.

On February 8, 2022, the court overruled the City’s demurrer to the first four causes of action in the Petition, but requested Petitioner to separate the MFA, special tax, and takings claims so that it could hear only the mandamus and declaratory relief claims. The court stayed the restitution, money had and received, and takings claims pending the outcome of the mandamus and declaratory relief claims. Highroad filed the FAC on February 28, 2022, with eight causes of action.

On June 21, 2022, the court granted City’s motion for the standard of review that would apply to the MFA and the Special Tax Claims. If the MFA and laws against special tax are applicable to this case, the City is (1) required to establish a reasonable relationship between the linkage fee’s use and need and the type of development at issue under Govt. Code section 66001(a), which is new residential development comprising eight subtypes identified in a fee schedule adopted by City Council, and (2) not required to establish or otherwise justify any relationship between the linkage fees and each of the 408 individual properties for which Highland is assignee under Govt. Code section 66001(b).

On May 22, 2023, the court denied a stipulation to increase the page limits of the parties’ briefs.

There are three general categories of agency decisions challenged by mandamus: (1) quasi-adjudicative decisions in which the agency exercised its discretion and which are challenged by administrative mandamus under CCP section 1094.5, (2) quasi-legislative decisions challenged by traditional mandamus under CCP section 1085, and (3) ministerial or informal administrative actions also challenged by traditional mandamus. See Western States Petroleum Assn. v. Superior Court, (“Western States”) (1995) 9 Cal.4th 571-76.

An agency decision is quasi-adjudicative where it concerns the agency’s application of discretion in the determination of facts after a hearing is required. See Neighborhood Action Group v. County of Calaveras, (1984) 156 Cal.App.3d 1176, 1186. In contrast, a legislative act provides what the law shall be in future cases arising under it. Dominey v. Dept. of Pers. Admin., (1988) 205 Cal.App.3d 729, 737 (quoting Union Pac. R. Co. v. United States, (“Sinking Funds Cases”) (1878) 99 U.S. 700, 761). Quasi-legislative actions generally concern the adoption of a “broad, generally applicable rule of conduct on the basis of general public policy.” Saleeby v. State Bar, (1985) 39 Cal.3d 547. Actions are legislative in nature when they declare a public purpose and make provisions for the accomplishment of that purpose. O’Loane v. O’Rourke (1965) 231 Cal.App.2d 774, 784-85 (adoption of a general plan by way of a resolution was a legislative act because it prescribed a new policy rather than implementing an existing one). The distinction between a judicial and legislative act is that the former determines what the law is and what the rights of the parties are with reference to transactions already had and the other provides what the law shall be in future cases arising under. Sinking Funds Cases, supra, 99 U.S. at 761.

Highroad suggests that this case is administrative mandamus. Pet. Op. Br. at 4. That is incorrect. The court has previously identified this case as one of traditional mandamus. Opp. at 5; Opp. RJN Ex. A. See Home Builders Assn. of Tulare/Kings Counties, Inc. v. City of Lemore, (“Home Builders”) (2010) 185 Cal.Appp.4^th 544, 561.

An agency’s quasi-legislative decision is an abuse of discretion only if it is “arbitrary, capricious, entirely lacking in evidentiary support, unlawful, or procedurally unfair.” Kahn v. Los Angeles City Employees’ Retirement System, (2010) 187 Cal.App.4th 98, 106; Dominey, supra, 205 Cal.App.3d at 736. Although mandate will not lie to control the agency’s discretion, it will lie to correct abuses of discretion. California Public Records Research, Inc. v. County of Alameda, (“California Public Records”) (2019) 37 Cal.App.5^th 800, 806. The court may not substitute its judgment for that of the agency, and it must uphold the decision if reasonable minds can differ. Id.

A record is required for traditional mandamus review of quasi-legislative decisions where there are land use issues of zoning, CEQA, general plans, public contracts, or charter schools, or other issues of general application, depending on if the law requires a hearing at which evidence is presented and fact-findings made. See SN Sands Corp. v. City and County of San Francisco, (2008) 167 Cal.App.4th 185, 191 (award of public contract is quasi-legislative decision and judicial review is limited to administrative record); Cypress Security, Inc. v. City and County of San Francisco, (2010) 184 Cal.App.4th 1003, 1010 (same). If the hearing does not require the presentation of evidence, the quasi-legislative decision is challenged based on declarations and exhibits.

Extra-record evidence is not admissible to contradict evidence upon which the agency relied in making a quasi-legislative decision, or to raise a question regarding the wisdom of that decision. Western States, supra, 9 Cal.4th at 579. A potential exception exists for extra-record evidence that provides background information for the quasi-legislative decision, establishes whether the agency fulfilled its duties in making the decision, or assists the court in understanding the decision. Id. at 578-79.

An agency is presumed to have regularly performed its official duties (Evid. Code §664), and the petitioner therefore has the burden of proof. Steele v. Los Angeles County Civil Service Commission, (1958) 166 Cal.App.2d 129, 137. The burden of proof falls upon the party attacking the agency’s decision to demonstrate wherein the proceedings were unfair, in excess of jurisdiction or showed prejudicial abuse of discretion. California Public Records, supra, 37 Cal.App.5^th at 805.

In an MTA challenge, the local agency has the initial burden of producing evidence that a valid method was used for imposing the fee in question and that there is a reasonable relationship between the fee charged and the burden posed by the new development. Home Builders, supra, 185 Cal.App.4^th at 561-62; City of San Marcos v. Loma San Marcos, LLC, (2015) 234 Cal.App.4th 1045, 1058-59. If the local agency does not meet this initial burden of production, the court must rule for the petitioner. Id. If the court decides that the local agency has met its initial burden of producing sufficient evidence, then the petitioner needs to show that the fee is invalid – e.g., because the fee’s use and the need for the public facility are not reasonably related to the development project or the amount of the fee bears no reasonable relationship to the cost of the public facility attributable to the development. Id. The local government’s decision “is accorded substantial judicial deference.” Home Builders, supra, 185 Cal.App.4^th at 562.

A “development project” is defined as “any project undertaken for the purpose of development.” Govt. Code[2] §66000(a). In any action establishing, increasing, or imposing a fee as a condition of approval of a development project by a local agency, the local agency shall: (1) identify the purpose of the fee; (2) identify the use to which the fee is to be put. If the use is financing public facilities, the facilities shall be identified. That identification may, but need not, be made by reference to a capital improvement plan as specified in section 65403 or 66002, may be made in applicable general or specific plan requirement and or may be made in other public documents that identify the public facilities for which the fee is charged; (3) determine how there is a reasonable relationship between the fee's use and the type of development project on which the fee is imposed; and (4) determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed. §66001(a).

In any action imposing a fee as a condition of approval of a development project by a local agency, the local agency shall determine how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed. §66001(b).

The language concerning “type of development” in section 66001(a) refers to an initial, quasi-legislative adoption of development fees whereas section 66001(b) applies to adjudicatory case-by-case actions. Thus, section 66001(a) allows an agency to impose a general fee reasonably related to project development impacts without tying its analysis to an individual project. AMCAL Chico LLC v. Chico Unified School District, (“AMCAL”) (2020) 57 Cal.App.5^th 122, 132 (citation omitted).

A fee shall not include the costs attributable to existing deficiencies in public facilities but may include the costs attributable to the increased demand for public facilities reasonably related to the development project in order to (1) refurbish existing facilities to maintain the existing level of service or (2) achieve an adopted level of service that is consistent with the general plan. §66001(g).

The Statutory Notes state that the Legislature added subdivision (g) in 2006 in order to codify the holdings of Bixel Associates v. City of Los Angeles, (1989) 216 Cal.App.3d 1208; Rohn v. City of Visalia, (1989) 214 Cal.App.3d 1463; and Shapell Industries, Inc. v. Governing Bd., (“Shapell”) (1991) 1 Cal.App.4th 218. Stats 2006 ch. 194. In adding subdivision (g), the Legislature also reiterated “the requirement that there must be a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development project upon which the fee is imposed.” Id.

Upon receipt of such a fee, the local agency shall deposit, invest, account for, and expend the fees pursuant to section 66006. §66001(c).

Any party may protest the imposition of such fees on a development project if it both (1) tenders any required payment in full or providing satisfactory evidence of arrangements to pay the fee when due or ensure performance of the conditions necessary to meet the requirements of the imposition, and (2) serves written notice on the governing body of the entity. §66020(a). The notice shall include a statement that the required payment is tendered or will be tendered when due, or that any conditions which have been imposed are provided for or satisfied, under protest. §66020(a)(2)(A). It must then inform the governing body of the factual elements of the dispute and the legal theory forming the basis for the protest. §66020(a)(2)(B).

Such a protest shall be filed at the time of approval or conditional approval of the development or within 90 days after the date of the imposition of the fees on the development project at issue. §66020(d)(1). Each local agency shall provide to the project applicant a notice in writing at the time of the approval of the project or at the time of the imposition of the fees, including a statement of the amount of the fees and notice that the 90-day approval period in which the applicant may protest has begun. §66020(d)(1).

In Garrick Development Co. v. Hayward Unified School District, (1992) 3 Cal.App.4^th 320, the court addressed a school facilities fee imposed on residential developers in a school district under sections 530800 and 65995 which authorized school district boards to require local governments to imposes these fees as a condition of issuing a building permit. Id. at 324. The court held that the school district’s school facilities fee was supported by a study that satisfied the MFA and was not a special tax. Id. at 333-35. The court indicated that the study estimated the impact (“increased enrollment” of new students) generated by new residential development and estimated the cost of addressing the impact (“new school construction costs attributable to new residential development”). Id. at 332. Population trends were based on projections by a local governmental association and development trends were supported by building permit activity. Id. The court approved the study “[b]earing in mind that we review the record only to ensure that it provides a reasonable basis overall for the board's action.” Id. at 333 (emphasis in original).

The plaintiffs criticized the study’s projections using a 20-year timeframe and for not considering the possibility of “less costly, movable structures” in calculating the costs of new school facilities. Id. The court rejected both. The 20-year period was not arbitrary even though projections become more unreliable when long timeframes are used. Id. The choice to focus on permanent structures was a legislative decision the wisdom of which the court could not second-guess. Id. The fee did not violate the MFA. Id. at 334-36.

In Home Builders Assn. of Tulare/Kings Counties, Inc. v. City of Lemore, (“Home Builders”) (2010) 185 Cal.App.4^th 554, the court addressed the City of Lemoore’s imposition of various development impact fees on residential developers and whether they complied with the MFA. Id. at 559. The fees were supported by a consultant’s report and were for the cost of adding community/recreation facilities, parklands, police municipal facilities, fire protection, and refuse collection and containers as the city grew. Id. at 559-74. The report calculated impact fees by the “standard-based method” of obtaining a ratio of the cost of existing service to population and multiplying it by the population per unit of development type to arrive at a fee per unit. Id. at 569.

The court upheld all the fees except the fire protection fee for the east side, which had existing facilities adequate to protect the same level of service in the future. The MFA does not authorize reimbursement to the city of prior expenditures because it would constitute general revenue which is prohibited by section 66008. Id. at 572.

For the refuse vehicle and container impact fees for single family residences, the report calculated the impact fee for refuse containers based on the cost of the three containers provided to each new single-family residence, and the “analysis assumes the need for additional vehicles will increase in proportion to the number of additional dwelling units.” Id. at 573.

For increased police service, the study (a) estimated the impact (calls to police) generated by new residential development types and (b) estimated the cost of addressing the impact (cost to replace existing police facilities and assets per unit of new residential development types). More specifically, the study used a random sample of all calls logged in a year classified by development type (single-family residential, multifamily residential) to estimate the average police calls per development type. Id. at 569. The study determined the cost per call by dividing the estimated replacement cost of existing facilities and assets by the number of calls. Id. Finally, the study multiplied the calls per unit of development type by the cost per call to arrive at the cost per unit of development type. Id.

