Impact fees may be the most aptly named confiscatory regulation on the books. Over time, they’ve impacted our county’s housing affordability. Now, they’re impacting whether some new housing can even be built.
In theory, impact fees are one-time payments made by developers to cover the cost of new government services needed because of the new development. Those services include parks, open space, greenways, streets, bridges, sidewalks, bikeways, schools, water, sewer and stormwater control. A complicated formula is used to estimate this mandatory contribution.
In practice, most large developments are separately required to provide open space, recreational areas, road improvements, sidewalks, water, sewer and stormwater control. So, impact fees generally go toward building new schools.
Orange and Chatham are the only two counties in North Carolina which impose impact fees on development. Legislation authorizing these fees was passed by the General Assembly in 1987. The bill was sponsored by Orange County’s then Rep. Joe Hackney, the powerful future Speaker of the House.
Now, due to actions by the Orange County Board of County Commissioners, the General Assembly is reconsidering this special status. Two bills have been proposed which would revoke our impact fee authority. Remember, what the state can giveth, it can also taketh away.
Impact fees have always been a controversial way to fund government.
On the one hand, proponents argue that the public shouldn’t have to bear any costs resulting from private development. On the other hand, opponents object to one property owner paying for government services that will be enjoyed by everyone. They argue that property taxes – including the future taxes paid every year by the new development – more fairly spread the cost to all.
Another fairness concern is the imprecise nature of calculating the fees. The money collected in Orange County goes to schools, but it is impossible to say definitively how many school-age children will live in any future residence. The fees are set by historic surveys and differ by number of bedrooms and other factors. But they still are paid by every project, including some, like student housing, that will never impact the school system.
Of course, there are unintended consequences, as well. Impact fees drive up development expenses. This, in turn, increases the cost of housing. That means new homes for sale will be sold at a higher price. It also means new apartments will have higher rents.
Late last year, the Orange County BOCC changed its formula and increased its impact fees. The impact of that decision was immediate and significant. The new fees are so onerous that they threaten to kill one new redevelopment altogether. This fee rise is what got the General Assembly’s attention, jeopardizing Orange County’s authority.
Chapel Hill’s Town House Apartments is a case in point. For 50 years, this family-owned 111-unit student housing complex has never had children among its residents. For the last few years, Town House has been working with Chapel Hill to renovate and expand its apartment offerings. The owners had planned to finalize their plans early this year, but that is now on hold.
How expensive was the county commissioners’ change? Before the increase, the Town House expansion would have cost $302,210 in impact fees. Afterward, the fees exploded to $1,503,695. You read that right. The impact fees grew by 400 percent, or $1.2 million!
Clearly the county had abused its authority. It also ignored the pleadings of the owners, who petitioned the board in February to be grandfathered under the old fee schedule since it was so close to final plans. When the county didn’t respond, the owners reached out to the General Assembly for relief. The bills at hand are the result of justifiable outrage over the adverse impact Orange County is having on its property owners. (Editor’s note: The Town House appeal was filed Feb. 21; county officials said this week they were working with the owners, but the owners had failed to respond with the necessary information.)
If the bills pass, Orange County will have to pay for its schools like all the other counties do in North Carolina. Everyone will share the expense for the greater good of educating children, instead of unduly burdening a few. That's all the property owners here are asking. Treat us equally when it comes to paying for services enjoyed by all.
Mark Zimmerman owns a home and small real estate business in Chapel Hill. He can be reached at MarkRZim@gmail.com