Orange County could be forced to refund millions of dollars to several hundred residents and developers who built new homes from 2009 to 2016 if a class-action lawsuit is successful.
The county faces the possibility of refunding at least $11 million to $12 million, plus attorneys’ fees and interest, Raleigh attorneys Matthew Tynan and Robert King III, representing the plaintiffs, estimated in a recent interview with The News & Observer.
Orange County had the state’s permission for 30 years to charge fees on new residential construction to help pay for new schools. In 2017, the state took that authority away, and a Chapel Hill couple sued to have some of their fees refunded.
In December, the N.C. Supreme Court rejected Orange County’s argument that the number of potential plaintiffs was limited because the deadline for many of them to file a lawsuit expired in 2009.
That meant homeowners and developers who paid an impact fee from March 3, 2014, to Dec. 31, 2016, were eligible to join the lawsuit, as well as those who paid more from 2009 to 2016 than they would have paid under a fee schedule update in 2016.
The court did not address the merits of the lawsuit, which includes Chapel Hill as a defendant because the town collected and enforced the fees. The case was sent back to Orange County Superior Court for a hearing. That has not yet been scheduled.
County revises impact fee, lawsuit filed
The state legislature gave Orange County its authority to charge impact fees on new homes in 1987, and the fee raised roughly $45.7 million over 30 years to help pay for school construction projects.
Court documents show that buyers and developers of single-family homes paid the highest impact fees from 2009 to 2016 — $5,623 in the county school district and $11,423 in the city school district.
But when the Orange County commissioners voted in 2016 to increase some fees and reduce others, developers who faced higher fees complained to state lawmakers. That prompted the bill seeking to repeal the county’s fee authority.
Although the commissioners backpedaled on the changes, the county lost its impact fee in 2017. Only Chatham County still has the authority to charge impact fees to pay for new schools.
Chapel Hill homeowners Elizabeth Zander and Evan Galloway initially asked the county to waive their $11,423 in impact fees but were denied. They sued the county for a refund, plus interest, charging that the county exceeded its authority in setting the impact fees.
According to the lawsuit, the fee accounted for nearly 6% of the couple’s construction budget for their home.
In 2018, Orange County Superior Court Judge C. Winston Gilchrist determined the lawsuit could include anyone who paid Orange County’s impact fee on a new home between 2009 and 2016. The county appealed that decision to the Supreme Court.
Costs, refund rule questioned
The lawsuit contends the county, while authorized to levy impact fees, did not follow the legal process for determining and assessing the fee, including an evaluation of the cost of construction “that will be needed” over a period of up to 20 years.
Instead, the county’s consultants used the cost of schools that had already been built, as well as student enrollment numbers and the previous costs for portable classrooms, buses and other vehicles, and for support facilities, such as transportation buildings.
Those were not authorized costs, Tynan said.
“The county didn’t look at, OK, we’ve got to build a new elementary school, we’ve got to build a new high school, we’ve got to build two new middle schools that’s going to cost X dollars and we need to collect that amount of money,” he said. “They didn’t even consider whether any new schools were going to be built.”
Records show the county paid $47.5 million to open two new schools between 2008 and 2016 — Morris Grove and Northside elementary schools — but also used fee revenues to pay the debt on prior school projects, including the $36.8 million spent in 2007 and 2011, respectively, to build and expand Carrboro High School.
The county reported in 2016 collecting nearly $14.9 million in impact fees and spending nearly $10.9 million from 2008 to 2016.
The attorneys sought to expand the case to cover more potential fee payers, because the county rules until 2016 included a clause requiring refunds if the fees were reduced for any reason.
“We contend that happened in 2016, and everyone who paid fees under the old fee structure from 2009 to 2016 should have had their personal refunds sent to them by the county,” Tynan said.
He and King said the county’s only real defense was that the statute of limitations had run out on some or all of the claims.
“I don’t know what they think they’ve got on the merits. I think the only real defense they’ve raised has now been rejected by the Supreme Court,” King said.
They are waiting now for county records to determine exactly who is entitled to a refund. Some homes were built by individuals, they said, while others were built by developers, raising additional questions about who is entitled to a refund.
They advise anyone who paid an impact fee to Orange County between 2009 and 2016 to find a copy of their payment records.
Efforts to reach Sonny Haynes, an attorney with Womble Bond Dickinson law firm, who is representing the county, were unsuccessful.