The plaintiff argued that “this standard has no nexus to new housing that pays the fees,” but the Home Builders court disagreed:

“[T]he Report provides a reasonable basis overall for the police impact fee. There is no question that increased population due to new development will place additional demands on the police department….Since the fee calculation standard classifies the cost of service by development type, there is a nexus between the development that pays the fee and the burden on the police department caused by that development.” Id. at 570.

In AMCAL, supra, 57 Cal.App.5^th at 122, the court addressed an Education Code provision authorizing school districts to levy a fee against new residential construction to fund construction of new school facilities and compliance with the MFA. Id. at 127. The court noted that for a general fee applicable to all new development the required nexus is established by a justifiable imposition on a class of development rather than particular projects. Id. The school district’s fee study projected the amount of new residential housing expected to be built over the next ten years, calculated the potential number of students generated by the new residential construction, estimated the costs of school facilities for the projected new students, and estimated the impact to be $4.22 per sq. ft. of new residential construction. Id. at 127-28. The fee imposed ($3.48 per sq. ft.) was below the estimated fee. Id. at 128. The court distinguished two cases rejecting a fee for redevelopment projects that demolished and reconstructed pre-existing square footage because there must be a showing that reconstruction contributes to an increase in student population, concluding that the MFA does not require an individualized determination for each time of project but instead must make findings on the general type of construction -- i.e., residential construction. Id. at 134-35. The court found the imposed fee was reasonable and complied with the MFA. Since it did so and did not exceed the cost of the facilities for which it was imposed, it also was not an invalid special tax. Id. at 134-35.

In deciding whether the City properly and adequately made each of the determinations required by section 66001(a) and (g), a “court must ensure that an agency has adequately considered all relevant factors, and has demonstrated a rational connection between those factors, the choice made, and the purposes of the enabling statute.” Shapell, supra, 1 Cal.App.4th at 232.

Cases applying section 66001(a) do not prescribe only one permissible way of establishing a reasonable relationship. If the consultant studies meet the objectives of making reasonable estimations of (a) a public services burden caused by new residential development and (b) how much it will cost to address the burden, using available data and reasonable assumptions, the studies have established reasonable relationship between the fee and the new residential development. If the study provides a “reasonable basis overall” for a fee, it is sufficient under the MFA. Home Builders, supra, 185 Cal. App. 4th at 565, 570. The study may make policy choices in its reasonable assumptions. Garrick, supra, 3 Cal.App.4th at 333 (policy choice that future schools will be permanent structures, not less costly movable structures). If the imposed fee does not exceed the amount estimated in a study, then the fee complies with the MFA. See Garrick, supra, 3 Cal. App. 4th at 337.

A court’s determination that a fee bears reasonable relationship to the development subject to the fee in the MFA context also means that the fee is not a special tax. AMCAL, supra, 57 Cal. App. 5th at 134-35 (“We find the imposed fee was reasonable and complied with the Mitigation Fee Act. Therefore, the fee does not constitute an invalid tax.”).

On February 18, 2016, the City issued a request for bids (“RFB”) to provide an economic analysis on the nexus between commercial and market-rate development and the demand for affordable housing in the City. AR 3773. The RFB noted that many cities impose fees on commercial and market-rate residential developments to fund the construction of affordable housing. AR 3773. These fees are justified because of a nexus between new developments and the demand for affordable housing they create by increasing the number of low-wage workers. AR 3774.

On March 21 and April 20, 2016, respectively, BAE submitted a proposal and revised proposal for a nexus study. AR 3783, 3852. Each proposal stated that a nexus study must meet and clearly communicate all the requirements of the MFA and draw a strong relationship between the need for affordable housing and the actual fee. AR 3786, 3855.

BAE’s March 2016 proposal planned to estimate the number of future workers that new commercial development would generate, adjusted by commute flows of the workers and other relevant factors. AR 3791. BAE’s April 2016 revised proposal stated that most cities adjust the number of new worker households based on commute patterns of the workers in and out of the city. AR 3861. The proposal sought to make commute flow a separate stage of the nexus study, Task 3.5, and proposed the creation of projections both with and without a commute flow adjustment. AR 3859, 3861. Neither proposal stated whether the MFA requires a commute flow. AR 3791, 3859, 3861.

On June 8, 2016, the City issued a revised notice to BAE to immediately begin work on the nexus study based on both its original and revised bid. AR 3875. The total cost was not to exceed $373,325, divided among six tasks. AR 3875-76.

On July 12, 2016, BAE and the City discussed various work-in-progress tables for the nexus study. AR 3030-31. Table 1A showed the average market-rate rent of apartments with different numbers of rooms compared to the maximum affordable monthly rent for those persons with less than the Area Median Income (“AMI”). AR 3031. The table assumed one-person households would rent a studio apartment, two-person households a one-bedroom unit, three-person households a two-bedroom unit, and four-person households a three-bedroom unit. AR 3031. As apartment sizes grew, households in each income bracket could afford to pay a lower percentage of the market-rate rent. AR 3031.

In an email on July 13, 2016, BAE shared a draft workshop presentation for July 19 to share preliminary findings. AR 3045-47. The presentation asserts that both commercial linkage fees and market-rate housing linkage fees would mitigate the impacts of new workers who earn low wages. AR 3049. These fees are subject to the MFA, and the City needed a nexus study to show the relationship between new development, new workers, and the increased need for more affordable housing. AR 3049. These fees could not mitigate existing deficiencies, only the impacts of future development. AR 3049.

On August 23, 2016, BAE shared a draft of a workshop presentation for August 31. AR 3256-57. The presentation reiterated the findings of the July 19, 2016 presentation for the effects of commercial and market-rate housing. AR 3260.

In September 2016, BAE released the nexus study. AR 7-187. BAE had invited over 60 development companies, industry representatives, and policy advocates to preview preliminary findings and obtain input over three workshops. AR 16.

The study analyzed the relationship, or nexus, between new commercial and market-rate residential development and affordable housing impacts and its purpose was to make linkage fees “legally defensible”. AR 8, 15. The study analyzed the new employment generated, the new worker households, their income distributions, and an estimate of those households that will need affordable housing. AR 15. The study distinguished between fees the City could charge for new commercial development and those it could charge for new market-rate residential development. AR 8.

To prevent excess fees from creating downward pressure on market rate development, BAE used the lower estimates for any revenue-related variables and highest estimates for cost-related variables. AR 16. BAE understood that some persons would see any change from no fee to fee as an undue burden. AR 16. Nevertheless, real estate economic theory suggested that lower-than-otherwise land values for purchase would absorb the effects of affordable housing fees over time. AR 16.

BAE used seven steps to determine the maximum legal fee for market-rate residential units. AR 59-60.

First, BAE divided residential land uses into multifamily rental units, condominium units, single-family attached units, and single-family detached units. AR 59, 63. These categories focused on new market-rate units based on the City’s data on building permits issued from 2011-15. AR 62-63.

Second, BAE estimated sale prices for each type of new market-rate unit based on rent and sale price data for units built after 2006. AR 59, 61. For rent data, BAE used data vendor Reis’s 2016 rental rate data for 149 multifamily rental properties built in or after 2006, a total of 24,495 units. AR 63. This data showed that the average monthly rent among multifamily rental units in the City was $2,923. AR 63. The monthly rent ranged from $2,087 for a studio apartment to $4,014 for a three-bedroom unit. AR 64 (Table 13).

BAE used CoreLogic’s data on 2015-16 home sales to estimate sale prices for new for-sale units built in 2006 or later. AR 64. The median sale prices were $659,000 for condominiums, $540,000 for single-family attached units, and $1.17 million for single-family detached units. AR 64.

Third, BAE used the rent and sale prices to estimate the household incomes of occupants in new residential units by assuming that households spend 30% of gross household income on housing costs. AR 59.

Fourth, BAE estimated spending patterns among the households occupying new units and the number of new jobs this spending would support in each industry. AR 59, 67-68. New household spending within an economy supports jobs. AR 67. BAE used IMPLAN (Impact Analysis for Planning), a widely accepted and utilized software model that calculates increased economic spending based on aggregate income. AR 66-67. IMPLAN then estimates the effect of new household spending on employment generation. AR 59.

IMPLAN estimates the total economic implications of new economic activity within a specified geography. AR 176. It combines national data on 440 sectors with a variety of county-level economic data to determine the impact. AR 176.

IMPLAN analysis includes direct impact from new occupant’s expenditure, indirect impact from local industries buying goods and services from other local industries, and induced impacts from an economy’s response to the direct impact by re-spending the new household’s income. AR 67-68. Because BAE only used IMPLAN to assess the impacts of new resident household expenditures, there were no indirect impacts to consider, and the analysis focused on direct and induced impacts. AR 68. For example, household expenditures at grocery stores generate jobs for its cashiers and baggers at grocery stores, who then spend that money in their own transactions beyond the initial point of sale. AR 68.

The IMPLAN analysis reflected the economic characteristics of Los Angeles County (“County”) as a whole. AR 68. The nexus analysis considers regional employment generation rather than just in the City because household spending in the City creates jobs throughout the region. AR 68. Because of the high costs of living in the City, an analysis focused solely on workers who live in the City would discount the needs of households who currently cannot afford to do so and propagate the need for affordable housing in the City. AR 68-69. In essence, BAE’s analysis considered employment effects beyond the City’s borders to address the City’s “fair share” of regional housing need. AR 69.

Fifth, BAE estimated the household income distribution among the new worker households based on Public Use Microdata Sample (“PUMS”) from the U.S. Census. AR 59. BAE recognized that if it just multiplied worker earnings by industry by the average number of workers per worker household, it would not reflect the discrepancy commonly between two household members’ earnings. AR 69. PUMS used a 5% sample of all households to identify the number of households by income category by industry, controlling for household size, and construct a household income distribution by industry. AR 69.

BAE calculated housing need by dividing the number of new jobs by the City’s average number of workers per worker household. AR 70. It then applied the number of jobs generated in each industry from spending by households in new rental units, condominiums, single-family attached units, and single-family detached units. AR 70-75.

Sixth, BAE calculated the per unit “financing gap” that affordable housing developers encounter when securing a permanent loan for their projects. AR 60, 76. Affordable housing developers are able to secure permanent loans based on the net operating income (“NOI”) per unit. AR 76. The financing gap is the difference between the cost to develop an affordable unit and the amount the developer can borrow based on the NOI generated at each income level. AR 60, 76. BAE used conventional financing assumptions to determine the supportable loan amount per unit for each income level. AR 76.

Seventh, to calculate the maximum legal fee, BAE multiplied the financing gap per unit for each income level to the total housing need by income level from new market-rate units. AR 60, 79. It calculated this maximum fee both per unit and per square foot based on the sales analysis of the square footage of sold homes. AR 88. The maximum fee per square foot was $73.88 for a multifamily rental, $64.30 for a condominium, $42.36 for a single-family attached home, and $48.63 for a single-family detached home. AR 88.

BAE conducted a feasibility analysis to estimate the level of linkage fees that would be acceptable in different City areas with different market conditions. AR 80. It used the Los Angeles Times’ identification of neighborhoods to segment the City into three levels of market condition, based on average rent or sale price per square foot according to the CoreLogic and Reis data. AR 80. It then used pro forma models to judge the maximum feasible fee based on the metrics of Return on Total Development Cost and Yield on Cost. AR 85-86.

The study analyzed 114 neighborhoods generally divided into four geographic areas. AR 82. The northernmost and southernmost had low market conditions, the western half of the center neighborhoods had medium conditions, and the easternmost had high conditions. AR 82.

BAE later clarified that while the feasibility analysis was not required by law, it was important to ensure that fees do not affect market-rate housing production. AR 1108.

