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Topics: $4.5-Million Ruling Goes Against O.C.
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The planning department overcharged for building fees and then misspent the money, a judge says.

By Jean O. Pasco
Times Staff Writer

January 6, 2005

A Superior Court judge has ordered Orange County to reduce future planning and building fees by $4.5 million after it failed to justify how that amount was spent by the planning department from 1999 to 2002.

Judge C. Robert Jameson said the county didn't prove that it complied with state requirements that all the fees it collected for building permits, inspections and plan checks reflected the actual cost of providing those services plus allowable overhead costs.

The ruling was the result of a lawsuit by homebuilder Barratt American Inc., which alleged that the county charged builders about $18.5 million for fees and misspent money. Jameson ruled that the county had justified $14 million of that amount, including a $7-million computer system and a fleet of Ford Explorers.

Barratt attorney Walter McNeill argued in trial that Orange County embarked on a multiyear spending spree that consumed the excess, plus $8 million infused by supervisors to keep the department afloat.

"You can't just take money in and treat it as your own once you have leftovers," McNeill said Wednesday.

He said both sides would probably appeal portions of Jameson's ruling. The appeal could be wrapped into a pending state Supreme Court review of a similar Barratt lawsuit challenging building fees. Oral arguments in that case are expected this summer.

County attorney Jeffrey Dunn said the Board of Supervisors would decide whether to appeal Jameson's ruling. "Generally, we're pleased," he said of the judge's conclusion that the county had justified most of the fees.

The state Supreme Court announced in October 2003 that it would review Barratt's case against Rancho Cucamonga in San Bernardino County. The lawsuit, filed by the homebuilder and former Palm Springs developer Richard McCarthy, contended that California cities and counties routinely violated state law covering planning and building-inspection fees.

Appellate justices ruled in Rancho Cucamonga's favor, saying local governments had complete discretion to set fees. In a published decision, the court said increased fees could be challenged, but only within 120 days of adoption. If the fees were later deemed excessive, they weren't refundable.

Barratt American sued Orange County in 2001, alleging that the county overcharged for its tract-home fees. State law requires that building and planning fees cover only those costs reasonable and necessary to pay for the services provided. Collecting more is considered an illegal tax, and any excess must be credited against future fees.

The planning department's financial crisis, revealed publicly in 2002, prompted the early retirement of Director Tom Mathews, layoffs of 39 workers and the eventual firing of then-County Executive Officer Michael Schumacher.

In March 2003, Orange County began charging fees based on the actual amount of time and materials spent toward specific projects. The county required developers to post a hefty deposit, however — even larger than the fees that originally prompted Barratt's lawsuit against them.

Last year, the county again revised and increased its fee deposits for plan checks and inspections. McNeill also chal- lenged those fees as excessive.

McNeill said he would ask the court to award him attorney fees of at least $500,000, plus costs.

"The county spared not a single dollar to fight paying back illegally collected surplus fees to fee payers," he said. "In the end, the court said you've got to pay back $4.5 million. And that's substantial."