Homeowners sued their county over fees. The case now heads to NC Supreme Court.

A lawsuit challenging Orange County’s now-defunct impact fees on new home construction has been appealed to the N.C. Supreme Court following a 2-1 appeals court ruling that most claims were rightly dismissed.

The N.C. Court of Appeals backed part of a claim by Chapel Hill homeowners in its July 5 ruling that the county unlawfully included the cost of new school buses and completion of an impact fee study in what they were charged.

The court concluded that fees related to those costs should be refunded. However, the evidence did not show how much money should be returned, because the fee was set at only 32% to 60% of the maximum possible cost calculated by TischlerBise consultants, the Maryland firm that performed the 2007 study.

The 2-1 ruling sent the lawsuit back to Orange County Superior Court for a hearing on those claims. It backed Orange County Superior Court Judge Allen Baddour’s decision to dismiss the lawsuit’s other claims without a hearing.

However, the new Superior Court hearing is now on hold, pending an N.C. Supreme Court ruling in the case. That could take a year or more, Orange County Attorney John Roberts told The News & Observer in an email Friday.

Any future decision ordering the county to refund impact fees “would be a tiny fraction of a fee that was not imposed at 100% of the lawfully allowed amount,” Roberts said.

Revised fee for school construction

The General Assembly gave Orange County the authority to charge an impact fee in 1987 on each new housing unit built in the county.

The fee raised roughly $45.7 million over 30 years to help pay for school construction projects that addressed rising student enrollment in the Orange County and Chapel Hill-Carrboro City school districts. It was changed over time to reflect whether new homes were built in urban or rural areas, and different types of dwelling units.

State law required the county to budget for school needs over a 20-year period and spend the money that was collected within 10 years. In 2017, the fee generated roughly $2.8 million for both school districts. TischlerBise had estimated the county’s capital costs in 2007 at roughly $17.3 million a year for both school districts over five years.

The Orange County Board of Commissioners last revised the fee in 2016 based on the study’s recommendations, setting lower fees for small, single-family homes of less than 800 square feet and for age-restricted housing.

The board also amended the county’s impact fee ordinance to limit when fee payers could seek a refund.

Superior Court lawsuit filed

In 2017, the General Assembly voted to take away the county’s authority, the commissioners repealed the fee, and Chapel Hill homeowners Elizabeth Zander and Evan Galloway filed a lawsuit seeking a refund, plus interest.

The couple stated in their lawsuit that the fee accounted for nearly 6% of the construction budget for their home.

The lawsuit contends the county exceeded its authority by not following the legal process for determining and assessing the fee, including a cost analysis of the construction that would be needed over the next 20 years.

TischlerBise consultants instead used the cost of schools that had already been built, student enrollment, and the previous costs for support facilities and portable classrooms, buses and other vehicles.

Raleigh attorneys Matthew Tynan and Robert King III, representing the plaintiffs, eventually initiated a class-action complaint involving potentially thousands of homeowners and developers who paid the impact fee. They told The News & Observer at the time that the refund amount could be up to $12 million, plus attorneys’ fees and interest.

Superior Court Judge Allen Baddour dismissed the lawsuit in June 2022, and the plaintiffs appealed.

Appeals court mixed decision

In July, Appeals Court Judges Allison Riggs and Fred Gore issued a ruling in which they agreed in part with Baddour, saying the county’s policy “plainly states a 10-year planning period was used in setting the impact fee rates.” State law does not specify a specific planning timeline or itemization requirement, they said.

The judges also considered money spent on transportation and other non-academic needs, taking a broad view that any buildings constructed by a scholastic institution to serve students are included. However, they said, the county should not have included the cost to purchase new buses or to complete the 2007 impact fee study.

The ruling dismissed claims that the 2007 impact fee study, and a new study done in 2016, did not include up-to-date information and were not the only reason for the rate changes.

Justice Michael Stading, in a dissenting opinion, argued that all of the lawsuit’s claims should be heard in Superior Court. TischlerBise did not use a planning period as required by state law, and as such, the consultants could not properly calculate the county’s capital demands or accurately determine the cost of the fee, he said.

A summary of income and expenses over a five-year period is a projection, not a planning period, he added, and if the county’s consultant did not use a planning period in its analysis, then the county did not use one either.

“The use of ‘a reasonable planning period not to exceed twenty years,’ is material to the litigation,” Standing said in his opinion. “Here, the statute must be strictly construed and, unlike horseshoes and hand grenades, strict compliance with its provisions is required.”

He also questioned whether the county followed its rules for refunding unlawfully collected impact fees and whether the “fees were reduced for reasons other than an updated school impact fee study.”

“The County’s own 30(b)(6) witness cited concerns of ‘timing’ and ‘the nature of the General Assembly.’ Thus, there is a genuine issue of material fact as to whether the County complied with the refund provision required by its Ordinance as amended in 2016,” Stading wrote.