In a September 20, 2016 document entitled “City of Los Angeles Linkage Fee Ordinance Background and Frequently Asked Questions”, the City reiterated that development impact fees on commercial and market-rate residential development are justified by the nexus between new developments and the demand for affordable housing they create through added low-wage workers. AR 3.

Based on the various fee scenarios in the 2016 nexus study, the City drafted an ordinance for the Department of City Planning (“Planning”) and the Housing + Community Investment Department (“Housing”) to launch an affordable housing linkage fee program. AR 3. The goal was to create a permanent source of local funding for the development of affordable housing. AR 4. The ordinance would raise this funding by establishing a fee on certain types of market rate development. AR 4. It would address the impacts of new development on the demand for affordable housing. AR 4.

The City asserted that small multi-family projects of five or fewer units, additions and replacement of many single-family homes, and non-residential developments with 10,000 square feet or less of new floor area would be exempt from the linkage fee. AR 4.

In a February 23, 2017 report, Planning staff recommended that the City Council approve the ordinance to establish the linkage fee. AR 189. It noted that the City has had an escalating housing crisis for the last 40 years and has maintained a reputation as the most unaffordable city in the country. AR 191. The City was one of the few cities with high housing costs but neither an inclusionary housing policy nor dedicated source of local funding for affordable housing. AR 191. Many other cities had similar fees on commercial or market-rate residential development to build affordable housing. AR 191. These fees were justified because of the nexus between new developments and the demand for affordable housing they create through added low-wage workers. AR 191. After several City Council motions for such funding, then Mayor Garcetti announced support for such efforts in October 2015. AR 192.

The BAE’s study calculated feasible fee levels as $5 to $35 per square foot for non-residential use and $19 to $49 per square foot for residential. AR 193. The proposed ordinance would assess a linkage fee of $5 per square foot for nonresidential and $12 for residential uses. AR 193. Multi-family buildings with 5 or fewer units and new construction or additions to single-family homes of less than 2000 square feet would be exempt. AR 194.

In a March 9, 2017 Letter of Determination, Planning clarified that the ordinance would charge a $1 per square foot linkage fee on multifamily buildings with 5 or fewer units in a development project. AR 644.

On October 3, 2016, Planning employee Cally Hardy (“Hardy”) asked BAE for data on the percentages of new low-wage workers who commute into the City and those who already live there. AR 2900. She said that Planning wanted to incorporate that data into the linkage fee staff report. AR 2900.

On October 23, 2016, the Los Angeles Area Chamber of Commerce voiced concerns about the study, its calculations, and its assumptions. AR 490. It asked the City to extend the comment period so that feedback could integrate the results of several ongoing ballot initiatives. AR 490.

On February 17, 2017, NAIOP, a commercial real estate development association, submitted a letter opposing a linkage fee. AR 555. Although NAIOP recognized the need to provide affordable housing, the proposed linkage fee would not solve the multi-faceted issues that make up the affordable housing problem. AR 555. It also called BAE’s nexus study “inadequate and legally questionable.” AR 555. The linkage fee would only further increase housing costs and make loans to buy housing more difficult to obtain. AR 556.

On February 23, 2017, professors from the University of California at Los Angeles (“UCLA”) and University of Southern California (“USC”) partnered with LAplus to submit a letter to the City’s Planning Commission. AR 1-2. The letter asserted that no economic theory supports the idea that increasing the cost of housing through linkage fees would increase the construction of housing. AR 1. Because most low-income families live in market-rate units, the fees’ negative effect on the supply of market-rate housing outweighed the positive effects of the very small number of income-restricted units it would fund. AR 1. The operative question should be how many new housing units are needed for pre-existing City residents who currently cannot find a home? AR 1. The letter also questioned why the nexus study claimed that market-rate development is harmful, arguing that it creates jobs for low-wage workers. AR 2.

Proponents of the linkage fee in writing and at a June 6, 2017 public meeting before the City Council’s Planning and Land Use Management Committee (“PLUM”) (AR 2023) included Habitat for Humanity (AR 548-49), Reverend Kevin Sauls (AR 2053), the Little Tokyo Service Center (AR 2053-054), UCLA lecturer Joan Ling (AR 2056), and Georgette Sharp (AR 2059-60). Opponents at the same meeting called the linkage fee a tax penalizing development and increasing rental costs. AR 2104-06.

On July 17, 2017, Hardy asked BAE if it had any ideas for analyzing the nexus for additions to single-family homes greater than 1500 square feet. AR 3730. She stated that the City was open to removing this fee from the draft ordinance but wanted to see if there was a way to defend it. AR 3730. On September 22, 2017 BAE explained it had not found a nexus study that looked at single-family home additions, nor a case where a city charged a linkage fee for them. AR 3728. This made sense because most cities with linkage fees exempt any project with fewer than two or four units. AR 3728.

On August 17, 2017, in response to a request from PLUM, Planning prepared a joint report identifying three options for geographic-based fee variability. AR 674, 695. One option imposed the same linkage fee citywide and the other two created market areas defined by either the 114 neighborhoods used in BAE’s study or 35 Community Plan Area boundaries. AR 695.

On October 5, 2017, BAE released a supplement to the 2016 nexus study. AR 1103. Planning submitted it to the City Council the next day. AR 1102.

The supplement noted that the 2016 BAE study did not specifically analyze net new house additions or replacement housing of 1501 square feet or more and the City had commissioned the supplemental study to address those categories of non-exempt residential development. AR 1104, 1106.

Residential linkage fees for affordable housing apply to market rate units and are based on the nexus between the occupants of a market-rate unit, these occupants’ spending in the economy, the portion of this spending that generates workers living in low-income households needing new affordable units, and the cost to provide these units, as translated into a fee per unit or per square foot of new market rate housing. AR 1107. Under the MFA, any residential linkage fees cannot exceed the nexus of the new development to the cost of mitigating its impact. AR 1107. The supplement’s nexus analysis established the maximum amount of fee attributable to the development being charged. AR 1107.

Step 1of this new study defined the housing types as either single family additions or replacement single family homes, either of which must be at least 1501 square feet. AR 1109.

Step 2 identified the value difference between the existing house and the expanded house based on the sale price by size of such homes. AR 1109-10. BAE again used data from CoreLogic on the 2,661 housing unit sales from July 2015 to June 2016 to estimate the value of a single-family house at different sizes. AR 1111. It estimated the per-square-foot value of different-sized houses, which it multiplied to find the average sale price of houses that size. AR 1111-12.

Step 3 estimated the additional annual household income required to afford the expanded house compared to an existing house with an original size of 1000 square feet. AR 1113. BAE again assumed 30% of a household’s income is available for housing costs. AR 1113. The difference in required annual income was $146,300. AR 1113. BAE noted that the concept of existing versus expanded market rate house does not mean that the persons living in the existing house have moved out and sold the property. AR 1113. It does mean that this outcome could occur, and may occur in many cases. AR 1113.

Step 4 analyzed the increased spending by the buyer of an expanded house based on an IMPLAN analysis of the $146,300 income differential from the third step. AR 1114. BAE estimated the number of jobs generated in each industry sector based on the “economic multiplier” effects of such an increase in net spending. AR 1114.

Step 5 converted the number of new workers into worker households and estimated the distribution of these new workers’ household incomes. AR 1114. This process mirrored the process in the 2016 study. AR 1114.

Step 6 determined the financing gap when securing a permanent loan to construct such an expanded house. AR 1115. As with the September 2016 study, this was the difference between the amount a developer can borrow and the construction cost of extremely low-, very low-, low-, and moderate-income household units. AR 1115. This financing gap ranged from $448,500 for extremely low-income units to $296,199 for moderate-income units. AR 1116.

Finally, to calculate the maximum legal fee, Step 7 multiplied the financing gap per unit for each income level to the total housing need by income level generated by the expansion of the Existing Home. AR 1117. This yielded a maximum fee of $24 per additional square foot. AR 1117.

BAE noted that it could perform this analysis for additions or replacement housing under 1501 square feet, but the nexus test would require downward adjustment of the fee structure. AR 1119.

BAE also noted that questions have been raised whether the fee is fair to the homeowner who may be adding to his or her home for more living space and not economic gain. AR 1119. Either adding space to an existing house or demolishing/replacing space to create a larger house action adds value to the property that outstrips the costs to complete the project. AR 1119. However, many existing occupants will remain in the expanded house and not realize this increase until years later when they sell the expanded house. AR 1119. Other cities in California usually do not impose linkage fees on such single-family homes, but the City has a unique market demand for expanded older houses in strong market neighborhoods. AR 1119. BAE recommended that the City follow Sacremento’s model, which imposes a fee on such additions but exempts any owner-occupant who plans to live in the house for two more years after the issuance of a building permit for the expansion or replacement. AR 1119-20. Alternatively, the City could shift the point of fee imposition for such homes to the time of subsequent sale of the property. AR 1120.

At a PLUM meeting on October 10, 2017, City Councilman Englander contested whether adding square footage to your home actually leads to a greater need for police or fire services. AR 2426-27. Planning’s response was that the extra square footage increases value of the home and leads to greater private sector services. AR 2427.

A member of the public asserted that a linkage fee would increase the cost of housing. AR 2474. The City needed to find a solution that did not pit one type of housing or development against another. AR 2474.

On December 12, 2017, the Building Industry Legal Defense Foundation submitted a letter opposing a linkage fee ordinance. AR 1260. It asserted that the BAE did not make the requisite findings to support adoption of the ordinance under applicable law, the City Charter, the General Plan, and the MFA. AR 1261, 1263. To the extent that the BAE tried to make those findings, they were faulty, inherently contradictory, internally inconsistent, unreasonable, or arbitrary and capricious. AR 1261.

On December 13, 2017, the City passed two ordinances. The Linkage Fee Ordinance noted the City’s ongoing housing crisis and the need to facilitate the availability of housing products at different levels of affordability. AR 1320. A linkage fee would help address the increased need for affordable housing connected with new non-residential development and the development of new market rate residential units. AR 1320. The City Council imposed the linkage fee in a manner consistent with the MFA and as authorized by its police powers. AR 1321.

The Ordinance exempted for-sale and rental housing developments where 40% of the total units are dedicated for moderate income households, 20% for low-income households, or 8% for extremely low-income households over the next 55 years. AR 1323 (LAMC §19.18.B.2(b)). It also exempted any home expansion or replacement of 1500 square feet or less. AR 1324 (LAMC §19.18.B.2(e)). It further exempted a home expansion or replacement of at least 1501 square feet where the homeowner recorded a covenant prohibiting resale of the house for three years after the issuance of the building permit. AR 1324 (LAMC §19.18.B.2(f)). If a sale occurred within the three-year period, the covenant would not expire until the linkage fee is paid. Id.

The City Council was required to adopt by resolution a linkage fee schedule based on an analysis of the cost of mitigating the impact of the additional demand for affordable housing caused by development projects. AR 1327 (LAMC §19.18.C.1). This schedule would consider the economic feasibility in different geographic areas of the City based on current market conditions. AR 1327 (LAMC §19.18.C.1). The director must then annually adjust the schedule for inflation. AR 1327 (LAMC §19.18.C.3(a)).

The second ordinance, Ordinance No. 185341 (“Trust Fund Ordinance”), established a Housing Impact Trust Fund to receive and disburse all linkage fees. AR 1317. Housing’s general manager was required to prepare and present to the City Council an annual report identifying all receipts into and all expenditures out of the fund, as well as the purpose of each expenditure. AR 1318.

On May 2, 2018, the City Attorney gave notice of an amendment to the Linkage Fee Ordinance that increased the linkage fee in high market areas from $15 to $18 per square foot. AR 1334.

On July 16, 2018, Planning issued notice that on June 29, 2018, the City Council adopted a revised fee schedule. AR 1564.

