A $50 million impact fee question: Spend money on Fort Mill schools to pay for what?

A $50 million question involving York County and the Fort Mill School District may be answered -- at least in part -- next month.

York County and Fort Mill schools are trying to decide how to use money collected through impact fees.

Impact fees are assessed on new construction to help pay for greater demands on infrastructure due to growth. In this case, the focus is on Fort Mill’s schools. Builders typically pay the fees up front, then add that cost to the price of new homes.

York County Council has tentatively voted 3-2 to update the Fort Mill School District’s capital improvements plan, which is linked to impact fees. An improvement plan, which lists what impact fees can be used for, is required by law.

A public hearing on the proposed plan is scheduled Dec. 22. That’s when the plan is up for the third and final vote.

During a recent county council meeting, Mike Pruner, president of Home Builders Association of York County, held up 288 pages of impact fee payments since 2018. He said the payments are based on faulty calculations.

“Those monies absolutely should be refunded,” Pruner said.

He says the refund should go to the home buyers.

School district officials say the basis for past fees, and now-proposed changes to the capital needs plan, are based on S.C. law.

“We have worked on this plan with our lawyer and we are confident that it meets all of the appropriate requirements,” said School Board Chair Kristy Spears.

Legal clarity for spending impact fees

Fort Mill schools had a flat-rate school impact fee of $2,500 per new home or apartment for more than two decades.

In 2018, York County approved new rates of more than $18,000 per home and $12,000 per apartment. Home builder groups sued the county. They claimed the fees were arbitrary and hurt property owners.

The courts upheld the county’s and district’s authority to charge, collect and spend money from impact fees.

Attorneys argued the Fort Mill school impact fee case. Here’s what the judge heard.

School districts in Clover and York later applied for impact fees. Clover fees were approved, but at lower rates than state law allows. Fort Mill has the highest allowable rate. York, to date, hasn’t had a fee approved.

County Council votes against proposed impact fees for York School District. Here’s why

After the county and Fort Mill district won the lawsuit, the two found themselves on opposite sides of a legal question: Can the money be used to pay bond debt? The district says yes; The county’s not so sure.

So the county has asked the courts for clarify the issue. There has been no ruling on that question.

The county and district, meanwhile, have worked toward resolution by way of a new capital improvement study, and changes that, if approved this month, would allow the district to use the $50 million.

Deeper study needed

Pruner says the ongoing legal case is a reason to delay updating the capital improvement plan.

“York County has pending litigation against the Fort Mill School District over this matter,” Pruner said. “Why can’t that play out in the court?”

Pruner said a more thorough study needs to be done. He said there should be updates on growth rates, debt service, new bonds issued and credits for paying debt.

Annual spending reports and cost comparisons -- for expanding schools as opposed to building new ones -- are needed, Pruner said. If a new study and a new impact fee passes, then homes should be charged under that setup, Pruner said, but fees collected on homes since 2018 shouldn’t be kept.

“These are the people that everybody needs to think about,” Pruner said. “Half the money was collected for an ill-gotten purpose. That doesn’t change that these people paid it and should get it back. What you can change is how it’s done going forward.”

Dramatic growth could mean higher fees

School district Chief Financial Officer Leanne Lordo said the district is in full compliance with S.C. impact fee laws.

Lordo said bond projects, specifically Catawba Ridge High School, which was under construction when the larger impact fee passed, were incorporated in the initial 2018 impact fee calculations, which is the basis for how much the district by law can charge.

“We identified in our study all of the sources and the funding that were available to finance our system improvements, which included the bond debt,” Lordo said. “Our study clearly identified numerous times that bond debt would also be used to finance our system improvements, which is our new schools.”

Lordo said recent work with a consultant shows construction and land costs are up, as are student numbers.

“The number is substantially higher,” Lordo said.

Spears said the district was shocked in 2018 at its roughly 15,000 students. Now the district has more than 18,000 students and is the largest district in York County.

“They are literally coming by the day,” Spears said.

Spears said a new, thorough study would show more need than the current impact fees cover.

“If we were to redo that study today, there is no question that in the last four years the cost of land has gone up, the cost of buildings has gone up and in fact our pupil generation rate has gone up,” Spears said. “The impact fee would definitely go up significantly.”

Impact fees influence business choices

Act 388, under South Carolina law, created a tax structure where businesses, rather than homeowners, pay taxes to fund schools.

Impact fees aren’t a tax, but without them greater costs for school construction would fall to bond debt, typically passed by voter referendum. And, in most cases, paid with taxes.

“The business community pays the lion’s share of school taxes,” said David Buist, board member and past chair with Fort Mill Economic Partners.

Buist cited a study where the tax rate in South Carolina is four times higher for businesses -- fourth worst in the nation. Because Charlotte sits so close, the issue is critical in the Fort Mill area.

“We feel it the worst in York County,” Buist said. “We’re comparing. Our businesses are trying to find homes between Mecklenburg County and York County. We’re having a very hard time making that distinction. Why Fort Mill? Why York County?”

Dean Faile, president of the York County Regional Chamber of Commerce, said impact fees make business sense because they reduce the tax burden for businesses.

“As much as we have a distaste for increased taxes, we realize that this was certainly a needed avenue of paying for growth in the Fort Mill School District,” Faile said of the 2018 decision.

Councilman Tom Audette said he foresees perhaps a 10% tax increase for businesses if they have to pay more for new schools without impact fees.

“This is a critical piece to say that we’re going to get some relief for our businesses and our residents, and we’re going to make this a business friendly environment,” he said.

Not a hinderance to growth

As far back as the smaller school impact fees that began in the mid-1990s, there have been claims that impact fees stunt growth.

But Fort Mill and surrounding areas within the school district have been among the fastest growing places in the region for more than a decade.

People in York County are shifting. One place in particular just keeps getting bigger.

“That growth has not been stifled from a residential standpoint in any way,” Faile said. “The important thing here is not to stifle the business growth.”

The growth conundrum

Audette said the state tax structure puts pressure on businesses, but also stresses the school district, which is rated among the best in the state.

People will move to the district because of the lower home tax rates.

“They’re all going to want to come here,” Audette said. “And that’s what happened in this situation. We’ve seen over the years, the growth has been astronomical.”

Councilman William “Bump” Roddey said he agrees the state tax setup creates a situation where people will flock to quality schools. But Roddey voted against the current capital plan changes.

“To me this is a legal question,” Roddey said. “We’re faced with a legal challenge or a legal battle. Not whether we agree that Fort Mill needs the money. Everybody knows that Fort Mill needs the money for the schools.”

The county has been working on the issue for almost a year. They hoped state legislators would clarify the bond debt spending question. That didn’t happen.

“How do we go from what the intentions were, that we put this impact fee in at $18,000? And what was said that money was going to be used for,” Roddey said. “Now we’re changing courses.... I kind of question how we’ve gotten from one step this direction to now a different step.”