Orange County school impact fee fight heads to NC Appeals Court

The N.C. Court of Appeals will decide in the weeks ahead whether Orange County will need to repay millions of dollars collected for school impact fees since 2009. Judges heard an hour of oral arguments Tuesday in the case Zander v. Orange County.

“If a county wants to impose fees on its residents, is it required to get authorization and actually comply with that authorization?” asked Robert King, an attorney representing the plaintiffs challenging Orange County’s impact fees. “The answer is clearly yes.”

“The position apparently taken by the county is that as long as they hire a consultant and give it a shot, then that’s all that they’re required to do,” King added.

“The General Assembly said, ‘Yes, you can impose fees on people, but we’re going to put some pretty serious guardrails on what you can do,” King said. “We’re not just going to give you a credit card and say you can charge this, and the people of Orange County are going to have to pay the bill.”

The county urged a three-judge appellate panel to uphold a lower court ruling against the impact fee’s challengers. “The trial court correctly concluded that the impact fees challenged were expressly authorized by statute,” said attorney Sonny Haynes. “And the trial court correctly concluded that the plaintiffs-appellants did not meet their burden of proof with respect to showing that the fees were ultra vires.”

“Ultra vires” is a legal term for acting beyond one’s legal authority.

In May 2016 plaintiffs Elizabeth Zander and Evan Galloway paid an $11,423 school impact fee for their new home in Chapel Hill.

In November 2016, six months later, Orange County commissioners adopted a new ordinance that slashed the applicable fee to $5,639 moving forward. Zander and Galloway filed suit in February 2017.

The General Assembly gave Orange County the power to assess school impact fees in 1987. But plaintiffs argued the county “acted unlawfully by collecting impact fees that were beyond the County’s authority to assess, requiring the refund of nearly $8.5 million in fees, plus interest,” according to one court filing.

The suit also argued that the county owed partial refunds to some feepayers because of the November 2016 fee reduction. This “refund class” focuses on 1,400 fees paid between 2009 and 2016. Plaintiffs argue that the county owes those feepayers $2.3 million.

“The County ignored the directives of the General Assembly by failing to follow the statutory procedure for setting the amount of fees and by charging fees including costs that were not authorized by statute,” according to the plaintiffs’ lawyers.

The suit specifically targets the process Orange County used to update its fee structure in 2008. Plaintiffs argue that the county and its consultants’ “calculations went awry on the very first step.” They failed to limit their calculations to a set planning period for new schools. Without a planning period, the county could not have estimated the total cost of new schools needed during that time.

“The General Assembly said, … ‘We’re not going to give you a blank check or a credit card that the people of the county are going to have to pay for,” King said during Tuesday’s arguments. “You’ve got to show your work and show us how you’re going to spend the money. … The county never did that.”

Had the county followed the law, impact fees for new homes in the Orange County school district would have been zero, plaintiffs argued. Fees in the Chapel Hill-Carrboro city school district would have been lower as well.

While Chapel Hill-Carrboro fees would have accounted for a new elementary and middle school, there would have been no fee assessed for a new high school. “Because the County did not even attempt to set the amount of fees as authorized by statute, the fees included costs of schools that were not needed, and the fees charged to the Feepayer Class were not authorized by the 1987 Session Law,” plaintiffs argued in their Appeals Court brief.

The lawsuit also accuses Orange County of charging impact fees for school expenses not authorized by law. Plaintiffs cite charges for land, school buses, transportation facilities, and the cost of hiring the impact fee consultant.

Judge Allison Riggs asked why Orange County would include items not normally linked to school facilities.

“I think your honor was right to ask what’s the limit of the county’s position. There isn’t one,” said attorney Matt Tynan, representing the plaintiffs along with King. “Essentially, they’re arguing the statute doesn’t matter. They have infinite fee authority for whatever they want to charge.”

“An impact fee consultant’s charges shouldn’t be part of a school impact fee,” Tynan said. “Buses shouldn’t be part of a school impact fee. Offsite transportation facilities shouldn’t be part of a school impact fee. Offsite administrative buildings shouldn’t be part of a school impact fee.”

“The county’s position is essentially: Give an inch, take a mile. ‘We have a statute, so we were allowed to do whatever we want.’”  

The county challenged Zander and Galloway’s claims. “[I]t bears emphasis that every argument or theory of recovery advanced by Zander assumes the Fees were ‘illegal.’ Various definitions of the term ‘illegal’ – e.g. contrary to law, not authorized by law, prohibited by law, not authorized or sanctioned, etc. – eviscerate this underlying assumption of Zander’s narrative in this case,” according to the county’s Appeals Court brief.

“Even the case law cited by Zander to support the assertion that the Fees were ‘illegal’ involved local governments that did not have express authority and cite the Enabling Act for the proposition that the General Assembly knows how to grant such authority and granted it to Orange County and other local governments,” Orange County’s attorneys wrote.

Orange County Superior Court Judge Allen Baddour ruled in favor of the county in June 2022, more than five years after the lawsuit started.

There is no deadline for Riggs and Appeals Court Judges Fred Gore and Michael Stading to issue a ruling in the case.

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