Durham impact fees fail legal test

Other counties take cue from case

DURHAM -- The N.C. Court of Appeals said Tuesday that Durham County's impact fees on new home construction are illegal. And its decision could affect other counties struggling to pay for new schools.

Counties may not charge developers a fee for each new house, apartment or condominium without legislative approval, the court said. And the legislature has not granted a county's request to charge such a fee since 1987.

The idea of impact fees is to make the builders of new housing help pay for new schools and other services to accommodate the needs of new residents that the added housing brings. Wake is among the counties considering such fees.

In 2003, Durham became the first North Carolina county to create impact fees without legislative mandate. The court, in nullifying Durham's fee Tuesday, ruled that the county must refund the more than $7.5 million it has collected. Any refund would go to the home builders, not to home buyers.

Durham County leaders said they will ask the N.C. Supreme Court to review the decision.

The county's fees are $2,000 for each new single-family home and $1,155 for each new apartment or condo unit. Even with those fees in effect, a record 2,284 residential building permits were issued in Durham last year, an 11 percent increase over 2004.

In fighting the lawsuit, Durham County got a lot of support and interest from other counties and organizations that think their fates are tied to the case. Currituck and two other eastern counties filed briefs supporting Durham's case, as did the N.C. School Board Association.

In Granville County, commissioners enacted essentially the same fees as Durham County did -- was sued, just as Durham was -- and now pledges to abide by whatever happens with the Durham case. Wake County has also considered using impact fees to help pay for school expansion.

On Tuesday, home builders said they were pleased by the ruling, though not surprised.

"A lot of people were looking at this case to see if the prevailing wisdom would be sustained," said J. Michael Carpenter, executive vice president and general counsel for the N.C. Home Builders Association.

"Durham had done something that was against the weight of authority."

A few counties -- including Orange and Chatham -- have impact fees approved by the legislature. Carpenter, of the state home builders association, points to Orange to explain his case against such fees.

In 1994, that county's two school systems each created $750 impact fees. The Orange County schools' fee has since grown to $3,000 for single-family homes, Carpenter said. In the Chapel Hill-Carrboro school system, that fee doubled in its second year and is now also $3,000.

"It demonstrates how quickly it becomes a revenue source that can have a negative effect on affordability," Carpenter said.

But officials in some counties are irritated that builders don't have to pay some of the costs associated with growth.

"It just amazes me that developers won't acknowledge the fact that good schools enhance their development," said Becky Heron, vice chairwoman of Durham County's Board of Commissioners. "They should be willing to help us provide the type of facility that enhances their development. It's money in the bank for them."

Though the court ruled almost entirely against Durham County, it did offer one glimmer of good news: When refunding the fees, the county will not have to pay interest, as a Superior Court judge had ordered.

Ellen Reckhow, chairwoman of the Durham County commissioners, said she was disappointed with the decision and hopes for better news from the state's highest court.

If the county must refund the money, she said, it probably will have no choice but to raise taxes to pay for school expansion.

"It clearly hamstrings us in meeting the educational needs of our young people," Reckhow said.