A recent decision by a local trial court that Durham County’s impact fee on new housing, levied for the support of the public schools, is illegal has revived the dispute over the controversial revenue-raising method.
Meanwhile, the county is appealing the trial court’s decision to the N.C. Court of Appeals. The county is allowed to continue collecting the fee, depending on further court action. If the Court of Appeals says the fee is illegal, developers or homeowners who paid the fee will get refunds (a total of $2.2 million). The impact fee actually imposed by Durham County is $2,000 for a new single-family unit and $1,155 for a new multi-family unit. The lawsuit is Durham Landowners Association v. Durham County.
The consulting firm of Tischler & Associates, which prepared a report for the county in September 2001, evaluated what level of impact fee would be “supportable” in light of the costs imposed on public schools by each student and the number of students generated by single-family housing units and by type of units (generally meaning apartment building). The consultant’s maximum supportable impact fee for a single-family detached housing unit was $4,936. The maximum impact fee for any other type of housing unit was $2,851.
When the Durham County commissioners were first debating the impact fee, the Home Builders Association claimed the fee would slow housing growth. A News and Observer of Raleigh article Jan. 24 purported to cast doubt on the prediction. The article cited a 3.8 percent increase in residential building permits in 2004 (when the ordinance was in force) over 2003. Opponents of the impact fee assert it was too early to rule out the idea of an adverse impact on home sales, and added that there is certainly going to be an impact on lower-income buyers.
Nick Tennyson, the former Durham mayor who heads the county’s Home Builders Association, was not a party to the lawsuit but he is following it and is encouraged by the trial court’s decision. He says the impact fee is based on a “completely wrong assumption” about how public schools should be funded. Since “public schools are an indivisible good,” they should be “jointly funded” by everyone in the community.
Tennyson said he thinks that if one group (in this case new-home buyers) has to pay more than other groups to support public schools, the fee is “like tuition.” “The government may as well charge an impact fee on people who reach their sixty-fifth birthday in order to pay for the social services they will receive as they get older,” Tennyson said. In any event, Tennyson said he thinks that, in the long run, growth produces enough tax revenue to pay for the extra school costs associated with such growth.
Tennyson asserts that “[m]ost new homeowners are already residents of the county.” Tony Craver, president of the Durham Regional Association of Realtors, agrees with this claim. He said that most of his clients who move into new homes are moving within the county, and that people moving in from outside the county tend to purchase existing homes rather than newly built ones.
Heidi Duer, the assistant county manager for Durham County who is responsible for administering impact fees, said her office doesn’t track who is new to the county, so she can’t say how many new homes are being bought by new residents and how many are being bought by established residents of Durham.
A resolution by the Durham County commissioners allows some of the impact fees for low-income housing to be paid out of the county budget.
According to the resolution, a 501(c)(3) nonprofit group that provides housing to low-income buyers or renters can make an application to the commissioners to have their impact fee for a particular housing unit paid out of the county budget. The commissioners may grant the request, resources permitting.
The commissioners have granted applications from 50 nonprofit groups to avoid having to pay the impact fee, and have only denied one group’s application, Duer said.
Rich Lee, executive director of the Durham Affordable Housing Coalition, said his group is trying to persuade Durham County to expand the terms of its low-income housing impact-fee policy so as to benefit for-profit groups that build low-income housing, rather than solely benefiting nonprofit groups as is the case now. Lee cites several for-profit companies that are interested in building housing in Durham for low-income people. The impact fee, Lee said, is “one of the disincentives” that discourages for-profit organizations from providing low-income housing. The coalition has “not reached agreement… with the county” on the matter.
A key issue in the litigation over Durham’s impact fee is that the General Assembly has specifically authorized school impact fees in two counties — Orange and Chatham — but has not made any specific authorization for other counties to have such fees. Opponents of Durham’s fee assert that by giving specific permission to two specific counties to impose impact fees, the Assembly is implicitly withholding permission from other counties, including Durham.
Tim Kent, executive vice president of the North Carolina Association of Realtors, said Durham’s impact fee is a “direct challenge to the North Carolina General Assembly’s authority.”
Realtors and homebuilders have worked together since the late 1980s to prevent the legislature from authorizing local governments to enact impact fees and transfer taxes (taxes on the transfer of real estate), he said. Such levies “drive up the cost of housing and put housing out of the reach of many North Carolinians,” Kent said. If Durham County won the court case, it would “open the floodgates for every other county in North Carolina” to put this allegedly unfair taxes on homebuyers.
An examination of the impact fees in Orange and Chatham Counties shows some of the same issues involved in Durham’s impact fee.
Assistant Orange County Manager Rod Visser explains the background of his county’s legislatively authorized school impact fee.
In the 1980s, the legislature authorized Orange County to impose an impact fee, denying the county’s original request for a graduated tax on new homes. Orange County first exercised its legislative-granted power to impose impact fees in 1993, and impact fees have remained in place to this day, during a time of increased residential growth and growth of the student population in local public schools. Some observers could say the impact fee did not appreciably dampen the county’s growth, Visser said. Reimbursement to affordable-housing nonprofits is allowed for, as is the case in Durham County’s scheme.
Bunkey Morgan, chairman of the Chatham County commissioners, said that the county’s impact fee is a “necessity for us because of schools.” He said that he’s “glad that we got” the impact fee, because schools have to be paid for one way or the other, and that without an impact fee the county would have to raise property taxes.
Morgan supports a proposal to vary the impact fee for new single-family homes, depending on which portion of the county the home is built in. Instead of the current uniform fee of $1,500, Morgan proposes variable rates, from no fee in the southeastern part of the county to $4,000 in the county’s northeast portion. The proposal, justified by differential growth rates in different parts of the county, has been deferred by the commissioners.
Keith Megginson, director of the Chatham County Planning Department, reviews the history of the impact fee in his county. The county commissioners enacted the impact fee in 2000, but they had obtained legislative authorization in the 1980s. Chatham’s fee is $1,500 for new homes and $500 for new apartments. Housing for the elderly (people over 65) is exempt from the fee so long as children are excluded from living there. Nonprofit groups that provide housing to low-income people can apply for reimbursement of their fee on a case-by-case basis, just as in Durham and Orange.
Megginson said he hasn’t noticed that the fee has had any effect on the number of building permits issued in the county. Homebuilding in Chatham is “rolling right along.” The county’s overall rate of growth hasn’t been slowed, but Megginson mentions the possibility that the impact fee “may have eliminated some [lower income] people from the [housing] market.”
Chatham County authorities have sought permission from the legislature to change the impact fee to a graduated tax, but the Assembly has not responded, Megginson said.
Maximilian Longley is a contributing editor of Carolina Journal.