Opportunity to Recover Excess City of Los Angeles Park Fees

At a time when many new Los Angeles condominium projects are struggling, there may be an opportunity for developers to recover some of the fees imposed by the City of Los Angeles. Between 2004 and 2007, the City of Los Angeles overcharged developers over $4 million for park fees payable in connection with condominium projects according to a newly released audit by City of Los Angeles Controller Laura Chick¹.

The City imposes development impact fees for parks in two ways. The so called "Quimby Fee"² is assessed on residential subdivisions, requiring subdividers of land for residential use to dedicate land or pay fees for park and recreational facilities. The Quimby Fee is charged on a per unit (for condominiums) or lot basis, with the amount of the fee dependent on the zoning of the property. Even where there is no subdivision, the City imposes the so called "Finn Fee"³ on projects that receive a zone change to permit multi-family residential use. The Finn Fee is calculated and collected in the same manner as the Quimby Fee. Since many of the residential projects developed in the period 2004-2007 were condominiums, those developers paid Quimby Fees. Even with the shift toward rental housing in the last 18 months, many apartment projects received zone changes from industrial and commercial zones and were assessed Finn Fees. For the rest of this article we will use the term Quimby Fees to mean both subdivision-related Quimby Fees and Finn Fees.

The Planning Department establishes the per zone schedule of Quimby Fees rates for Los Angeles annually, with any increase or decrease based on the percentage change in value of existing single-family homes for the preceding year as determined by the Real Estate Research Council of Southern California ("RERCSC")⁴. Revised Quimby Fee rates are published yearly on April 1 and become effective on May 1.

The audit found that the Planning Department deviated from its established fee setting requirements, and thereby miscalculated the year to year rate increases for two years, 2004 and 2007. Because subsequent years 2005 and 2006 were increased from an incorrect and overstated 2004 rate, those years were overstated as well. The overstatement of rates resulted in the overcharge of developers by more than $4 million. All development projects that paid Quimby Fees at rates applicable after May 1, 2004 through the present, may now qualify for a reimbursement of the overcharged portion of those fees.

According to the audit, the Planning Department is required to determine the percentage change in the Quimby Fee rates by applying the percentage change in the October RERCSC existing single-family home index for the current year from the same index for the preceding year⁵. The published index is readily available for use by the Planning Department.

In 2004 and 2007, the City Planning Department calculated the allowable percentage increase without reference to the published index. The resulting increase in the 2004 and 2007 rates were higher than those that would have been obtained by use of the established Planning Department policy. This difference is set forth in the following table:

While the Planning Department correctly used the published index to increase the Quimby Fee rates in 2005 and 2006, it applied the increases to the inflated 2004 rates, thereby compounding the overcharge. The overall increase in fees in excess of that which would have resulted if the Department had consistently applied the RERCSC percentage change is significant. For example, the 2007 Quimby Fee applied within the R3 zone increased by $660 over the 2006 fee. The fee should have increased by $303 for 2007. For illustrative purposes only, a 100 dwelling unit project subject to the Quimby Fee may have been overcharged approximately $35,700. According to the Audit, estimated cumulative overcharges equal approximately $4.5 million.

All projects that paid Quimby Fees at a rate applicable after May 1, 2004 may be eligible for reimbursement based on the audit. The operative dates appear to be the date the amount of the Quimby Fee was determined or the date the Quimby Fee was paid. Therefore, even if a project obtained Planning approvals before May 1, 2004, that project could have paid Quimby Fees after May 1, 2004.

Even though there are sufficient Quimby funds to refund the overcharge, the Department of Recreation and Parks has expressed concern that collections may have been spent or committed for certain geographic areas. Thus, funds would have to be taken from other areas to cover these shortages, which may not be legal. The audit has recommended that the Planning Department, the Department of Recreation and Parks, and the City Attorney's Office work collaboratively to develop a method to refund developers who overpaid Quimby Fees. Affected City departments continue to work on the parameters of a reimbursement procedure.

In the meantime, what should Developers do? The City Controller's Office recently received a combined recommendation from the affected City agencies that suggested developers may request refunds from the Planning Department, which will determine eligibility and the amount of reimbursement. Requests should be in writing, and should include at least the following information concerning the affected development project: (i) a copy of the decision letter for the approval of land use entitlements for the project with the conditions of approval, issued by the City to the developer; (ii) a copy of the Planning Department's Quimby Fee calculation letter; and (iii) a copy of the receipt from the Department of Recreation and Parks evidencing the amount and date the Quimby Fee was paid. Due to the hundred of anticipated requests, those affected by the overcharge would be well served to submit requests to the Planning Department as soon as possible.

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1. Laura Chick, City of Los Angeles Off. of the Controller, Audit of Quimby Fee Collections and Uses (February 21, 2008).
2. The Quimby Fee is named after former state legislator, John P. Quimby, who in the 1970s, introduced legislation to amend the Subdivision Map Act (Gov. Code §§ 66410-66499.58) to authorize cities to impose such fees. Quimby Fees are addressed in the Los Angeles Municipal Code ("LAMC") § 17.12.
3. LAMC § 12.33 et seq.
4. LAMC § 17.12.H
5. See also LAMC § 17.12.H