Split N.C. Supreme Court orders more scrutiny of local water, sewer ‘capacity’ fees

Listen to this story (5 minutes)

  • By a 4-3 vote, the N.C. Supreme Court ordered increased scrutiny of "capacity use fees" Harnett County charged for new water and sewer users.
  • The fees must be "roughly proportional" to the cost of adding new water and sewer users to existing systems. If not, the excessive fees would amount to unconstitutional takings of private property.

The N.C. Supreme Court has split, 4-3, on whether Harnett County should be forced to prove that its water and sewer “capacity use” fees could be distinguished from an unconstitutional taking of private property.

The majority reversed decisions from a trial judge and a unanimous N.C. Court of Appeals panel favoring the county. The state’s highest court has ordered a trial judge to conduct further hearings.

At issue in the case, Anderson Creek Partners v. County of Harnett, are fees charged in 2016 for any landowners seeking a connection to water and sewer service owned or operated by the county. The county charged $1,000 for water service and $1,200 for sewer service for each new residential connection. Until those fees were paid, the county would not sign off on landowners getting essential state permits.

The state Supreme Court majority determined that these fees were “impact fees,” not “user fees.”

“As the County admits in its brief, the challenged ‘capacity use’ fees are intended to ‘cover the cost of expanding the infrastructure of the water and sewer system to accommodate the new development,’ a description that falls squarely within the definition of an ‘impact fee,’” wrote Justice Sam “Jimmy” Ervin IV. “The fees at issue in this case are not water and sewer service fees, paid by customers at a fixed rate in accordance with their monthly metered water and sewer usage for the purpose of paying for the service that they used. In addition, the challenged fees are not ‘tap-on fees’ paid at the time that individual lots are connected to the County’s water and sewer system.”

“Instead, the fees at issue in this case are intended to provide the County with a contribution toward the cost of expanding its water and sewer infrastructure to account for the additional customers that will be added as a result of the developer’s development.”

Ervin and the majority also treated the capacity use fees as “exactions,” which means they face additional constitutional scrutiny.

“[T]o the extent that the challenged ‘capacity use’ fees at issue in this case are intended to cover the cost of expanding the County’s water and sewer systems to accommodate the developments in which plaintiffs were involved, then plaintiffs, rather than the public at large (who already support the existing system through the payment of user fees and, perhaps, taxes), can appropriately be made to bear those costs to the extent that they are ‘roughly proportional’ to the impact of the proposed developments upon the County’s water and sewer system,” Ervin wrote.

Further court proceedings should determine whether the water and sewer capacity use fees meet the test of being “roughly proportional,” Ervin explained.

The majority decision also allows the county to present evidence before a trial judge that the plaintiffs, a group of developers, passed along the “capacity use” fees to homebuyers. “In the event that the trial court finds that plaintiffs have done so, it shall be permitted to hear evidence regarding the appropriate manner by which any such amount should be distributed to the parties in order to ensure that no party receives a windfall as a result of these proceedings,” Ervin wrote.

Ervin, a Democrat, joined with the court’s three Republican justices to make up the majority in the case. Yet two of those justices, Phil Berger Jr. and Chief Justice Paul Newby, dissented from one piece of Ervin’s opinion.

“I join in the majority opinion generally,” Berger wrote. “However, if an unconstitutional taking occurred, there is no scenario in which the county can retain the fees collected. The county should not profit from its taking, and I respectfully dissent from that portion of the opinion.”

Meanwhile, the court’s other three Democrats dissented from the entire opinion.

The majority’s decision “rests on a mischaracterization of the County’s actions and the choices presented to property owners in Harnett County,” wrote dissenting Justice Anita Earls.

“The result is an unwarranted and unwise expansion of the scope of the Takings Clause that will engender frequent litigation and may ultimately diminish the capacity of municipalities to recoup fees to offset the costs of maintaining vital public infrastructure for the public’s benefit,” Earls added. “Even if this decision has few immediate practical consequences, it also signals an increased hostility towards government that hearkens back to a bygone era.”