On June 25, 2020, the Affordable Housing Linkage Fee Oversight Committee transmitted a revenue activity analysis report under the Trust Fund Ordinance. AR 1479. It showed that the City had collected $23 million in linkage fees since June 2018. AR 1511. Although the City had spent some of these funds, none of the expenditures was for new construction or preservation of rental properties. AR 1481.

On July 1, 2021, the City increased the linkage fee for all residential uses to $19.36 per square foot in high market areas. AR 1576.

Highroad moves to augment the record with (1) the City’s response to a Request for Admission (“RFA”) in which it admitted that it did not to give the statutory 90-day protest notice; and (2) Highroad’s protest and the City’s acknowledgment of claim. The City moves to augment the record with expert declarations from Stephanie Hagar (“Hagar”) and Janet Smith-Heimer (“Smith-Heimer”).[3]

Highroad moves to augment the record with (1) the City’s response to an RFA admitting that it did not to give the statutory 90-day notice and (2) Highroad’s protest and the City’s acknowledgment of claim.

Highroad cites San Joaquin County Local Agency Formation Commission v. Superior Court (“San Joaquin”) (2008) 162 Cal.App.4th 159, 169, to assert that the record can be augmented with evidence relevant to standing, capacity to sue, and affirmative defenses. Mot. at 4. Highroad asserts that the extra-record documents are relevant to its standing and application of the statute of limitations. Because the City never issued a 90-day notice, it never triggered the requirement to protest the linkage fee. Despite this, Highroad and its 406 Assignors timely filed and served a pre-lawsuit protest in September 2021. Mot. at 3.

The City does not dispute that its RFA response may be added to the record. Opp. at 1. It also agrees that the record may be augmented with the pre-lawsuit protest (Ex. B) to show that Highroad filed it, but not to show the amounts paid or date of payment. Opp. at 2.

The City objects to the portion of Exhibit B containing a list of Assignor properties (Ex. B, pp. 18-27) as there are two fewer names than the 408 named Assignors in the Petition. Opp. at 1. During a March 29, 2022 hearing, the court ordered stricken any Assignors that were listed in the FAP but not in the Petition. Opp. Ex. 1. The court also refused to allow Assignors to join the action on a rolling basis. Opp. Ex. 1. The City asks the court to strike the two Assignor names in the Petition that are not in the protest. Id.

The City’s argument does not bear on the issue of whether the protest should augment the record. Highroad replies that none of the Assignors was required to file a protest. Therefore, any discrepancy between the Assignors listed in the protest and those in the Petition is irrelevant. Highroad explains that it identified two new Assignors between the date it filed the protest and the date it filed the Petition. Reply at 2.

The court agrees that the protest (Ex. B) should augment the record. Whatever bearing the discrepancy between the protest and the Petition has for an individual assignor need not be decided at this time.

Finally, the City objects to the assignment agreements attached to Exhibit B as not authenticated. The City explains that there is no evidence that the individuals who signed the assignment agreements owned the property that was subject to development. This issue would have to be developed during discovery in the next phase of the case. Opp. at 1-2.

This is an objection to the merits of the Assignors’ claims and the amount of restitution to which they would be entitled. That is not at issue for this hearing; it is sufficient that the protest contains assignments to Highroad of the Assignors’ claims such that Highroad has standing to make them. The protest and assignments are included in the record solely for that purpose.

Highroad’s motion to augment the record with the City’s RFA response and the pre-lawsuit protest is granted for the purposes stated.

The City moves to augment the record with the declarations of Hagar and Smith-Heimer. The City notes that the court stated at the February 8, 2022 hearing that expert declarations are available as extra-record evidence in quasi-legislative traditional mandamus. While extra-record evidence is not available to contradict the evidence or question the wisdom of a quasi-legislative decision, it may be admissible to provide background information, establish whether the agency performed its duties in making the decision or to assist the trial court’s understanding of it. Outfitter Properties, LLC. v. Wildlife Conservation Board, (“Outfitter”) (2012) 207 Cal.App.4^th 237, 251. This includes expert declarations to assist the court in interpreting technical documents in the record. California Oak foundation v. Regents of University of California, (“California Oak”) (2010) 188 Cal.App.4^th 227, 254-56. Mot. at 3.

The City presents the Hagar and Smith-Heimer declarations to explain the complex methodology and standard assumptions used in the BAE nexus studies to provide background information on the rationale for the nexus between the linkage fee and new residential development subject to the fee. Mot. at 4.

Highroad argues that California Oak did not involve public hearings and the court received the declarations to help it understand technical drawings. In contrast, there were multiple hearings for the linkage fee and the nexus studies are not highly technical. Additionally, Outfitter Properties only permitted extra-record evidence to show that money was paid to a federal, not state, agency. Opp. at 4-5.

Highroad adds that the Hagar and Smith-Heimer declarations are argument in the guise of expert declarations. Hagar makes contentions about what the MFA requires (¶¶ 4, 33), and whether it has been met (¶4). She also responds to Highroad’s arguments in its opening brief (¶¶ 27-37). Smith-Heimer’s declaration is merely an abbreviated version of Hagar’s declaration. Highroad further argues that the Hagar declaration contradicts the nexus study which is impermissible. Opp. at 6-7.

The court mostly agrees. The court will augment the record with Hagar’s declaration to explain the nexus studies but will not admit the offending paragraphs (¶¶ 4, 33, 27-37) drawing legal conclusions or responding to Highroad’s arguments. Nor will the court consider any of the exhibits attached to Hagar’s declaration with the exception of her CV (Ex. A). The Smith-Heimer declaration is duplicative of the Hagar declaration and will not be added to the record.

BAE conducted the first nexus study on September 21, 2016 in seven steps. Hagar Decl., ¶¶ 5-6. In general, BAE estimated the affordable housing need generated by new market-rate units based on the projected spending patterns of the households that would occupy the new market-rate units, the jobs those spending patterns would support, and the affordable housing needs of the workers employed in these jobs. AR 63. Hagar Decl., ¶5.

BAE first defined the new market-rate residential housing types that would be occupied by households whose spending would generate affordable housing need. AR 59, 62-63. BAE defined these residential land types into multi-family rental units, condominium units, single-family attached units, and single-family detached units. Hagar Decl., ¶6. Condominiums included multi-family for-sale units with at least 2 units. Hagar Decl., ¶6. These types reflected actual development in the City because they were based on the City’s 2016 building permit database showing permits issued from 2011-2015. Hagar Decl., ¶6.

The second step estimated the rental or sale prices for each type of new market rate residential housing type defined in the first step. AR 59, 61, 63-65. Hagar Decl., ¶7. This step used rent and sale price data for units built after 2006 to approximate the housing costs for the new units that would be subject to the fee. Hagar Decl., ¶7. For new rental housing, BAE used data vendor Reis’s 2016 rental rate data for 24,495 units across 149 multifamily rental properties built in or after 2006. Hagar Decl., ¶7. This data showed that the average monthly rent among multi-family rental units in Los Angeles was $2,923 per month. AR 64. Hagar Decl., ¶7. For new for-sale residential housing types (single-family homes and condominiums) BAE used CoreLogic’s data on 2015-2016 home sales to estimate sale prices for new for-sale units built in 2006 or later. Hagar Decl., ¶7. The median sale prices were $659,000 for condominiums, $540,000 for single-family attached units, and $1.17 million for single-family detached units. Hagar Decl., ¶7.

The third step used these rental and sale prices to estimate the household incomes of occupants in new residential units. Hagar Decl., ¶8. BAE assumed that households spend 30% of gross household income on housing costs. Hagar Decl., ¶8. This is a standard assumption commonly used for estimating incomes from housing cost. Hagar Decl., ¶8. Based on an average rent of $2,923, BAE estimated that the average annual income required to rent is $118,400. Hagar Decl., ¶8. BAE estimated that the annual household income required to afford a new for-sale home unit is $146,300 for a condominium, $107,100 for a single-family attached, and $232,100 for a single-family detached. Hagar Decl., ¶9. To avoid working with numbers with small decimals, BAE multiplied each number by 100 to reflect an aggregate income for a 100-unit development. Hagar Decl., ¶¶ 8-9.

The fourth step used the IMPLAN software and the aggregate household income to project the spending patterns of those residents and the jobs it generates. Hagar Decl., ¶11. It is a well-established assumption in economics that new household spending within an economy generates or supports jobs. Hagar Decl., ¶11. When households spend money on retail goods, food, and health, personal and professional services, such spending leads to job growth in these and other sectors. Hagar Decl., ¶¶ 10. BAE used IMPLAN, a widely accepted software model, to project these spending patterns and the number of jobs generated by this spending. AR 68. Hagar Decl., ¶¶ 11. IMPLAN defines household spending as expenditures that have a direct and an induced impact. Hagar Decl., ¶11. For example, household spending at grocery stores generates jobs for cashiers and baggers. Hagar Decl., ¶11. BAE has used IMPLAN for this in nexus studies for other cities. Hagar Decl., ¶11.

In the fifth step, BAE estimated the number of worker households in each industry that would result from the jobs generated in step four. Hagar Decl., ¶12. BAE estimated the number of households by income category of the pertinent industry by using data released by the U.S. Census in data known as PUMS. AR 69. Hagar Decl., ¶12. Different worker households would have different income levels and the income levels were defined as a percentage of the AMI. For example, 21.3% of households with workers in the construction industry would be in the income category that is up to 30% of the AMI. Hagar Decl., ¶12. BAE applied this distribution to the number of those jobs generated in each industry as a result of spending by the residents of each of the types of new market-rate residential housing to estimate the number of jobs generated for each income category. Hagar Decl., ¶13.

Housing need is based on the number of households rather than the number of jobs. Hagar Decl., ¶14. BAE therefore divided the number of new jobs by the average number of workers per worker household in the City based on the American Community Survey to obtain the number of new worker households. AR 70. Hagar Decl., ¶14. For example, residents in new multi-family rental housing create 75.01 jobs, which equals 42.49 households. Hagar Decl., ¶14.

Sixth, BAE estimated the cost to house the worker households. Hagar Decl., ¶15. This is the financing gap between the cost of building an affordable unit and the loan that developers can obtain for it. Hagar Decl., ¶15. This gap is the amount needed to subsidize the construction of affordable housing for worker households that are extremely low income (up to 30% AMI), very low income (31-50% AMI), low income (51-80% AMI), and moderate income (81-120% AMI). Hagar Decl., ¶15. To estimate average development costs for affordable housing, BAE obtained cost data from applications for low-income housing tax credit projects from 2013 to 2015. Hagar Decl., ¶15. The financing gap per affordable unit ranged from $448,500 for extremely low-income units to $296,199 for moderate-income units. Hagar Decl., ¶15.

In the seventh step, BAE calculated the maximum linkage fee by multiplying the financing gap per unit for each income level (step six) by the housing need (the number of worker households of that income level generated by the spending of residents of new-market rate residential housing (step five)). AR 79. Hagar Decl., ¶16. This yielded the maximum impact fee per unit for each type of new-market rate residential housing which was $84,964 per multifamily rental unit, $95,484 per condominium, $69,900 per single-family attached unit, and $145,901 per single-family detached unit. Hagar Decl., ¶16.

BAE then divided each maximum dollar fee by the square footage of each type of housing. Hagar Decl., ¶17. The maximum fee per square foot was $73.88 for a multifamily rental, $64.30 for a condominium, $42.36 for a single-family attached home, and $48.63 for a single-family detached home. Hagar Decl., ¶17.

In addition, BAE conducted a feasibility analysis that was not required by law but was a practical necessity to ensure that linkage fees do not affect market rate housing production. Hagar Decl., ¶18. The feasibility study estimated the fee that real estate market conditions could absorb. Hagar Decl., ¶18. BAE identified City neighborhoods with different market conditions, analyzed the market rents and sales prices of residential units in each neighborhood to determine its market condition, performed a pro forma analysis to determine maximum feasible fee by land use for each market condition, and compared maximum legal fees to maximum feasible fees. Hagar Decl., ¶18. Depending on whether market conditions were medium or high, the feasible fees per square foot ranged from $18 to $24 for a multifamily rental, $22 to $45 for a condominium, $26 to $32 for a single-family attached home, and $31 to $48.63 for a single-family detached home. Hagar Decl., ¶18.

