Bill
SB 1036
SB 1036 tightens fee rules by ensuring development fees reflect only a project’s incremental public facility impacts, with required offsets for demolitions or use changes.
SB 1036 (Grayson) – Mitigation Fee Act
Session: 2025-2026, California
Purpose and intent
- The bill modifies the Mitigation Fee Act to ensure that certain development fees are properly aligned with incremental impacts from a project.
- Specifically, it requires offsetting fees when a development project demolishes or changes an existing use, so that fees reflect only the project’s incremental impact on public facilities or services.
Key provisions and changes
1) Government Code §66001 – fee establishment, use, and relationship
- Local agencies must:
- Identify the fee’s purpose and the specific public facilities to be financed (or reference a capital improvement plan or other public documents identifying facilities).
- Establish a reasonable relationship between:
- the fee’s use and the development project type, and
- the need for the public facility and the development project.
- Determine the relationship between the fee amount and the cost of the public facility or the portion attributable to the development.
- Deposit, invest, account for, and expend funds per existing §66006.
- For funds that are unexpended, the bill requires findings every five years detailing purpose, relationship to the fee, anticipated funding sources, and expected deposit dates. If findings aren’t made, funds must be refunded.
- Funds must be used for public improvements related to the identified facilities, and fees may be used to refurbish or achieve an adopted level of service, but not to fund existing facility deficiencies unless reasonably related to increased demand.
- Offset for demolitions/changes in use: If a project demolishes or changes an existing use, the amount the project pays as a fee must be offset to reflect only the incremental impact. Any offset amount exceeding the fee is not refundable or transferable to other charges.
- “Changes an existing use” is defined as changing the use within an existing structure to a new use (no demolition required).
2) Government Code §66013 – capacity charges and related reporting
- Fees for water connections, sewer connections, or capacity charges shall not exceed the estimated reasonable cost of providing the service, unless a two-thirds-voter approval is obtained for any excess.
- Definitions:
- Water connection, sewer connection, and capacity charge definitions are clarified.
- “Public facilities” and “local agency” definitions align with standard Mitigation Fee Act language.
- Funds from capacity charges must be deposited in a separate capital facilities fund and used solely for purposes for which the charges were collected, with annual public reporting on:
- Description of charges deposited, fund balances, and interest.
- Expenditures on each public improvement, completion status, anticipated future improvements.
- Interfund transfers or loans, with repayment dates and interest terms.
- Exemptions from §66013(c)-(d) apply to certain items (e.g., reimbursements, existing debt, pre-1998 charges, etc.).
- Offset for demolitions/changes in use applies similarly to capacity charges: the charge must reflect incremental impact; if the existing capacity exceeds the proposed capacity, no amount is refunded or offset to other charges.
3) Implementation timing and actions
- The bill has an amending effect on existing Mitigation Fee Act provisions (66001 and 66013).
- It includes standard legislative action history indicating committee passage and amendments in April 2026.
- Effective date is not explicitly stated in the text provided; as a fiscal/fee statute amendment, it would typically become operative upon enactment (and applicable regulations may follow).
Who is affected
- Local agencies (cities, counties, and special districts) that impose fees as a condition of development approval, including:
- Fees related to water and sewer connections and capacity charges.
- Public facility financing and capital improvement planning.
- Developers/building projects subject to these fees, especially those involving demolition or changes of use of existing structures.
Procedural and timeline notes
- The bill requires a recurring, quinquennial (every five years) set of findings for unexpended funds.
- It imposes offset requirements at the project level for demolitions or changes of use.
- Two-thirds voter approval is required if a capacity charge or related fee exceeds the estimated reasonable cost (per §66013(a)).
Overall impact
- SB 1036 tightens the linkage between fees and actual incremental public facility demand created by a project.
- It enhances transparency through required findings and public reporting.
- It curtails the practice of funding or crediting fees against existing deficiencies or broader charges not specifically tied to the project’s incremental impact.
- It may affect project financing timelines due to offset calculations and enhanced reporting requirements.
Compiled from official sources — confirm details with the bill’s official record.
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