Stanislaus Court decision nullifies city’s development fee increase. Builders win
A Stanislaus County court decision has gone in favor of building industry plaintiffs who challenged the city of Patterson’s substantial development fee increases, which were adopted in 2024.
The plaintiffs, including the Building Industry Association of the Greater Valley and Keystone Ranch, said it’s a victory for their industry and demonstrates that cities are obligated to follow the law. It’s no doubt a setback for city leaders trying to ensure that new development pays its share for public facilities as Patterson grows.
The lawsuit was one of the development-related court cases discussed by the Patterson City Council in closed session Tuesday.
Keystone, which is waging other legal battles with Patterson, issued a news release about the Jan. 27 court decision.
“This case sends a clear message: Local governments cannot invent fees behind closed doors, push them through without real analysis and expect no consequences,” said John Beckman, chief executive officer of the BIA Greater Valley in Stockton. “This is a win for transparency, fairness and the rule of law.”
The city had no comment on the court decision.
In the final ruling, Stanislaus Superior Court Judge Sonny Sandhu said the city, in adopting the fee hikes, violated public noticing procedures and legal requirements in the U.S. Constitution, the California Mitigation Fee Act and the state’s Environmental Quality Act.
Sandhu wrote that nexus studies, which are supposed to show the relation between fee costs and the need for public facilities, were prepared in a haphazard way and the process was not designed for transparency and public participation.
The judge ordered the city to rescind and set aside the nexus studies and resolutions adopting the fees.
City staff said in an October 2024 report the development fees were intended to mitigate development impacts and maintain public service levels. The city had not increased the fees since an update of its general plan in 2006.
The city approved an expansion of the West Patterson Business Park in 2012 and the Zacharias & Baldwin Ranch South Master Plan in 2022.
The City Council in 2024 adopted a maximum fee schedule to generate $16.4 million for City Hall facilities, $21.4 million for corporation yard facilities, $45.7 million for recreation facilities, $77.8 million for parks and $198 million for transportation impacts.
The BIA and Keystone attacked a nexus study by Willdan Financial Services that proposed fees of $1,151 per average-size dwelling for City Hall facilities, $2,901 per dwelling for the corporation yard, $3,808 per dwelling for recreation facilities and $6,511 per dwelling for park facilities.
That’s a total of $14,371 per home for those four items, which are not all the fees charged by Patterson. The City Hall and corporation yard fees were three to four times higher than the existing fees.
Keystone Ranch has plans for a 95-acre project with 719 dwellings in northwest Patterson and also faces $20 million in upfront costs for a city-required groundwater recharge facility.
The city report said the actual fees collected from developers would depend on the pace of development and may be negotiated as part of development agreements for projects. A city argument in the court case was that the city had not imposed the fees on the developers, so there was no legal standing for the suit.
Evette Davis, a spokeswoman for Keystone Ranch, said the main reason for the lawsuit was that the proposed fees were too high to make housing projects feasible. They make the housing too expensive for buyers, she said.
An attorney for the Rutan & Tucker law firm, representing Keystone, argued in October 2024 that the proposed fees were not based on an approved capital improvements plan. Keystone’s attorney further argued that the city had not responded to previous objections raised by the building association and that public outreach was never conducted.
Fees based on ‘mere speculation’ and ‘hypothetical’ facilities
The plaintiff argued that the city’s fee update study was based on “mere speculation” and included estimated costs of building “hypothetical or illusory facilities for which the City Council and the community has not made any official commitment.”
The lawsuit also claimed the city’s fee study relied on inaccurate population projections. The study used an outdated population estimate of 66,700 at buildout that was pulled from the 2010 General Plan, the plaintiffs contended. The Stanislaus Council of Governments in 2018 forecasted Patterson’s population at 43,577 in 2045.
The inaccurate projection served to inflate assumptions of rampant population growth and high demand for public facilities attributed to new development, the lawsuit alleged.
Keystone assumes the city will have to start over again with calculating and validating development fee increases in compliance with law.
Beckman of the BIA said the suit was filed against Patterson because its fee update was the first following a U.S. Supreme Court decision in April 2024, called Sheetz vs. El Dorado County, requiring that local governments show a bona fide nexus for development fees and not use rough estimates.
“The fees were going to be quite a lot higher than some of the surrounding cities, which is why it caught our attention,” he said.
Beckman said he has reached out to Stanislaus County to advise against using a nexus study approach called the “inventory method” that is now unconstitutional. He has meetings in the next two weeks with Manteca, Stockton and Tracy to talk about the legal issues around fee increases, he said.
