Developer lawsuit protesting fees has wide implications

KB Home has been building near R.O. Hardin School along Line Street.

A developer with plans to construct hundreds of homes locally filed a lawsuit against the county and city claiming a $9,500 “annexation fee” charged to builders for each residential lot has no legal justification.
Santa Clara-based Award Homes filed the lawsuit July 17 with the San Benito County Superior Courthouse. The suit is requesting that the courts make a ruling on the charging of “annexation fees” and halt the practice.
That fee is a result of a tax-sharing agreement between the City of Hollister and San Benito County. According to the court records, the two government entities first developed the tax-sharing agreement—including the annexation fee—in 1999 at the height of Hollister’s last building boom. Annexation is the process that involves one jurisdiction taking over domain of another municipality’s land. It tends to occur mostly on the outskirts of a city as it grows into a rural area.
The designated annexation fee was $7,500 per unit under the 1999 agreement and increased to 9,500 per unit in an updated 2011 agreement, according to records.
A judge’s decision could have wide implications not only on Award Homes’ projects, but also on other developers interested in building here. Those fees can add up quickly and could potentially play a role in whether a developer decides a particular project pencils out. With Hollister in growth mode right now, it also could result in a massive sway of revenue one way or the other for the struggling county—which reaps the money from the annexation fees—in the millions of dollars.
Though Hollister experienced a building moratorium for six years starting in the fall of 2002—due to a 15 million-gallon sewer spill that year—it’s possible the court’s decision could have implications on prior development activity as well, though Hollister’s city attorney, Brad Sullivan, noted how statutes of limitations might have an impact in any decisions.
Award Homes is arguing in the lawsuit that there was never a study or nexus—government fees generally are mandated to correlate with specific costs—justifying the charges. The company in the suit refers to the fees as “illegal taxes” and unconstitutional. The lawsuit mentions that the company tried to work with the local entities and exhausted all of its administrative options.
Award Homes contends in the lawsuit it was “threatened with demands” from the defendants. The company mentions its 667-unit West of Fairview project, originally approved in 2000, and argues there was never a mention of such fees 15 years ago or when the plans were updated in 2012. Award Homes also is progressing on an 82-unit single-family residential project called Ladd Ranch south of Southside Road and west of Ladd Lane, said Mike Gibbons, a Hollister planning intern.
The company wants a judge to declare the law as invalid, approve a temporary restraining order or preliminary injunction to halt the practice, and ultimately sign a permanent injunction against it. The company is also asking for attorney’s fees and other litigation costs.
Despite filing the official response denying the allegations, Sullivan wasn’t optimistic about the local government entities’ chances in defending the lawsuit and the notion of annexation fees. Sullivan said San Benito might be the only county in the state that charges them and mentioned that other developers—along with the California Building Industry Association—have been questioning the fees as well.
“We don’t think it’s enforceable, either,” he said.
Sullivan, who pointed out how prior city and county management pushed through the charges, said the fees are “inconsistent with a general plan trying to encourage growth around the city.”
County Counsel Matthew Granger said the office policy is to decline commenting on pending litigation.
The West of Fairview project is proposed near Airline Highway and Fairview Road and has been in the works for more than two decades. Council members approved the 127-acre subdivision in October 2000 during a firestorm of debate over growth.
In mid-2001, the Local Agency Formation Commission, responsible for annexation of county property into city limits, delayed the project’s momentum as it faced a 2003 deadline to get started. In May 2002, Award Homes filed a $56 million lawsuit against LAFCO at around the time of the moratorium-inducing sewer spill.
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