AB 121 Clarifies Confusion Regarding Deferral of Developer Fees Created by SB 937

07.11.2025

On June 27, 2025, Governor Gavin Newsom signed Assembly Bill 121 (“AB 121”) into law, which took effect immediately. AB 121 amends portions of Government Code section 66007 (“Section 66007”) regarding when school districts are authorized to collect school fees (commonly referred to as “Developer Fees”) from new residential developments. AB 121 clarifies confusion brought on by Senate Bill 937 (“SB 937”) as to whether school districts were required to defer the collection of Developer Fees until a certificate of occupancy was issued by the applicable local planning agency (or, in certain cases, until the date of final inspection).

Developer Fees have been historically collected by school districts at the time of building permit issuance for residential development. The timing of collection was revised on January 1, 2025, with the enactment of SB 937. For “designated residential development projects,” as defined by statute, SB 937 prohibited the collection of Developer Fees until a certificate of occupancy was issued by the applicable local planning agency (or, in certain cases, until the date of final inspection).

SB 937 set forth exemptions to the deferral of the collection of Developer Fees. Notably, SB 937 exempted the deferral when the fee was collected for the “construction and rehabilitation of school facilities, if a school district has a five-year plan pursuant to subdivision (c) of Section 17017.5 of Education Code” and a separate account was established for such fees. School districts, however, could not comply with the requirements of the exemption because the citation to Education Code section 17017.5 referred to a state grant program that remained inactive. The State is no longer issuing funding pursuant to Education Code section 17017.5. Accordingly, school districts could not meet the requirements to exempt themselves from deferring Developer Fees until a certificate of occupancy or final inspection.

AALRR previously issued an Alert regarding proposed revisions to the law that would provide clarity to school districts on the timing of collecting Developer Fees, which can be read here.

With AB 121 being signed into law, it is now clear that school districts may be exempt from deferring the collection of Developer Fees until a certificate of occupancy or final inspection. The new law exempts school districts from the deferral of Developer Fees if the governing board of the school district has adopted a five-year facilities master plan required by the School Facilities Program (also known as funding provided under the Leroy F. Greene School Facilities Act of 1998). For those school districts that do not participate in the School Facilities Program but have a facilities master plan, such a facilities master plan is not required to be submitted to the State in order to be exempt from the Developer Fee deferral.

AB 121 appears to allow school districts to exempt themselves from the Developer Fee deferral and maintain their abilities to collect Developer Fees at the time of building permit issuance.

Special thanks to our law clerk, Blake Steidlmayer, for his assistance with this alert.