The 2017 supplemental study analyzed the nexus between affordable housing impacts and two types of market-rate residential housing that the 2016 study had not analyzed. Hagar Decl., ¶19.

The first step was to define the residential housing types as (1) single-family home additions and (2) complete replacement of single-family homes, either of which must result in an increase of 1,501 square feet to the home. AR 1107, 1109, 1111. Hagar Decl., ¶20. BAE used the same actual development data as the first study. Hagar Decl., ¶20.

In the second step, BAE estimated the incremental increase in house value that resulted from adding 1,501 square feet or more to either single-family home situation. AR 1109, 1111-12. Hagar Decl., ¶21. BAE applied a standard statistical method to CoreLogic’s data on the sale of single-family homes between July 2015 and June 2016. Hagar Decl., ¶21. CoreLogic is a private vendor that provides data on home sales from the County Assessor. Hagar Decl., ¶21. This allowed BAE to estimate single-family house values at different sizes in dollars per square foot from actual sales data. Hagar Decl., ¶21.

In the third step, BAE estimated the additional annual household income that an occupant would need to afford the house after an expansion or replacement (“expanded house”) to identify the difference in income. AR 1113. Hagar Decl., ¶22. BAE again used the standard assumption that households spend 30% of gross household income on housing costs. Hagar Decl., ¶22. BAE included in these costs mortgage interest, property taxes, and homeowner’s insurance per month. Hagar Decl., ¶22.

In the fourth step, similar to step 4 of the 2016 study, BAE used the IMPLAN software from 2016 to use the additional income necessary to own the expanded house identified in the third step to project the spending patterns of the occupants of the expanded house. Hagar Decl., ¶23. IMPLAN used these projected spending patterns to then estimate the number of jobs generated by the net increased spending of the occupants of the expanded house. Hagar Decl., ¶23.

In the fifth step, similar to step 5 of the 2016 study, BAE estimated the housing need of new workers that would be generated by the net increased spending and household income associated with the expanded house’s increased value. AR 1114. Hagar Decl., ¶24. BAE compared the number of new worker households and jobs by industry generated by the spending of a resident of a 1,000 square foot versus a 2,501 square foot home. Hagar Decl., ¶24.

In the sixth step, as with step 6 of the 2016 study, BAE estimated the financing gap between the cost of building an affordable unit and the loan that developers can obtain for it. Hagar Decl., ¶25.

In the seventh step, BAE calculated the maximum fee by multiplying the financing gap per unit for each income level by the housing need (the number of worker households by different income levels generated by the increased spending by the residents of the expanded house). Hagar Decl., ¶26. This yielded a maximum legal fee of $24 per square foot. Hagar Decl., ¶26.

The City has admitted in response to an RFA that it did not give Highroad’s Assignors notice of a 90-day period within which to protest linkage fees. Hoffman Decl., ¶2, Ex. 1. The City objected to the relevance of such a request for admission because whether the City provided such notice is irrelevant to whether the City established a reasonable relationship between the linkage fee’s use and need and the type of development at issue under section 66001(a). Hoffman Decl., ¶2, Ex. 1.

On September 14, 2021, Highroad and 406 Assignors filed and served a pre-lawsuit protest of their linkage fees totaling over $10 million. Arceo Decl., ¶2; Hoffman Decl., ¶3, Ex. 2. Highroad included assignment agreements for each Assignor. Hoffman Decl., ¶3, Ex. 2. It emailed the City a copy on September 20. Hoffman Decl., ¶3, Ex. 2. On October 26, 2021, the City gave notice that it had forwarded the protest to the Office of the City Attorney. Hoffman Decl., ¶3, Ex. 2.

Petitioner Highroad seeks to set aside the linkage fees imposed on its Assignors totaling more than $10 million. Highroad contends that the Ordinance violates the MFA by failing to establish a low-cost housing need for the linkage fee created by the burden of residential housing additions. Section 66001(a) requires the local agency to identify the purpose of the fee and its use, determine how there is a reasonable relationship between the fee's use and the type of development project for which it is imposed, and determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed. By failing to establish a need created by the housing additions, the City did not meet this requirement established by the MFA. Pet. Op. Br. at 4-5.

In its February 8, 2022 decision overruling the City’s demurrer, the court ruled that the gravamen of Highroad’s claims is an as-applied claim for the imposition of linkage fees. Highroad may challenge the lawfulness of the Ordinance and its linkage fee in contending that the Assignors were unlawfully charged linkage fees. To the extent that this could be characterized as a facial challenge, a facial challenge to a statute may be included in an as-applied challenge. Travis v. County of Santa Cruz, (2004) 33 Cal.4th 757, 769. Only the claims concerning the MFA (FAP’s first and sixth causes of action) and special tax (third and eighth causes of action) are at issue at this time.

On June 21, 2022, the court granted City’s motion to determine the standard of review that would apply to Highroad’s challenge to the MFA and its special tax claim. The City is (1) required to establish a reasonable relationship between the linkage fee’s use and need and the type of development at issue under section 66001(a), and it is (2) not required to establish or otherwise justify any relationship between the linkage fees and each of the 408 individual properties for which Highland is assignee under section 66001(b). In other words, Highroad’s challenge to the Ordinance is made pursuant to section 66001(a) for the City’s initial, quasi-legislative adoption of development fees for the type of development at issue (single-family houses with a net increase of 1501 or more square feet), not section 66001(b) for adjudicatory case-by-case actions. Section 66001(a) allows the City to impose a general fee reasonably related to project development impacts without tying its analysis to an individual project. AMCAL, supra, 57 Cal.App.5^th at 132.

Standing is a threshold issue necessary to maintain a cause of action, and the burden to allege and establish standing lies with the plaintiff. Mendoza v. JPMorgan Chase Bank, N.A., (2016) 6 Cal.App.5th 802, 810. As a general rule, a party must be “beneficially interested” to seek a writ of mandate. Friends of Oceano Dunes, Inc. v. San Luis Obispo County Air Pollution Control Dist., (2015) 235 Cal.App.4th 957, 962 (citing CCP §1086). “Beneficially interested” has been generally interpreted to mean that one may obtain the writ only if the person has some special interest to be served or some particular right to be preserved or protected over and above the interest held in common with the public at large. SJJC Aviation Services, LLC v. City of San Jose, (2017) 12 Cal.App.5th 1043, 1053.

Highroad argues that it has standing because it is beneficially interest in the outcome of the case. Highroad seeks to set aside more than $10 million in linkage fees imposed on its Assignors’ residential housing developments. The purpose of the MFA to protect developers “from disproportionate and excessive fees,” and to halt local government from imposing and using impact fees to pay for public facilities beyond the need created by new development. Ehrlich v. City of Culver City, (1996) 12 Cal.4th 854, 867. Highroad has an interest in receiving a refund from the City for the impact fees imposed on Assignors’ projects that are non-compliant with the MFA. Pet. Op. Br. at 5-6.

The City does not dispute Highroad’s standing for the claims at issue (although it can challenge individual Assignor entitlement to a refund in a next phase).

Section 66020(d) provides for a 90-day notice for a protest and a 180-day limitation period for MFA claims:

“(1) A protest…shall be filed…within 90 days after the date of the imposition of the fees…or other exactions to be imposed on a development project. Each local agency shall provide to the project applicant a notice in writing at the time of…the imposition of the fees…or other exactions, a statement of the amount of the fees…, and notification that the 90-day approval period in which the applicant may protest has begun.

(2) Any party who files a protest…may file an action to attack, review, set aside, void, or annul the imposition of the fees, dedications, reservations, or other exactions imposed on a development project by a local agency within 180 days after the delivery of the notice.” (Emphasis added).[4]

The 180-day limitations period applies when a party complies with the protest procedure. Branciforte Heights v. City of Santa Cruz, (2006) 138 Cal.App.4th 914, 924-25, 929. Highroad argues that the 90-day period on a petitioner’s protest does not commence until the city gives the requisite statutory notice to a claimant. See Geneva Towers, L.P. v. City & County of San Francisco, (2003) 29 Cal.4th 769, 782 (six-month limitations period for property tax refund does not begin to run until public entity denies the claim; the board has “full control and mastery over the course of events.”). Pet. Op. Br. at 7.

Highroad argues that the City failed to provide Highroad’s Assignors with the 90-day notice required by section 66020(d) and the Ordinance in charging the linkage fee. Ex. A, pp. 1-8. Thus, no deadline was triggered for the Assignors to file a protest or this lawsuit. Despite the lack of notice, on September 14, 2021, Highroad and its Assignors filed a timely pre-lawsuit protest of their linkage fees such that each claim herein is supported by a timely and documented protest and request for a refund. Ex. B, pp. 9-253; Hoffman Decl., ¶3; Arceo Decl., ¶¶ 2-3. The City failed to accept or deny the protest. Hoffman Decl., ¶3. On October 12, 2021, this action was filed within the applicable three-year statute of limitations of CCP section 338. Pet. Op. Br. at 7.

The threshold issue is whether the MFA applies to Highroad’s claim. The City admits that it adopted the Ordinance in conformance with the MFA and special tax laws, but that it did not conclude that it was required to do so. AR 1320. The City notes that the Ordinance also stated that the linkage fee is authorized under the City’s police powers. AR 1321. Land use regulations that serve the purpose of increasing affordable housing, and not general revenue, are not subject to the MFA because such ordinances fall under the city’s permissible regulation of the use of land under its broad police power. See 616 Croft Ave., LLC v. City of West Hollywood, (“616 Croft”) (2016) 3 Cal. App. 5th 621, 624-625, 628-30 (the MFA did not apply to ordinance enacted to increase affordable housing which required developers to sell or rent a portion of their development as affordable units or pay an “in-lieu” fee designed to fund construction of affordable housing); see also Cal. Building Indus. Assn. v. City of San Jose, (“San Jose”) (2015) 61 Cal. 4th 435, 457-63. The City concludes that, as the linkage fees are used for affordable housing and imposed as a condition of the issuance of building permits, the MFA and specialized tax laws do not apply. Opp. at 18.

Under the MFA, a “fee” is a monetary exaction other than a tax or special assessment which is charged in connection with the approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the project. §66000; Trinity Park, LP v. City of Sunnydale, (2011) 193 Cal.App.4^th 1014. The term “public facilities” includes “public services.” §6600. The City’s linkage fee does not serve the purpose of increasing public services in the sense of police or other public employee services. Rather, its purpose is to subsidize low-cost housing in the City through a fee to developers. The linkage fee is a monetary extraction charged to the developer of a residential project for the purpose of defraying the cost of low-cost housing related to the project. The MFA applies to the linkage fee, and BAE clearly understood as much. See, e.g., AR 1107.

In arguing to the contrary, the City misreads 616 Croft. The 616 Croft decision, and the California Supreme Court’s decision in San Jose which 616 Croft interpreted, were cases in which no fee or exaction was charged. San Jose was a challenge to a city ordinance requiring new residential developments with 20 or more units to sell at least 15% of units at a price affordable to low or moderate-income households. 61 Cal.4th at 442. The court held that no exaction occurred because the restriction compelling the inclusion of low-cost units was an example of the city’s regulation of land use under its broad police power. Id. at 457. 616 Croft held that San Jose’s reasoning applied to the slightly different context of in-lieu housing fees paid by developer as an alternative to setting aside affordable housing units under a city ordinance. 3 Cal.App.5^th at 628-29. The in-lieu fee also was not an exaction under the MFA but rather an exercise of the city’s police power. Id. The purpose of the ordinance was not to defray the cost of increased demand on public services but rather to combat the overall lack of affordable housing. Id. at 629.

