North Carolina courts have muted a years-long, fractious debate over whether developers ought to pay to help build schools, leaving local officials trying to figure out what to do when the pace of residential construction picks up again.
Six months ago, the N.C. Supreme Court agreed with a lower court ruling striking down what it described as illegal, school-designated impact fees in the Raleigh suburb of Cary. That decision followed similar bans in the past few years in fast-growing communities across the state, including Durham and Union counties.
And in Cabarrus County, a state Supreme Court decision is pending on whether the county may continue to charge developers payments toward the cost of school construction in areas lacking adequate classroom space for residential developments.
“We now have virtually no impact fees in North Carolina,” said David Owens, a professor at the UNC School of Government. “The development industry has made it a major priority to say this is an idea that they don't want.”
In fact, talking about impact fees in this state is akin to saying a dirty word, Owens said. Home builders loudly reject the fees and have filed numerous lawsuits against them. Local officials generally don't use the term when talking about efforts to ensure adequate public facilities for residents.
“What we attract is families. When they come, you've got to build schools to serve them.”
– Richard Black,Union County planning director
Three panels of the N.C. Court of Appeals have ruled that impact fees are illegal because N.C. law prohibits local governments from imposing them without special legislation from the General Assembly.
In recent decades counties have repeatedly failed to win support for impact fees from legislators. In today’s Republican-controlled legislature, observers say, the issue isn't likely to gain any traction.
“We're put in a really difficult situation,” said Richard Black, planning director in fast-growing Union County. “We're the bedroom community of Charlotte. What we attract is families. When they come, you've got to build schools to serve them. What kind of a situation would we be in now if the economy was still going full blast?”
It's not a tough problem at all, according to the North Carolina Home Builders Association.
“Impact fees are unlawful,” said Lisa Martin, the association's director of governmental affairs.
“It is never popular to raise taxes. But the truth of the matter is that property taxes pay for schools.”
– Lisa Martin, N.C. Home Builders Association
“It is never popular to raise taxes. But the truth of the matter is that property taxes pay for schools. Local governments brag about not raising taxes but they need to be prioritizing to pay for schools.” (In North Carolina, counties are responsible for building school facilities, while state government pays most school operating costs.)
Home builders contribute to schools, Martin said, by building homes that contribute to the property tax base. She noted that developers often pay for installing water and sewer and streets and make road improvements. She said, “Schools are community facilities that need to be paid for by the community.”
Impact fees have a complex history in North Carolina. In the mid-1980s the General Assembly granted power to several counties to impose impact fees for schools and other services such as roads, parks and recreational facilities. But since then legislators have not approved any more impact fees.
In the 1990s, local governments grappling with rapid growth and stymied by efforts to get the legislature to authorize impact fees began adopting adequate public facility ordinances (APFOs). The ordinances generally said one factor in approving development of apartments, condos and single-family houses would be whether school space was adequate. While each ordinance was slightly different, the counties generally offered home builders several options, including phasing in their developments as schools were built or paying a fee to help speed school construction. County officials contend those voluntary payments are not impact fees.
While counties have authority to use adequate public facility requirements in making land use decisions, said Owens, the addition of fees – voluntary or not – to help pay for schools has created confusion.
The north Mecklenburg County town of Davidson has been using an adequate public facilities ordinance since 2001, asking builders to voluntarily pay a prorated share of the cost of police, fire, parks and other services – but not schools. A builder sued the town in 2009, said town manager Leamon Brice, and the case was settled last year when the town negotiated a reduced fee.
Davidson's APFO is still in effect but has not been used recently because of the construction slowdown around the state and the country. In a few months, town officials will begin a comprehensive review of all its land use regulations, including the APFO.
“We believe there might be a problem allowing a development to pay a prorated share of the costs,” said Brice. “That begins to look like an impact fee.”
Union County officials recently hired a consultant to study its land use regulations to determine new growth management strategies. That county's APFO, adopted in 2006 after a year-long building moratorium, was overturned in 2009.
“We thought APFOs were a different animal from impact fees," said Black. “This was one of the few growth management tools we had.”
Cabarrus County, waiting on an N.C. Supreme Court ruling on its fees, has collected approximately $8.3 million in what officials call voluntary mitigation payments for schools since enacting an APFO in 1998.
The fees have increased from $1,008 per residential unit to as much as $7,631 for a single-family home. The county faces the possibility of having to return the money if builders lawsuits’ succeed. A state law passed in 2007 requires 6 percent annual interest if a county is ordered to repay impact fees.
Without any voluntary mitigation payments, according to deputy county manager Jonathan Marshall, once the economy improves and residential construction begins to overcrowd schools again, Cabarrus would likely have to rely more on property taxes and bonds as well as measures such as reducing development density.
With North Carolina still one of the fastest growing states, the issue of who pays for new development isn't likely to go away, said Owens. He noted states such as California and Florida turned to impact fees as property taxes were strained by new development. By now, communities in some 30 states levy impact fees on developers.
Developers argue that the cost of impact fees is passed on to buyers in the price of the new homes, which can hurt housing affordability. Impact fee supporters say that doesn’t always happen; sometimes builders cut costs in other ways to make up for the impact fees in order to keep home prices competitive. And they argue that it’s fitting for builders and buyers of new homes to help pay for the impact of the new homes.
“It is a topic of great interest and concern,” Owens said. “The question is what proportion of the cost of schools is borne by new residents and by taxpayers at large. The discussion is unresolved in North Carolina.”
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