Politics & Government

Legislation would end impact fees on development in NC

Raleigh is one of 11 Triangle cities that would no longer be able to require developers to pay impact fees on new construction under a bill now being considered by state legislators.
Raleigh is one of 11 Triangle cities that would no longer be able to require developers to pay impact fees on new construction under a bill now being considered by state legislators. 2016 News & Observer file photo

As new residents continue to pour into the Triangle, cities and towns here have come to rely on fees levied on developers to help pay for roads, utilities and other public services that their growing communities need.

Now a bill in the General Assembly would end that practice. House Bill 436, filed last week by Rep. Sarah Stevens, an attorney from Mt. Airy, would nix the ability of counties and municipalities statewide to impose regulatory fees, including impact fees, on new construction. It also would repeal existing state laws that give some Triangle towns, including Raleigh, Cary and Knightdale, the authority to impose these kinds of fees for certain purposes.

“It’s a disaster for all towns,” said Dick Sears, mayor of Holly Springs, which has been using impact fees for years.

The bill follows a state Supreme Court decision that found the town of Carthage in Moore County exceeded its authority when it charged impact fees to pay for expanded water and sewer service. The court ordered Carthage to repay fees going back 10 years. There is now litigation on how far back the payments should go, but Carthage could end up having to pay hundreds of thousands of dollars.

While the decision in Quality Built Homes Inc. v. Town of Carthage affected only one town, it has raised questions about the authority of other cities and counties and could lead to more litigation. The legislature has granted the authority to impose impact fees to only a few places, but some cities and towns across the state have been using them for decades without specific authorization.

The ruling was a victory for the home building and real estate industries, which have long opposed impact fees on new developments. Orange County real estate agent Mark Zimmerman, chairman of the N.C. Realtors Association’s legislative committee, said Realtors think it’s unfair to target fees to new developments, partly because there is no way of predicting how these properties will impact services in the future.

“We don’t believe that individual property owners should be burdened with the costs of public services that benefit the entire community,” Zimmerman said.

The Realtors Association supports the elimination of impact fees, but it has not taken a position on House Bill 436 because it is still studying the other fees the bill would eliminate. These include facility fees, project fees, capacity fees or any other fee that requires a developer to help pay for capital costs associated with new construction. Zimmerman said the Realtors support fees tied to a specific project, such as paying for a turn lane or particular street lights, but not fees used on projects that serve a broader area.

House Bill 436 is part of a broader pattern by the Republican-controlled legislature to curb the powers of local governments. Since 2010, the General Assembly has limited zoning authority that allows localities to regulate how land is developed and how homes are designed. They’ve changed how school boards, city councils and county commissioners are elected. And they took control of Asheville’s water system and Charlotte’s airport from those cities’ leaders. And last week, they continued to block local ordinances on discrimination with the law that replaced House Bill 2.

Local governments and the organizations that represent them say doing away with local fees on development will shift the burden of growth on existing local taxpayers.

“The issue here then is if the developers don’t pay for this, who is going to pay for this infrastructure,” said Scott Mooneyham, a spokesman for the N.C. League of Municipalities. “Does the entire taxpaying base of the city or town – do they pay for this? Because the fact is, somebody has to pay for the cost of infrastructure.”

Triangle growth

In addition to a statewide ban, House Bill 436 specifically targets by name Triangle towns Carrboro, Cary, Chapel Hill, Garner, Knightdale, Pittsboro, Raleigh, Rolesville, Wake Forest, Wendell and Zebulon, as well as Chatham and Orange counties – places the General Assembly has authorized to impose impact fees of some sort. Most of these authorizations date back to the 1980s, and all would be repealed under the bill.

The regional Triangle J Council of Governments has estimated HB 436 could cost the 11 Triangle communities $28.9 million each year.

“It only serves one group of people and that’s developers, and they are already making a killing,” Cary Mayor Harold Weinbrecht said. “I don’t think it’s fair for me or anybody else to pay for somebody else to make a profit.”

Mayors such as Weinbrecht say the bill, if passed, could slow economic growth because local governments would be less likely to approve projects that prove too expensive to accommodate. It also could lead to increased property taxes and utility rates.