San Jose concerned a compelled set aside of low-cost units and 616 Croft concerned an in-lieu fee as an alternative to a set aside. Neither case addressed the application of the MFA where a development fee is charged.

The MFA applies to any City action establishing, increasing, or imposing a fee as a condition of approval of a development project. See §66001(a). Section 66001(a) allows an agency to impose a general fee reasonably related to project development impacts. AMCAL, supra, 57 Cal.App.5^th at 132. The linkage fee is intended to defray the cost to the City of an increased demand on public services, which is the subsidy the City will be required to pay to build affordable housing caused by the development of a home addition of more than 1500 square feet. The linkage fee goes into a Housing Impact Trust Fund with which the City will subsidize the building of affordable housing. The linkage fee is a general fee related to a development project’s impacts and is not a compelled set aside of affordable housing units or an in-lieu fee for such units themselves. The MFA applies to the linkage fee.

Highroad notes that the MFA serves the legislative purpose of protecting developers from disproportionate and excessive fees. Boatworks, LLC v. City of Alameda, (“Boatworks”) (2019) 35 Cal.App.5th 290, 297 (citation omitted). “While it is only fair that the public at large not be obliged to pay for the increased burden on public facilities caused by new development, the converse is equally reasonable. Id. at 298. Imposing the burden on a property owner to an extent beyond his or her own use shifts the government’s burden unfairly to a private party. Id.

Highroad argues that BAE’s six step “chain-reaction of assumptions” is the opposite of a “real and substantial” nexus that must be established under the MFA to show that replacement housing with a net increase of 1,501 square feet or more causes a need for more low-cost housing. If such a chain reaction of six steps were permitted under the MFA, it would negate and defeat the reasonable relationship requirement. Pet. Op. Br. at 9-10.

BAE’s six-step linkage fee chain stands in stark contrast to the typical two-step nexus where school impact fees are charged to new housing developers. See, e.g., Garrick, supra, 3 Cal.App.4th at 337 (new housing brings new students, thus requiring new or larger schools). If the MFA permitted six steps based on speculative assumptions, any events, no matter how distant, could pass muster. BAE’s six speculative assumptions robs the MFA of the requirement that a real and substantial nexus must be established to show that replacement residential development causes a need for affordable housing. Pet. Op. Br. at 10.

The City responds that BAE conducted the studies with the understanding that “the [MTA] prohibits charging impact fees that exceed the nexus, or relationship, of the new development to the cost to mitigate its impact. The nexus analysis establishes the maximum amount of fee that is attributable to the development being charged.” AR 15, 1107. BAE’s studies established a reasonable relationship or nexus between the linkage fee’s use and need and new residential development in compliance with section 66001(a). AR 59-79, 1108-17. Contrary to Highroad’s belief, the number of steps is not per se legally determinative of whether a study establishes reasonable relationship. The cases interpreting the MFA do not dictate the specific number of steps to establishing a reasonable relationship. See Home Builders, supra, 185 Cal. App. 4th at 569-70, 573; AMCAL, supra, 57 Cal. App. 5th at 127-28, 134; Garrick, supra, 3 Cal. App. 4th at 333-35. As long as a nexus study makes a reasonable estimation of the impact and of the cost of addressing the impact, the study establishes a nexus. Contrary to Highroad’s assertion, the nexus studies in the case law for school impact fees involved more than two steps. See AMCAL, supra, 57 Cal. App. 5th at 127-28; Garrick, supra, 3 Cal. App. 4th at 333-35. Opp. at 9, 13.

In reply, Highroad notes that the nexus in Home Builders for community and recreation center fees, police facilities fees and trash pickup and container fees all were established by showing increased burdens via “increased population due to new development.” 185 Cal.App.4^th at 565. Home Builders repeatedly applied a straightforward two-step analysis and its post-nexus steps were only for the calculation of impact fees. Id. 569. Similarly, AMCAL and Garrick both applied a standard two-step nexus analysis for the projected new development within school district boundaries and the need for new schools as a result of that construction. 57 Cal.App.5th 122, 129-30; 3 Cal.App.4th 320, 335. Here, the linkage fee for an expanded house does not assert any increased population but is based on unprecedented, super-attenuated, and speculative six steps. Reply at 3-4.

Whether or not Home Builders, AMCAL, or Garrick is any support, the City is correct that the number of steps in the methodology for establishing a nexus between the burden of development on low-cost housing is not determinative of its merit. A complex analysis that is supported is equally as viable as a simple one. However, each step in BAE’s analysis is a link in a chain, and the failure of one step to support the real and substantial nexus that must be established under the MFA to show that replacement housing with a net increase of 1,501 square feet or more causes a need for affordable housing will cause the analysis to fail.

The 2017 BAE supplement noted that the 2016 BAE study did not specifically analyze net new house additions or replacement housing of 1,501 square feet or more – defined herein as the expanded home -- and that the City commissioned the supplemental study to address those categories of non-exempt residential development. AR 1104, 1106. In Hagar’s words, the 2017 supplemental study analyzed the nexus between two types of market-rate residential housing that the 2016 study had not analyzed and affordable housing impacts. Hagar Decl., ¶19.

BAE concluded that residential linkage fees for affordable housing are based on the nexus between the occupants of a market-rate unit, their spending in the economy, the portion of this spending that generates workers living in low-income households needing new affordable units, and the cost to provide these units, as translated into a fee per unit or per square foot of new market rate housing. AR 1107. Under the MFA, any residential linkage fees cannot exceed the nexus of the new development to the cost of mitigating its impact. AR 1107.

BAE stated that step 1 of the supplemental study defined the housing types as either single family additions or replacement single family homes, either of which must be at least 1,501 square feet (the expanded house). AR 1109.

Hagar states that step 1 defined the residential housing types as (1) single-family home additions and (2) complete replacement of single-family homes, either of which must result in an increase of 1,501 square feet to the home. AR 1107, 1109, 1111. Hagar Decl., ¶20. BAE used the same actual development data from the City as the first study. Hagar Decl., ¶20.

BAE stated that step 2 identified the value difference between the existing house and the expanded house based on the sale price by size of such homes. AR 1109-10. BAE again used data from CoreLogic on the 2,661 housing unit sales from July 2015 to June 2016 to estimate the value of a single-family house at different sizes. AR 1111. It estimated the per-square-foot value of different-sized houses, which it multiplied to find the average sale price of houses that size. AR 1111-12.

Hagar explains that BAE estimated the incremental increase in the expanded single-family house’s value that resulted from adding 1,501 square feet or more to it. AR 1109, 1111-12. Hagar Decl., ¶21. BAE applied a standard statistical method to CoreLogic’s data on the sale of single-family homes between July 2015 and June 2016. Hagar Decl., ¶21. CoreLogic is a private vendor that provides data on home sales from the County Assessor. Hagar Decl., ¶21. This allowed BAE to estimate single-family house values at different sizes in dollars per square foot from actual sales data. Hagar Decl., ¶21.

BAE stated that step 3 estimated the additional annual household income required to afford the expanded house compared to an existing house with an original size of 1,000 square feet. AR 1113. BAE again assumed that 30% of a household’s income would be available for housing costs. AR 1113. The difference in required annual income was $146,300. AR 1113. BAE noted that the concept of existing versus expanded market rate house does not mean that the persons living in the existing house have moved out and sold the property. AR 1113. It does mean that this outcome could occur, and it may occur in many cases. AR 1113.

Hagar explains that BAE estimated the additional annual household income that an occupant would need to afford the expanded house to identify the difference in income. AR 1113. Hagar Decl., ¶22. BAE again used the standard assumption that households spend 30% of gross household income on housing costs. Hagar Decl., ¶22. BAE included the homeowner’s mortgage interest, property taxes, and property insurance in the expanded house costs. Hagar Decl., ¶22.

Highroad argues that BAE’s steps 2 and 3 use the “selling price” of the expanded house minus the selling price of the existing house to arrive at the increased income of the wealthier occupant needed to purchase the expanded house. However, the BAE studies state that they do not assume a sale or purchase of the expanded house, or that the occupants of the existing house move out or increase in number: “It should be noted that the concept of existing vs. expanded market rate house (after an addition), does not mean that the household living in the existing house has moved out and sold the property…..[T]his outcome could occur, and may occur in many cases.” AR 1102, 1113, 1119. Thus, the occupant did not realize any additional income from a sale of the expanded house, but the BAE study assumes increased income anyway. Without the unsupported step 2 (sales of the existing house versus the expanded house), or step 3 (the difference in the selling price of the existing house versus the expanded house) resulting in a wealthier occupant of the expanded house, the nexus to justify the linkage fee breaks down. Pet. Op. Br. at 10.

The City responds that BAE did generally assume that a sale would occur but also recognized that this scenario did not happen all the time. AR 1113. In the situation in which a household does not sell the expanded house, BAE recommended that the City not charge an impact fee, but instead recommended that the City apply an exemption (AR 1119-20), which the City in fact adopted. AR 1324 (LAMC §19.18.B.2(f)) (exempting expanded house from linkage fee where the homeowner records covenant against resale of the house for three years after the issuance of the building permit).

Highroad replies that BAE’s steps 2 and 3 do not assume a sale but still improperly use the selling price of the expanded house to speculate about the occupant’s income. The City now waffles on what the study assumed, which flatly contradicts the studies and shows their infirmity. BAE’s study that a sale “could occur” and the City’s post hoc explanation that sales “generally would occur” is a confusing flip-flop. Speculating that something “could occur” or “may occur” does not establish that it would occur and that an impact fee is essential to address its impacts. See Yamaha Corp. of America v. State Bd. of Equalization, (1998) 19 Cal.4th 1, 13 (an agency’s “vacillating position . . . is entitled to no deference.”). Knowing whether sales did or did not occur is important to the City’s theory that the expansion activity created the need for more affordable housing. The supplemental study fails to establish a clear-cut need or nexus as the MFA requires. Reply at 4-5.

The court agrees with Highroad. BAE attempted to alleviate unfairness to the homeowner who may be adding to his or her home for more living space and not economic gain. AR 1119. Either adding space to an existing house or demolishing/replacing space to create a larger house action adds value to the property that outstrips the costs to complete the project. AR 1119. However, many existing occupants will remain in the expanded house and not realize this increase until years later when they sell the expanded house. AR 1119. Other cities in California usually do not impose linkage fees on such single-family homes, but the City has a unique market demand for expanded older houses in strong market neighborhoods. AR 1119. BAE recommended that the City follow Sacremento’s model, which imposes a fee on such additions but exempts any owner-occupant who plans to live in the house for two more years after the issuance of a building permit for the expansion or replacement. AR 1119-20. Alternatively, the City could shift the point of fee imposition for such homes to the time of subsequent sale of the property. AR 1120.[5]

While BAE’s recommendation -- and the City’s adoption of its own different remedy -- addresses the issue of unfairness to a homeowner who builds an addition of 1501 square feet or more with the intention of remaining in the home, it does not address the flaw in BAE’s methodology. In step 2, BAE identified the value difference between the existing house and the expanded house based on the sale price by square footage of homes. AR 1109-10. In step 3, BAE estimated the additional annual household income required to afford the expanded house. AR 1113. But this estimated additional income only is realized if the expanded house is purchased by someone who pays for that additional value in the expanded house purchase price. The homeowner who builds an addition to his or her home and continues to live it does not realize any income from the increased value caused by the new square footage.[6] As a result, there is no additional income from which to calculate step 4 (additional spending income and new jobs created). Without job creation from the expanded house, there is no nexus between the additional square footage and the need for new worker households (step 5) and the linkage fee.

