Orange County school impact fee opponents make case to top NC court

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  • Critics challenging Orange County's school impact fees offered their arguments Monday to North Carolina's highest court.
  • A class-action lawsuit that started in 2017 contends that Orange County violated state law and its own ordinance when calculating impact fees charged for new home construction.
  • A 2-1 state Appeals Court ruling in 2023 disallowed some items from impact fee calculations. But the Appeals Court rejected much of the plaintiffs' complaint.

Critics challenging Orange County’s school impact fees offered their arguments Monday to North Carolina’s highest court. It’s the latest step in a class-action legal dispute that started in 2017.

“Between 2009 and 2016, Orange County (the ‘County’) illegally extracted millions of dollars in unlawful ‘school impact fees’ from homebuilders and residents of Orange County,” wrote lawyers representing the plaintiffs. “In doing so, the County did not simply act illegally but did the opposite of what the General Assembly intended.”

“Such fees were putatively for the benefit of the County’s two school systems, but even the County does not know how the money was spent,” the plaintiffs’ brief continued. “The County also refused to comply with its own ordinance: The County committed that it would return certain monies to the people who had paid such amounts under certain circumstances. Just as the County ignored the directives of the General Assembly, it ignored its own ordinance.”

“In both situations, the law is clear and the facts are undisputed,” the plaintiffs’ lawyers argued. “Plaintiffs represent two certified classes: the ‘Feepayer Class,’ which seeks the recovery of the illegally-imposed ultra vires impact fees, and the ‘Refund Class,’ which seeks the recovery of mandatory refunds.”

The state Supreme Court already ruled in 2020 that the case could proceed as a class-action suit.

“The Feepayer Class consists of a group of residents, developers, and homebuilders who were forced to pay the County’s impact fees as a condition of obtaining certificates of occupancy for new homes,” according to the plaintiffs’ brief. “The question raised here by the Feepayer Class is simple: Did the County comply with the mandate of the General Assembly in calculating the impact fees? If the answer is no — and it plainly is — then the County’s collection of fees was ultra vires, and the fees must be returned to those who paid them, with interest.”

“The Refund Class seeks partial refunds of fees that Orange County promised to make in its own ordinance. Just as the County ignored requirements of the Enabling Act, the County refused to comply with its own ordinance. The Refund Class is entitled to payment of those refunds, plus interest,” the court filing added.

Plaintiffs Elizabeth Zander and Evan Galloway filed a notice of appeal with the state Supreme Court in August 2023.

The NC Court of Appeals ruled in July 2023 that Orange County might have to refund some challenged school impact fees. The decision offered a potential partial victory to the plaintiffs.

The decision in Zander v. Orange County prompted a 2-1 split on the appellate panel. The dissenting judge would have issued a ruling even more favorable to plaintiffs challenging the county’s actions. A trial judge ruled against the plaintiffs in 2022.

“After careful review, we agree that the County unlawfully included some costs not authorized by statute in calculating the impact fees and hold that the Feepayer Class is entitled to recoup the portion of the school impact fees that were assessed to cover those improper costs,” wrote Judge Allison Riggs in the state Appeals Court’s majority opinion. “However, because the evidence does not establish the amount of impact fees attributable to these impermissible costs, we remand the matter for further proceedings to determine the damages owed to the Feepayer Class.”

“As to the Refund Class, we hold that the trial court properly granted summary judgment for the County because the forecast of evidence demonstrates that no refunds are owed under the applicable ordinance,” Riggs added.

Riggs and Judge Fred Gore agreed that the county could not charge impact fees to recover costs for new school buses or for the consultant who compiled impact fee studies. “[T]hey are not themselves ‘capital improvements’ as the word is ordinarily understood,” Riggs wrote. “A bus and a consultant’s report simply are not ‘acqui[sitions] [of] or improve[ments] [to] a fixed asset.’”

“The County’s arguments to the contrary are unpersuasive,” she added.

Yet it’s unclear whether the Appeals Court decision would lead to actual refunds. “Though we hold that the County could not include buses and … consultant fees in calculating school impact fees, this does not fully resolve Plaintiffs’ claims on behalf of the Feepayer Class,” Riggs explained. “As noted in its brief, the County never set its impact fees at 100% of the maximum amounts calculated, … electing instead to impose fees ranging between 32% and 60% of that maximum amount at various times. The County thus may have calculated and assessed impact fees that did not incorporate or cover anticipated bus and consultant costs.”

The Appeals Court ordered the case sent back to a trial judge to address potential refunds.

“The statute at issue is designed to make plaintiffs whole for illegal fees only; nothing in the statute suggests it is intended to punish local governments while granting a windfall to plaintiffs,” Riggs wrote.

Dissenting Judge Michael Stading would have reversed the trial judge’s entire order favoring Orange County. Claims from both the “feepayer” and “refund” classes would have moved forward in a trial court.

“Substantial evidence shows that when Orange County calculated the taxes at issue, it neglected to follow the protocol outlined and mandated by the General Assembly in the Session Law,” Stading wrote. “While I agree with the majority that impact fees should not have been expended on buses and consultant studies, I am nevertheless precluded from reaching consideration of impermissible costs because a jury should resolve the lawfulness of the impact fees as a preliminary matter.”

“Similarly, there is a genuine issue of material fact to be resolved with respect to the contradictory evidence of underlying reasons for a reduction in impact fees,” he added.

The dissenting judge noted evidence that consultants calculating the fees did not use a planning period required by law. “Since there is a genuine dispute of material fact as to whether the County used a planning period, the impact fees may have been ultra vires,” he wrote. Stading also cited evidence that bolstered the “refund” class’s arguments. If impact fees were altered for reasons other than an updated impact fee study, the legal case should have moved forward. “The County’s own … witness cited concerns of ‘timing’ and ‘the nature of the General Assembly,’” the judge wrote. “Thus, there is a genuine issue of material fact as to whether the County complied with the refund provision required by its Ordinance as amended in 2016.”