Jury decides whether Orange County must refund millions in impact fee revenue
AI-generated summary reviewed by our newsroom.
- Jury ruled Orange County legally collected impact fees for school construction.
- County avoided a $12M–$16M refund after defending 30-year fee collection record.
- Impact fees generated $45.7M since 1996 to fund schools amid population growth.
A Superior Court jury unanimously rejected claims Thursday that Orange County illegally collected millions of dollars in impact fees on new housing to pay for school construction and expansion.
The fees were collected for 30 years to help pay for an influx of new students, said Sonny Haynes, the county’s attorney. The fees were not collected after 2016.
“Impact fees are meant to be a fair way that the new people coming into the county, the new students coming into the school system, pay their fair share of what those costs are going to be, so that all of the children can enjoy the same level of service,” Haynes said.
Commissioners Earl McKee and Jamezetta Bedford, the board’s chairwoman, expressed appreciation for the jury Thursday and its “solid, appropriate verdict.” The county faced an estimated refund of $12 million to $16 million if it lost.
“They addressed a very complicated, very in-depth subject,” McKee said. “They were able to analyze the facts and differentiate the facts from all of the material presented, and they made an appropriate decision.”
Impact fees are one-time charges on new single-family and multifamily construction that help pay for related streets, utilities and other public infrastructure, as well as police. Homeowners either pay the fees directly to their local government, or indirectly as part of the purchase price on a new home.
The General Assembly gave Orange County its impact-fee authority in 1987, and the county started collecting fees in 1996. Studies show the impact fee generated roughly $45.7 million for school construction needs over 30 years.
It was updated several times, including in 2007 and 2016, when consultants with TischlerBise were hired to study school needs and recommend updated fees. The 2016 changes accounted for more apartments and charged more for housing with more bedrooms, while lowering the fee for age-restricted housing and single-family homes under 800 square feet.
Developers angry about the changes reached out to the General Assembly. In 2017, it revoked the county’s impact fee authority.
Chapel Hill couple sued after paying impact fee
Elizabeth Zander, who filed the original lawsuit with her husband Evan Galloway, called the jury’s decision “disappointing.”
“We’re very happy with the Chapel Hill-Carrboro school system, and we love our teachers,” Zander said, but “Seawell Elementary School, where our children are districted, is a shrinking school.”
She raised similar concerns in her testimony Tuesday, saying she and Galloway had been “really upset and surprised” to learn about the $11,423 impact fee, which took over 5% of their $203,900 home-construction budget. They managed by doing most of the work themselves, and paid the fee after failing to get a reduction from the county, she said.
The impact fee “didn’t really make sense or seem fair,” she testified, because the land they bought in 2015 was in a neighborhood that already had government services, and where no original owners had paid the impact fee.
When the couple learned in 2016 that the county had reduced the fee, they asked for a refund but were denied again, because the fee was lowered in response to the new impact fee study. In 2020, their lawsuit became a class-action case.
Orange County Superior Court Judge Allen Baddour, who presided over the trial, dismissed Zander and Galloway’s lawsuit in 2022 without a hearing. The case was appealed, and the N.C. Court of Appeals agreed with Baddour in a 2-1 decision, but ordered a Superior Court hearing on the costs the county used to calculate the fee.
Zander and Galloway also appealed to the N.C. Supreme Court, which backed the dissenting Appeals Court judge in questioning the county’s refund policy and whether the fee was based on a planning period for school building needs.
Did the county need the fee, school construction?
The plaintiffs’ case relied on several hours of testimony from former Planning Director Craig Benedict about how the county identified enrollment-related school needs and the specific planning period it used. The state required Orange County to set a fee that would pay for projects serving new students over a maximum of 20 years. The revenues had to be spent within 10 years.
The county “did it the right way” in 1995, plaintiffs’ attorney Bob King said, using what he said was a plan-based approach to find the total, future cost of specific school building projects and dividing the result by the number of anticipated new students. The result was used to set impact fees for different types of housing.
TischlerBise studies in 2007 and 2016 used an incremental approach, dividing the combined cost for land, buildings, and other facilities by the anticipated students. The number of future students was based on prior enrollment and housing growth.
The county couldn’t know how much future buildings would cost, Benedict testified, while declining to answer specific questions about school cost or fee estimates, because his department was not involved in that work. The commissioners set the impact fee for each type of housing at no more than 60% of the maximum possible fee, he said.
King argued there was no specific planning period, the schools had space for new students, and the county schools didn’t identify a need for any new buildings in a 2008 report. The county also did not explain during the trial how it spent the money, he said.
The jury needs “to stand up and say commissioners have to follow the law,” King said before deliberations Thursday.
“I can’t believe we live in a world where I have to say this, but public officials actually have to follow the law, whether you’re talking about local officials, the governor, or federal officials,” he said.
Experts back impact fee studies, county action
Haynes contended the county followed its 10-year capital improvement planning period for construction projects and big-ticket purchases, calling two experts to testify about the county’s method and impact fee assessments.
TischlerBise Vice President Julie Herlands, who worked on the 2007 and 2016 studies, testified that the incremental approach was better, because it helped identify enrollment-related needs over time and provided flexibility to address those needs.
She also disputed King’s contention that the 1995 impact fee study was based on a specific plan, not an incremental assessment.
A second witness, James Nicholas, a retired professor emeritus of urban planning at the University of Florida Levin School of Law, testified that state law does not require a specific method to set impact fees.
Nicholas studied the TischerlerBise reports and the county’s school capacity reports, he said, and didn’t find a problem. A plan-based approach would have found similar results to the incremental approach, he said.
King asked Nicholas during cross-examination whether impact fees should be charged if no construction is planned.
“If they don’t need school capacity, that’s correct. There would be no justification for the impact fee,” Nicholas said.
Orange County Schools opened its last new buildings — Gravelly Hill Middle School and Partnership Academy — in 2006 and 2007. In 2015, a wing to serve 500 more students was built at Cedar Ridge High School, instead of a third high school.
Chapel Hill-Carrboro City Schools opened three new schools between 2007 and 2013 — Carrboro High School, Morris Grove Elementary School and Northside Elementary School. It also added a new science wing at Culbreth Middle School.