The number of homeowners who build additions of 1501 square feet or more and remain in their home is not small, as implicitly recognized by BAE and the City in their attempt to mitigate that unfairness. Presumably, BAE could have presented and evaluated data of the percentage of homeowners who buy a house, remodel with an addition greater than 1501 square feet, and then “flip” the house. BAE could have used this data in the step 3 analysis of the increased income necessary to purchase the expanded house and the job creation from the new homeowner’s spending in the private sector would be supported. Without such data and analysis, BAE’s methodology is flawed and the City’s linkage fee for expanded houses is invalid.

Highroad argues that BAE’s assumption that there will be increased income from the sale of the expanded house ignores other factors that may cause an increase in the selling price -- e.g., an increase in property values unrelated to the expansion of a house. Pet. Op. Br. at 11.

The City correctly responds (Opp. at 13-14) that BAE’s estimation of increase in home value was tied to its size increase: BAE used a standard statistical method to estimate the increase in house value from adding 1,501 sq. ft. or more, which estimated the value per square foot for different sizes of houses, based on actual sales data. AR 1109, 1111, 1112 (Fig.2, Tab. 1), 1121 (Appx. A-1). Whether the expanded house’s value increases for reasons other than a size increase is irrelevant to BAE’s analysis.

Highroad further argues that BAE’s step 3 concludes that the homeowner of the expanded house is a wealthier occupant -- i.e., has income greater than the occupant of the existing house (AR 1102, 1109-10, 1113) – but BAE’s studies did not supply supporting data that the occupant of the expanded house will be wealthier. BAE’s conclusion was based solely on the assumption that the household occupant (homeowner) spends 30% of gross income on housing costs. AR 1109. Yet, the homeowner could pay the cost of the expanded house from savings, an inheritance, a loan, or any other one-time event, and not increased income. Pet Op. Br. at 11.

The City responds that BAE estimated in step 3 the difference in income between the occupant of the expanded house and the occupant of the existing house using the values of single-family houses estimated in step 2, which were based on actual home sales data. AR1111, 1112 (Figure 2, Table 1), 1113, 1121 (Appx. A-1). The assumption that households spend 30% of household income on housing costs is a standard assumption widely used by state and federal agencies and has support in housing data. See Home Builders, supra, 18 5 Cal. App. 4th at 573 (approving consultant study’s “analysis [that] assumes the need for additional vehicles will increase in proportion to the number of additional dwelling units.”). Although Highroad argues that the cost of the expanded house could come from the homeowner’s savings or inheritance and not increased income, BAE determined the difference in “annual household income required to afford” the expanded house without limiting the source of the income. AR 1113. In other words, the source of the income did not matter to the analysis. Opp. at 14.

BAE’s point in step 3 is that the expanded house has increased in value, the person who buys the expanded home pays an increased cost based on the value of the new square footage, households generally may be assumed to spend 30% (and only 30%) of their gross household income on housing costs, and the source of the money to pay for the increased cost is not important. For example, if it comes from a larger bank loan, the occupant must have sufficient income to defray the monthly mortgage payment. The rest of the occupant’s gross household income (70%) will be available to spend pursuant to the spending pattern in step 4.

While the court accepts much of this analysis, it again fails for the homeowner who builds an addition and stays in his or her home. Whatever the source of income such a homeowner uses to pay for the addition, he or she will not have more money to spend elsewhere after building the addition.

Additionally, the court has a hard time accepting the premise that a buyer of the expanded house will spend only 30% of gross household income on it. The 30% number appears to be the average percentage of gross household income spent on housing costs, including by homeowners. But homebuyers are at issue in BAE’s step 3 analysis, and homebuyers are a subcategory of the larger category of homeowners. Buyers often stretch their finances to buy a home and “grow into” the cost as their income rises. It may be that the average homeowner spends 30% of gross income on housing cost, but it does not follow that the average home buyer does so. BAE has no data on this issue other than the “well accepted” view that 30% of gross household income is spent on housing costs.

On the other hand, the City is only required to consider all relevant factors, and demonstrate a rational connection between those factors, the choice made, and the purposes of the enabling statute. Shapell, supra, 1 Cal.App.4th at 232. The City’s decision also “is accorded substantial judicial deference.” See Home Builders, supra, 185 Cal.App.4^th at 562. Given the other flaws in the methodology, the court need not decide whether it should defer to BAE’s analysis and the City’s conclusion on this point.

BAE stated that step 4 analyzed the increased spending by the buyer of an expanded house based on an IMPLAN analysis of the $146,300 income differential from the third step. AR 1114. BAE estimated the number of jobs generated in each industry sector based on the “economic multiplier” effects of such an increase in net spending. AR 1114.

Hagar explains that, similar to step 4 of the 2016 study, BAE used the IMPLAN software from 2016 to use the additional income necessary to own the expanded house identified in step 3 to project the spending patterns of the occupant of the expanded house. Hagar Decl., ¶23. IMPLAN used these projected spending patterns to then estimate the number of jobs generated by the net increased spending of the occupants of the expanded house. Hagar Decl., ¶23.

Highroad argues that step 4 wrongly concludes that the wealthier homeowner occupant of the expanded house will spend more locally. AR 1109, 1113-14. Not only is there no support for this conclusion, but logic is to the contrary -- i.e., spending more on the expanded house would leave the occupant homeowner with less money available to purchase local goods.

Even if BAE supplied data to support its assumption that the buyer of the expanded house will have more money to spend, the linkage fee would be a tax for being wealthy. The existence of the expanded house does not cause the owner to spend locally. BAE’s wealth tax speculates on the homeowner’s income level based solely on his or her ownership of the expanded house. BAE’s asserted nexus of job creation from this wealth is not unique to housing and could be applied to any other significant expenditure. Pet. Op. Br. at 11; Reply at 6.

The City responds that BAE used IMPLAN in step 4 to use the difference in income to project the net difference in spending patterns, which then was used to estimate the number of jobs created. AR 66-68, 1114. IMPLAN uses “data from a variety of economic data sources” to generate its estimations (AR 176), including the assumption that more income leads to more spending. The MFA allows reasonable assumptions. See Home Builders, supra, 185 Cal. App. 4th at 573. On the other hand, Highroad speculates that “spending more” on an expanded house means “less money available to purchase local goods” without any supporting evidence. Opp. at 14.

The court agrees with the City that a homeowner with more income generally will spend more. If BAE is correct that the homeowner will spend only 30% of their income on housing (step 3), then it is correct that he or she is likely to spend more than the homeowner of the existing home with the remaining 70% of gross household income on other goods and services, thereby creating jobs. As for Highroad’s point about a wealth tax, the home addition contributes to the burden on the City’s provision of low-cost housing because wealthier people will live in the expanded home, spend more money, and create more jobs. This is not a wealth tax on the home occupant but rather a permissible burden shifting from the economic consequences of the addition to the home.

BAE’s step 5 converted the number of new workers into worker households and estimated the distribution of these new workers’ household incomes. AR 1114. This process mirrored the process in the 2016 study. AR 1114.

Hagar explains that, similar to step 5 of the 2016 study, step 5 estimated the housing need of new workers that would be generated by the net increased spending and household income associated with the expanded house’s increased value. AR 1114. Hagar Decl., ¶24. BAE compared the number of new worker households and jobs by industry generated by the spending of a resident of a 1,000 square foot versus a 2,501 square foot home. Hagar Decl., ¶24.

Hagar explains that step 6, as with step 6 of the 2016 study, estimated the financing gap between the cost of building an affordable unit and the loan that developers can obtain for it. Hagar Decl., ¶25.

Highroad argues that BAE’s steps 5 and 6 describe the need to house the new low-wage workers and their families who do not already reside in the City. BAE’s March 26, 2016 proposal and its revised April 20, 2016 proposal both stated a need to analyze commute patterns in and out of the City. AR 3791, 3859, 3861, 3862. “Most cities make an adjustment to the number of new worker households based on current commute patterns of workers into and out of the subject city. AR 3862. On October 3, 2016, Planning’s Hardy asked BAE about data to support the studies’ assumption that these new low-wage workers do not already live in the City and are commuting into the City for work. AR 2900. BAE never supplied that data. The BAE studies also do not consider the number of unemployed individuals who reside in the City would be available for new low-wage jobs. Therefore, step 5’s assumption that the new workers do not already live in the City and step 6’s assumption that there is a cost to house those new workers are unsupported. Pet. Op. Br. at 12.

The City responds that the MFA does not require a survey supporting the nexus study. In AMCAL, the school impact fee study did not need to undertake a survey to determine the proportion of students attending the public schools, as opposed to private schools, to estimate the number of future students who would attend the public schools. 57 Cal. App. 5th at 128. In Home Builders, the study did not include a survey of how many trash containers a single family actually puts out on the curb every week, and rather based its calculation of the refuse vehicle and container impact fee on the cost of the three containers provided to each family. 185 Cal. App. 4th at 573. Likewise, there is no MFA requirement for BAE’s study to include a survey tracking potential workers located in the City or to conduct a commute flow study to study the commute patterns of workers in and out of the City. Highroad cites no case law requiring BAE to consider unemployed individuals who live in the City and could fill new jobs. The courts do not require a study to account for every possibility to estimate the least costly fee. See Garrick, supra, ,3 Cal.App.4th at 333 (rejecting plaintiff’s objection that a study did not base its estimation of school facilities fees on less costly movable school facilities, but instead focused on permanent school facilities). Opp. at 14-15.

The City adds that BAE did not assume that the new workers already reside in the City. AR 68-69. As is usual in nexus studies, BAE estimated net new jobs in step 4. A net increase in one new job means a net increase of one worker needed to fill a new job, not that a specific person with a specific residential address will fill the new job. Although BAE initially proposed a commute flow study, it was not necessary for the studies; the BAE proposals do not indicate that a commute flow study is required by the MFA. See AR 3783, 3786, 3852, 3855. Hardy’s 2016 email to BAE asked only whether certain data was available for the staff report, not the BAE nexus studies. AR 2900. Opp. at 15.

Highroad replies that the City must show the clear relationship between the linkage fee and the burden posed by the development. Home Builders, supra, 185 Cal.App.4^th at 561. BAE’s steps 5 and 6 state that there is a need to house new workers but there is no showing that it is necessary to do so. The City states that BAE made no assumption about where the new workers reside and therefore concedes that there is no need to house new workers in the City. The City declares that BAE decided it was not necessary even though the Harday raised that very question. AR 2900. The City obfuscates MFA’s need requirement by arguing that there is no case law requiring a commute study but admits that it has zero evidence to satisfy the need requirement that the existing workers in the City were not adequate to service the purchases by wealthier expanded home occupiers. Reply at 7-8.

Highroad contends that Home Builders, Boatworks, and Warmington Old Town Associates, L.P. v. Tustin Unified, (“Warmington”) (2002) 101 Cal.App.4th 840, all hold that a city must satisfy the need prong of the MFA. In Warmington, the court struck down a school fee which failed to satisfy the need prong of the Act:

“But the Fee Study … gives no consideration to whether those newly constructed replacement homes in fact generate additional numbers of students over and above those who occupied the previous homes at the site….”

Similarly, it failed to meet the second prong because the Fee Study did not approximate the number of students to be generated by redevelopment (i.e., the difference between the number of students that previously inhabited redevelopment sites and the number of students projected to subsequently inhabit those sites).” Id. at 862.

See also Home Builders, supra, 185 Cal.App.4^th at 573 (“the existing east side fire protection facilities are already adequate to continue to provide the same level of service. In other words, the new development will not burden the current facilities.”); Boatworks, supra, 35 Cal.App.5th at 299-300 (there was no need to charge a fee to acquire land the City already possessed and had obtained for free from the federal government). Reply at 7-8.

