Does FPPC Outlaw City Recovery of Processing Costs?

Local governments throughout California are facing budget crises that jeopardize their ability to bear the significant expenses of processing environmental impact reports (EIRs), Specific Plans and obtaining the myriad entitlements for large-scale developments. They have therefore increasingly shifted that financial burden to applicant-developers eager to avoid expensive delays. Los An­geles recently adopted a Major Projects Review Ordinance (No. 166,859) and an ordinance to allow recovery of the City’s actual EIR processing costs (No. 166,573). 

To the surprise of many Cali­fornia land use lawyers, the Fair Political Practices Commission (FPPC) has now determined that such pro­cessing expense reimbursement ar­rangements may violate the Political Reform Act of 1974 (Act). 

A Hobson’s Choice 

By vigorously enforcing the Act, the FPPC has effectively, but perhaps inadvertently, forced local governments throughout California to face a Hobson’s choice: refuse to accept applications for such projects, and thereby possibly violate the Per­mit Streamline Act, the Subdivision Map Act, or other applicable laws; or accept the applications and process the project without the proper re­sources and produce either legally vulnerable or late results. In either event, the developer suffers. 

The tremendous diversity of large-scale projects, and the correspondingly varied requisite govern­mental actions, makes it very difficult to establish a fixed fee schedule. California law (Government Code §54990) exacerbates this problem by limiting the processing fee to the es­timated reasonable cost of providing the service, thereby imposing a rev­enue limitation without a corre­sponding cost limitation. Not sur­prisingly, many local governments have chosen to enter into agreements with developers of large-scale projects in which the developer agrees to bear the local government’s actual processing costs. 

The City of Folsom entered into such an agreement with a developer who agreed to make pro rata contri­butions to a special city fund set aside to pay the planning consultants hired exclusively to review his project. After the consultants billed the city for their services each month, the city billed the developer a similar amount.

The FPPC Acts 

Reviewing this arrangement, the FPPC concluded that the planners were “political officials” under the Act, and that, as such, they violated it by participating in the decision-making which would have a “fore­seeable material financial effect” on a “source of income” (the developers paying the processing costs) of more than $250. 

The FPPC’s response to a similar inquiry by the City of Isleton noted that the Act does not define a “source of income,” so the FPPC has evaluated that issue on a case-by-case basis, examining factors such as the relationship between the parties and the “source’s” ability to exert control over the “public official,” without es­tablishing broad-based principles or standards that would resolve this ambiguity. 

JMB/Urban Development Co. recently donated much-needed com­puter equipment to the Los Angeles City Planning Department to facili­tate the analysis required by the en­titlement process for the Playa Vista project. The City will keep the equip­ment regardless of the fate of Playa Vista, and the equipment will facili­tate the Planning Department’s future work. Nevertheless, critics such as Laura Lake have called the gifts a form of “institutional corruption” (L.A. Times, June 17, 1991). Such critics will inevitably oppose a local government’s agreement to dedicate staffers exclusively to a particular project despite the obvious resulting efficiencies that benefit both parties.

Impacts on Los Angeles 

On the advice of the City Attorney’s office, the Los Angeles Departments of Planning and Trans­portation terminated their nearly completed negotiations with major developers in Warner Center. These developers were willing to underwrite the cost of preparing the Specific Plan and corresponding EIR for Warner Center under the City’s Major Projects Review and the EIR Processing Ordinances. The future of this program was not clear when this article went into press.

(Editor’s Note: In a letter to Assistant City Attorney Tony Alperin, the FPPC provided unofficial, informal advice on the Major Projects Review program, stating that “it appears as though the system in place in the City of Los Angeles does not create a source of income problem.” A final legal determination was not available at press time.)

For obvious reasons, local governments that enter into expense reimbursement agreements typically refuse to allow developers to select, direct, or influence the consultants for their projects or to condition the developer’s financial obligations upon receiving a favorable ruling on their applications. Because money is fungible and local governments so jealously guard their autonomy in these areas, the FPPC should not consider a developer who reimburses a local government for its actual processing expenses as a “source of income” to the individuals reviewing the project.

In fact, State Senator Bob Everly has introduced urgency legislation as an amendment to Senate Bill 883 to clarify the definition of “source of income” to specifically exclude parties who pay the estimated, reasonable processing costs for EIRs and entitlements for their projects. The legislature will probably consider that bill when it reconvenes on August 14.

A How-To Guide

In the meantime, Isleton Folsom and subsequent FPPC correspondence suggest that developers and local governments wishing to enter into processing fee imbursement agreements should, at minimum, incorporate the following concepts:

1. The developer’s funds should be deposited into the local government’s general fund or otherwise made indistinguishable from the funds used to pay the salaries of the “public official” reviewing the project, and the use of the developer’s funds should not be limited to defraying project related costs.

2. The local government should retain exclusive authority to hire, select, direct, review, pay, promote, fire, and determine the compensation of the individuals processing the developer’s project notwithstanding any commitment to complete the processing by a certain date or to devote a specified amount of resources to the matter.

3. The developer’s obligation to pay the processing costs should not be contingent upon hiring any particular individual to work on the project or upon obtaining an approval of the project.

4. The local government should formalize its agreement with the developer by a resolution or some other public document, and that agreement should be separate from any agreements between the local government and any consultants.

5. Any agreement between a local government and consultants should specify that the consultants’ compensation does not depend on the local government’s approval of the project.