“Our current impact fees don’t even come close to covering the cost of the impacts developments cause,” Weinbrecht said. “If developers don’t pay for the impact, they cause the taxpayers to.”

The City of Raleigh anticipates an annual revenue loss of $19.1 million to $22.7 million if the bill passes. To compensate, the city could have to impose a 2 cent property tax increase and an 8 percent utility rate increase, according to city staff.

While Holly Springs doesn’t have specific authorization from the legislature to impose impact fees, the town has done so for some time. And Sears, the mayor, said the fees are clearly not stopping developers, since the town has grown from 1,300 residents to 31,300 in the last 16 years.

“The impact fees, developers are pretty much used to those,” he said. “And, of course, they take that fee and put it into the price of the home.”

But Zimmerman said “any additional fees or regulatory hurdles discourage development,” and that the cost of the added fees could be passed on to homeowners, resulting in more expensive housing. He said this happens in Orange County where some homeowners had to absorb the cost of the county’s school impact fee, even when the housing was built for college students or seniors.

“So in a community that’s very concerned about providing affordable housing, this works in the opposite direction because those costs have to be absorbed by someone,” he said.

Orange County bill

In addition to HB 436, Stevens filed House Bill 406 a few days earlier that would end impact fees that support Orange County school construction. She is the only sponsor of HB 406, and one of two Republicans sponsoring HB 436.

“That’s probably a good sign in that there’s not a whole bunch of people signing onto these and saying, yes, we support this,” Rep. Graig Meyer, a Democrat from Hillsborough, said in a recent Orange County Board of Commissioners meeting.

Another bill Stevens filed, House Bill 405, would require home builders who are refunded impact fees because the city or county lacked authority to impose them to reimburse homeowners who paid any portion of the fees that were reflected in the purchase price of their home. That bill is sponsored by one other Republican and five Democrats.

Stevens is the Speaker Pro Tempore, among the most powerful members of the House. State campaign records show she has received donations from real estate and construction interests that oppose impact fees, including the N.C. Realtors and N.C. Home Builders Association political action committees. She and her husband operate S&E Properties, a Mt. Airy real estate leasing and rental company.

Stevens could not be reached for comment.

State Rep. Verla Insko, a Chapel Hill Democrat, has said her understanding was that Stevens filed HB 406 in response to a recent change in the way Orange County levies its impact fee on new residential construction.

Insko said the bill may stem from the impact of the new fee structure on the Residence at Grove Park project – formerly the Town House Apartments – in Chapel Hill. The developers may have not gotten approval before the change went into effect, she said, pushing their estimated impact fee bill of $300,000 to more than $1 million.

Zimmerman also cited the impact fee change as a probable cause of the bill.

“Over time, these impact fees have just inched up,” he said. “It’s just kind of the cost of doing business here. But now, all of the sudden, they jumped up, and that put a magnifying glass on the issue.”

‘A better solution’

In the wake of the Quality Build Homes Inc. v. Town of Carthage case, Mooneyham said law firms have been “lining up” to file similar lawsuits against municipalities and soliciting business from developers to sue cities and towns. That’s because there has been no clear answer on how and which communities could be covered by the ruling, because they use impact fees in different ways and at different points in the development process.

“The Carthage decision really created a void in understanding what cities and counties can and cannot do with respect to their history of charging impact fees,” said Sen. Paul Newton, a Cabarrus County Republican. “This is one of those situations where it’s nobody’s fault here but now where do they stand?”

Newton said that in response, he is working with builders, municipalities and counties on legislation that would fix the “patchwork quilt” of impact fee authority across the state.

“The last thing we want to do is have runaway litigation against our cities and our counties,” he said. “It could have the unintended effect of reducing growth or dampening growth in our state.”

Newton’s bill, which has yet to be filed, would give all cities and counties the ability to charge impact fees but limit it through a formula that would determine how much they can charge.

Newton thinks his plan would bring “balance” by ensuring the cost wouldn’t be entirely on the builders or the taxpayers, who “also benefit in the long run by more rooftops in the area in terms of spreading the tax base and lowering their overall taxes.”

“I think it’s going to be probably a better solution than any bills that have been filed so far,” he said.

Staff writer Tammy Grubb contributed.

Kathryn Trogdon: 919-829-4845: @KTrogdon