The City’s reliance on the fact that there was no supporting survey in AMCAL and Home Builders is not significant; neither case even discussed whether a survey was required and both calculated the pertinent issue by means other than a survey (number of students attending public schools and number of trash cans per family). Nonetheless, the court agrees with the City. BAE’s nexus study concluded that the expanded home will create jobs for new workers who will need low-cost housing. If this conclusion was supported – it is not -- BAE did not need show that the new worker, unemployed or not, currently lives in the City.

A commute study would show where current City workers live and the percentage that commutes from outside the City. By definition, those commuters already have City jobs. As such, a commute study would only be circumstantial evidence about where the new workers would be likely to reside. The City was entitled to rely on the need for low-cost housing in the City to enable the new workers to live in the City and reduce commuting. See AR 68. Highroad’s argument that the City must meet the need requirement by showing that the existing City workers and unemployed individuals living in the City are not adequate to service the new jobs seeks more information than is necessary. As the City concludes (Opp. at 7-8), the MFA does not require a showing of strict causation -- i.e., a showing that future new developments will actually cause an impact like increased demand on police. It is sufficient that the City shows that the expanded house has a nexus to a general need for low-cost housing in the City.[7]

BAE’s nexus study “considers regional employment generation, rather than jobs generated in the City of Los Angeles exclusively.... In essence, this analysis considers employment effects beyond the City’s borders in order to address the City’s fair share of regional housing need.” AR 68-69.

Highroad argues that the nexus study cannot rely on burdens outside the City. BAE effectively put its thumb on the scale by relying on the creation of regional new jobs in Los Angeles County (“County”) but outside the City. Pet. Op. Br. at 12-13.

The City responds that it was reasonable for BAE to account for jobs generated in areas of the County outside the City. In step 4, BAE used IMPLAN to determine the number of jobs generated. AR 66-69, 1109-14. BAE explained that it estimated employment generated within the County by new residential housing “because household spending in the City creates jobs throughout the region.” AR 68-69 (emphasis added). BAE explained that its analysis considers employment effects beyond the City’s borders to address the City’s “fair share” of regional housing need. AR 69. It is a common-sense assumption that residents in new market-rate residential housing in the City would spend money for the goods and services in neighboring cities like Santa Monica or Pasadena, thereby generating net new jobs and workers. To address the need for the new workers to live in affordable housing in the City within a reasonable distance of their County workplace, BAE considered job generation in the County. Such assumptions are acceptable under the MFA. See Home Builders, supra, 185 Cal. App. 4th at 573. Opp. at 15-16.

Highroad disputes this fairness argument on the ground that there is no economic justification to charge City developers for new workers generated in the County but outside the City. The City cites no law that obligates or authorizes it to charge an impact fee to address a regional issue. Reply at 8-9.

The court agrees with the City. There is nothing in the MFA that would make it unlawful for the City to accept responsibility for low-cost housing for new workers generated by the additional spending of City expanded house occupants, even though those jobs are generated outside the City.

6. The City’s Uncertainty That a Linkage Fee for Home Additions Would Withstand Scrutiny

Highroad contends that the City’s linkage fee is a “fee in search of a nexus.” On July 17, 2017, Planning’s Hardy asked BAE:

“Any ideas for analyzing the nexus for additions to single family homes greater than 1,500 sq. ft.? If it comes down to it, I think we are open to removing this from the draft ordinance, but want to check to see if there is a way to defend this policy.” AR 3730.

In the responsive chain of emails, BAE acknowledged on September 22, 2017 that it knew of no other city in California charging a linkage fee for single family home expansions or additions and that most cities exempt projects of fewer than 2 or 4 units. AR 3728. Highroad argues that these emails confirm that the City, after evaluating BAE’s September 21, 2016, study for new housing, did not believe there was a nexus for including home additions in the Ordinance. A linkage fee for home additions was only hastily added to the Ordinance via the October 5, 2017 supplemental study. Pet. Op. Br. at 14.

The City responds that these emails do not support Highroad’s claim. Hardy’s July 17, 2017 email merely asks a question regarding analyzing the nexus and did not challenge any method in the supplemental study. AR 3730. The other emails in the chain do not indicate that the “City did not believe there was a nexus”. Whether or not other cities have commissioned studies similar to BAE’s supplemental study is irrelevant to whether or not it established a nexus. Opp. at 17.

Not so. The emails demonstrate the City’s uncertainty that it could find a nexus between home additions and the linkage fee. The fact that BAE said that no other California city imposes a linkage fee on home additions and that Planning was willing remove it demonstrates that neither BAE nor the City was confident that the linkage fee for the expanded house would withstand scrutiny. It does not.

7. The Crisis in Low-Cost Housing and the City’s Failure to Build Any Affordable Housing With the Linkage Fees

Highroad points out that the City relied on the “unrelated” low cost housing crisis in California for the linkage fee. AR 1320. Pet. Op. Br. at 13. The City responds that Highroad is confusing the reference with the ongoing low-cost housing crisis and the required showing a reasonable relationship between the linkage fee and future residential development. Fee studies often mention existing, ongoing needs and establish a nexus. See Home Builders, supra, 185 Cal. App. 4th at 569 (approving study which noted “that the existing police headquarters building was nearing capacity”); AMCAL, supra, 57 Cal. App. 5th at 128 (approving study which noted the school district’s inadequate “existing facilities”). Opp. at 16-17.

The court agrees. The crisis for low-cost housing motivated the City to adopt the linkage fee, but it is not the basis for the City’s nexus.

Highroad points out that the City has not constructed affordable housing as of June 25, 2020. Pet. Op.Br. at 3. The City states that this fact is irrelevant. The City was not required to have concrete construction plans to enact the Ordinance. See Garrick, supra, 3 Cal. App. 4th at 331, 335. Further, section 66001(c)-(e) provides that “unexpended fees are accounted for yearly”. Id. at 332. The Housing Impact Trust Fund ordinance established a Housing Impact Trust Fund to receive all linkage fees, which requires an annual report on all receipts and expenditures out of the fund. AR 1318, 1479, 1481. Opp. at 17. Highroad replies that the City claims the linkage fee is critical to fund the pressing need of affordable housing for new workers yet has done nothing with the tens of millions of dollars collected. That does not suggest that there is a critical need, or, indeed, any need at all. Reply at 9-10.

Similar to the City’s motivation for the linkage fee, the City’s failure to use the linkage fees to build low-cost housing is not significant for the determination of its lawfulness.[8]

There are numerous state laws designed to encourage cities and developers to build low cost housing, including (a) the Density Bonus Law (§§ 65915-918), (b) SB 330, part of the Housing Crisis Act of 2019, and (c) the Housing Accountability Act (§§ 65589.5-65589.6). The City has adopted ordinances to implement these laws. In the Fee Linkage Ordinance, the City has added to the effort to build low-cost housing by creating a linkage fee for new commercial and market-rate residential development to create a fund to subsidize low-cost housing projects. This portion of the linkage fee has not been challenged. However, the portion of the Ordinance adding a linkage fee for home additions (the expanded house) is not supported by a nexus between the burden imposed by the home addition and the need for low-cost housing. See §66001(a). As a result, the linkage fees paid by the Assignors are invalid under the MFA and must be refunded in an amount to be determined by Department 45.

The FAP’s first and sixth causes of action concerning the MFA are granted and the third and eighth causes of action concerning a special tax are denied. The FAP’s remaining claims for restitution, money had and received, and takings are ordered transferred to Department 45 for resolution.

[1] In opposition to the petition itself, the City requests judicial notice of excerpts from the reporter’s transcripts from hearings in this case dated (1) February 8, 2022 (Opp. RJN Ex. A); (2) March 29, 2022 (Opp. RJN Ex. B); and (3) August 11, 2022 (Opp. RJN Ex. C). Reporter’s transcripts are not filed and may not be judicially noticed. However, the court always may consider reporter’s transcripts from the pending case without need for judicial notice.

[2] All further statutory references are to the Govt. Code unless otherwise stated.

[3] In support of its motion to augment, the City requests judicial notice of (1) an excerpt from the reporter’s transcript from February 8, 2022 (City Mot. RJN Ex. 1); (2) the resume of Stephanie Hagar (“Hagar”) (Hagar Decl., Ex. A); (3) “Defining Housing Affordability,” published by the Office of Policy Development and Research, United States Department of Housing and Urban Development (“HUD”), dated August 14, 2017 (Hagar Decl., Ex. B; Smith-Heimer Decl., Ex. B); (4) the American Community Survey from the 2015 US Census, (Hagar Decl., Ex. C); (5) “Impact of Inflation by Household Income,” published by the Wharton School of Business, University of Pennsylvania (Hagar Decl., Ex. D); and (6) the resume of Janet Smith-Heimer (“Smith-Heimer”) (Smith-Heimer Decl., Ex. A). There is no reason to judicially notice the reporter’s transcript (RJN Ex. 1). The HUD report and the 2015 US Census would be subject to judicial notice (Evid. Code §452(c)), except they are inadmissible extra-record evidence and the requests therefore are denied. The resumes and Wharton publication are not subject to judicial notice and the requests are denied.

In opposition to the City’s motion to augment, Highroad requests judicial notice of reporter’s transcripts dated September 29, 2022 (Pet. Opp. RJN Ex. 1) and March 14, 2023 (Pet. Opp. RJN Ex. 2). The transcripts need not be judicially noticed. The same is true for the City’s request for judicial notice of a reporter’s transcript from a March 29, 2022 hearing in opposition to Highroad’s motion to augment. City Opp. RJN Ex. 1.

[4] Highroad notes that the Ordinance also provides for a 90-day notice for protest. Pet. Op. Br. at 6.

[5] BAE proposed either that the “permit applicant sign a statement attesting to plans to remain in the house for at least two years,” or “shift collection of the fee … to the point of subsequent sale rather than at the point of building permit issuance.” AR 1120. Highroad notes that the City did not adopt either of BAE’s recommendations and The Ordinance instead requires a recorded covenant. Highroad criticizes this approach because it clouds title, impedes refinancing, and is only available prior to issuance of the permit. Additionally, nothing in the Ordinance requires the City to advise the homeowner of the right to record a restrictive covenant prior to building permit issuance. Reply at 5-6.

[6] It does not matter how the homeowner is able to afford building the addition, whether by increased mortgage loan, a raise at work, or inheritance because there is no realized income from a sale. BAE points to no reason or data that the homeowner who just built an addition on his or her home would spend more money in the private sector to create jobs. Nor does BAE provide data that the cost of building the home addition would be equal to the added value resulting from the new square footage.

[7] Highroad argues that steps 5 and 6 fail to justify why the linkage fee charges should pay to house the families of the new workers. Pet. Op. Br. at 13.

The City responds that BAE estimated the housing need of workers in step 5 by estimating the number of worker households from the number of jobs or workers that would be generated. AR69-70, 1114. BAE divided the number of jobs by the average number of workers per worker household in the City to determine the number of households. AR 70, 1114. BAE’s division of the number of jobs by the number of workers per household led to a smaller number of affordable housing units, and thus a reduced linkage fee estimation. Opp. at 16.

Highroad describes the City’s conclusion as false. By charging to house the families of new workers instead of using the price of a single housing unit, the City charged for fewer, but more expensive, multi-bedroom units to house entire families. See AR 63, 64, 66, 3030-31, 3875-77, 3881-82. Reply at 9.

The short answer is that the decision to charge for new worker households is the type of legislative decision the wisdom of which the court cannot second-guess. See Garrick, supra, 3 Cal.App.4^th at 320

[8] The City argues that Highroad has abandoned its claim that the linkage fee is a special tax, merely calling it a “wealth tax” (Pet. Op.Br. at 11) without any analysis or legal support. The court agrees. When a party asserts a point but fails to support it with reasoned argument and citation to authority, the point may be treated as waived. Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784, 85; Solomont v. Polk Development Co., (1966) 245 Cal.App.2d 488 (point made which lacks supporting authority or argument may be deemed to be without foundation and rejected). Highroad has not adequately supported its claim that the linkage fee is a special tax.