N.C. Court of Appeals Denies Bid to Return Water/Sewer "Impact Fees"

by Womble Bond Dickinson
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Impact fees are defined, generally, as a charge on new development to pay for the construction or expansion of off-site capital improvements that are necessitated by and/or benefit the new development.  Impact fees have been a hot topic in North Carolina, which is perfectly logical in a growing state.

In Quality Built Homes, Inc. v. Town of Carthage, COA15-115 (August 4, 2015) (unpublished), the North Carolina Court of Appeals upholds the authority of a municipality to assess impact fees for services "to be furnished" as opposed to impact fees for, say, improving or maintaining services presently available.
 

Can the Town Charge for Services "To Be Furnished"?  Yes Yes!

The Quality Built Homes, Inc. plaintiffs argue that because impact fees are due at the time of subdivision plat approval, which is well before construction, it is not certain that a home will ever be built on any of the lots.  Thus, plaintiffs continue, it is not certain that water and sewer services will ever be connected on "assessed" lots.  In other words, plaintiffs contend the Town is charging for a service that is not certain to be utilized, which is a charge that is beyond the statutory authority of the Town.

The Court is unpersuaded.  Citing the "broad construction" mandate of N.C.G.S. 160A-4, the Court concludes: "N.C. Gen. Stat. §§ 160A-312, -313, and -314 ... allow towns to charge impact fees that are necessary to ensure the continued quality of water and sewer services in the face of development."  Yep, even where those services are not certain to be used.
 

Does the Ultimate Use of the Impact Fee Render It Ultra Vires?  Probably Not.

Plaintiffs next contend that the Town's actions in collecting impact fees were ultra vires because although the ordinances provide that the fees shall be used for the expansion of water and sewer systems, the Town used the impact fees to maintain its existing systems.

Again, the Court is unpersuaded.  The Court concludes that the plaintiffs failed to identify any authority prohibiting the use of revenue generated from defendant’s impact fees, as imposed by ordinance, in part for the maintenance of defendant’s existing water and sewer systems, to which plaintiffs’ developments will ultimately connect.

Basically, the plaintiff first contends that the Town's authority to assess impact fees can be defined by how the fees are spent.  That makes sense -- no "bait and switch" on the part of the Town.

Second, the plaintiffs argue further that the spend for maintenance, rather than expansion, renders the fee ultra vires because the fee can only be assessed for expansion; there is no statutory authority for the Town to assess an impact fee for maintenance.  The Court, however, points to the lack of legal prohibition for the action rather than to the lack of affirmative legal authority for the action.  This is a little confusing; are the arguments passing in the night?

Whatever the case, local government impact fees have been under assault for some time.  This decision marks a respite.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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