State Supreme Court allows impact fee ruling to stand against Greensboro

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  • The North Carolina Supreme Court will not take a case involving a dispute over impact fees Greensboro charged to developers.
  • A unanimous state Court of Appeals panel ruled against Greensboro in February.
  • The North Carolina League of Municipalities had supported Greensboro as the city urged the state's high court to take the case.

The North Carolina Supreme Court will not take a case involving a dispute between Greensboro and developers over impact fees. A state Court of Appeals ruling against the city in February could lead to refunds of $5.2 million plus interest.

The state’s high court announced Friday that it had denied Greensboro’s petition to review the case. Justice Phil Berger Jr. did not take part in the decision.

A unanimous three-judge panel of the state Court of Appeals ruled against Greensboro in the legal fight over city water and sewer impact fees assessed before 2018.

The North Carolina League of Municipalities had backed Greensboro as the city urged the state’s highest court to overturn the Appeals Court ruling. A court filing in March highlighted the league’s “overwhelming interest” in the case, True Homes v. City of Greensboro.

The League criticized the appellate decision. “This will saddle local governments, rate payers, and taxpayers with the costs of expanding water and sewer systems to serve new development; which, as of the effective date of the Act on October 1, 2017, were costs that the League’s members reasonably understood could be borne by the developers whose business demanded expansion of the systems in the first place,” the league’s lawyers wrote.

The unanimous Appeals Court opinion affirmed a trial judge’s August 2022 decision favoring developers True Homes and D.R. Horton.

“It is well established that municipalities, absent a local enabling act granted by the General Assembly, were not permitted to charge for prospective services” before a change in state law in 2017, wrote Chief Judge Chris Dillon. “Thus, the present case turns on whether Greensboro’s capacity use fees were ‘prospective’ or ‘contemporaneous.’”

“Greensboro argues their capacity use fees were contemporaneous because water and sewer service was available here when Developers used ‘jumpers’ — temporary pipes that bypass the meter box (before meter installation by Greensboro) and connect the water and sewer system to an under-construction property — to access water during construction before the capacity use fees were due. We disagree.”

Previous court cases struck down local governments’ fees for prospective services, Dillon noted.

“Though the fees at issue here were collected later in the construction process than in previous cases, Greensboro’s fees were still collected before official water and sewer service was available to the properties,” he wrote. “The fees were due at the time of meter installation, and official water and sewer service could not begin until the meter was installed and volumetric billing began.”

“Though Greensboro may have been acting in Developers’ interests with developer-friendly policies that allowed developers to use the system on a temporary basis during construction, it is clear that Developers were denied official use of the system until after paying the fees,” Dillon added. “Further, Greensboro’s stated purpose for its capacity use fees is strikingly similar to the stated purposes in the other cases, as they were all used to recover costs associated with expanding the systems for new development.”

The 2017 state law gave municipalities “prospective charging authority” once they adopted an appropriate policy. Greensboro adopted its policy in June 2018, effective July 1 of that year.

The Appeals Court rejected Greensboro’s argument to treat fees collected prior to October 2017 differently from those collected between that date and July 2018. “We conclude the grace period from 1 October 2017 to 1 July 2018 was intended to give those municipalities with local enabling acts time to conform with the new requirements imposed by the System Development Fee Act, not to allow municipalities who failed to previously heed the Supreme Court’s warning to benefit from the nine-month grace period.”

Judges John Tyson and Jefferson Griffin joined Dillon’s opinion.

The two home-building companies challenging Greensboro’s fees submitted written arguments last August at North Carolina’s second-highest court.

“The issue in this case — the legality of water and sewer impact fees charged before the enactment of the ‘Public Water and Sewer System Development Fee Act’ — has already been addressed three times by our appellate courts,” according to the builders’ brief.

“It is now well settled law that, before the General Assembly enacted the Public Water and Sewer System Development Fee Act in 2017, and absent compliance with that statute after its enactment, cities that had not been granted special authority by the General Assembly to charge water and sewer impact fees acted illegally in doing so,” the brief continued.

“The City of Greensboro has for decades imposed impact fees identical to those held unlawful” in two previous cases, the builders’ lawyers argued. “Yet the City claims that it did not need special authority from the General Assembly to charge water and sewer impact fees. The City’s argument: (1) omits material language in its own ordinances and regulations; (2) requires holding that a prior unanimous panel of this Court misinterpreted controlling caselaw; and (3) invents a new ‘test’ making impact fees lawful if they are charged at a certain point in the development process. The trial court rejected the City’s flawed claim. So should this Court.”

Greensboro adopted its fees, known as capacity use fees, in 1988. After the General Assembly approved the 2017 legislation, the city adopted new system development fees. “Accordingly, the City had no authority to charge water and sewer impact fees until July 2018,” the builders argued.

The builders filed a class action lawsuit in March 2019 seeking refunds of “unlawful” capacity use fees, along with 6% annual interest. A trial court certified a class including all parties who paid the challenged fees after March 2016.

The brief pointed out that other cities and towns asked the General Assembly for permission to charge similar impact fees. Greensboro did not follow suit.

“The City is asking this Court to conclude that the General Assembly passed more than a dozen local acts granting special fee-charging authority to cities even though N.C.G.S. § 160A-314 had already granted that authority,” according to the brief. “This argument violates fundamental tenets of statutory construction. Courts presume that the General Assembly acts ‘with knowledge of prior and existing law.’ If Section 160A-314 had authorized all cities to charge impact fees — which it did not — drafting and enacting more than a dozen separate local acts would defy common sense.”

Builders challenged Greensboro’s argument that it had “unfettered impact fee authority” between October 2017 and July 2018.

“Accepting the City’s argument would mean that, although the General Assembly has always placed ‘conditions and limitations’ on cities’ power to charge impact fees — first in the local acts and then in the System Development Fee Act — no such conditions and limitations applied to Greensboro between October 1, 2017 and July 1, 2018. This would be an absurd result that violates the cardinal rule that ‘[i]n construing statutes courts normally adopt an interpretation which will avoid absurd or bizarre consequences, the presumption being that the legislature acted in accordance with reason and common sense and did not intend untoward results,’” the builders argued.