SB 937: Deferral of Residential Development Impact Fees

Senate Bill (SB) 937 (Wiener) went into effect on January 1, 2025. SB 937 eases the financial burden on residential developers by prohibiting local agencies from imposing fees on specified residential development projects until the final inspection date or certificate of occupancy date. This article summarizes the benefits of SB 937, the projects it applies to, and its caveats.

BENEFITS OF SENATE BILL 937

SB 937 delays upfront payment of Development Impact Fees (DIFs), which are typically due at building permit issuance, to the date of the final inspection, or the date the certificate of occupancy is issued, whichever occurs first. Specified exceptions are discussed below. Local agencies are also prohibited from charging interest or other fees and charges for the deferred DIF payment.

DIFs are a burden to developers because they impose significant early costs on development projects. SB 937 provides welcome relief to developers by delaying DIF payments, allowing developers to defer accumulation of upfront construction loans, and eliminating the accrued interest that accompanies such loans. With developers enjoying added flexibility and decreased costs and local agencies receiving the same amount in DIFs, SB 937 is a win-win for both residential developers and the areas they are developing in.

WHICH PROJECTS DOES SB 937 APPLY TO?

SB 937 applies to “designated residential development projects,” which are residential development projects that meet any of the following conditions:

• Projects that designate 100% of units as low-income housing. (Cal. Gov. Code § 66007(c)(4)(A)).
• Projects that serve as Low Barrier Navigation Centers (i.e., residential projects that offer temporary homeless housing and services to connect people to permanent housing). (Cal. Gov. Code § 66007(c)(4)(B)).
• Projects approved pursuant to Assembly Bill (AB) 2011, as amended by AB 2243 (effective January 1, 2025). As explained in our prior legal alert, AB 2011 provides for “by right” streamlined ministerial (i.e., no CEQA) approval of qualifying mixed-income and affordable housing development projects without the need for rezoning. In exchange, specified affordable housing and labor requirements must be met.
• Projects that meet the SB 35 requirements under Gov. Code § 65913.4(a). Such projects must include affordable housing units and construction workers must be paid prevailing wages, as specified. (Cal. Gov. Code § 66007(c)(4)(D)). Please see our prior legal alert for more information about SB 35.
• Projects that meet the criteria of Gov. Code § 65913.16(c) (Affordable Housing on Faith and Higher Education Lands Act of 2023), which provides for streamlined review of qualifying residential developments on land owned by a higher education or religious institution, as specified. (Cal. Gov. Code § 66007(c)(4)(E-F)).
• Projects entitled to a density bonus pursuant to Gov. Code § 65915(b), meaning that a specified percentage of affordable units are provided on-site. (Cal. Gov. Code § 66007(c)(4)(G)).
• Projects that include 10 or fewer dwelling units. (Cal. Gov. Code § 66007(c)(4)(H)).

POTENTIAL EXCEPTIONS

The local agency may require fees be paid at an earlier time if the local agency determines fees or charges will be collected for public improvements or facilities for which an account has been established and funds appropriated and for which the local agency has adopted a proposed construction schedule or plan before final inspection or issuance of the certificate of occupancy. The local agency may also collect fees at an earlier time if the fees or charges are to reimburse expenditures previously made. Utility connections fees may be collected when an application for service is received, provided those fees do not exceed the costs incurred by the utility provider resulting from the connection activities. Moreover, the definition of designated residential development projects is fairly limited, and developers should take precautions to ensure their project qualifies for delayed DIF payments.