Split NC Supreme Court orders further review of local water and sewer ‘capacity’ charges

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The North Carolina Supreme Court split, 4-3, on whether Harnett County should be forced to prove that its water and sewer capacity usage charges could be distinguished from an unconstitutional taking of private property.

The reversed majority decisions of a trial judge and a unanimous panel of the North Carolina Court of Appeals in favor of the county. The state’s highest court ordered a trial judge to hold new hearings.

At issue in the case, Anderson Creek Partners v. Harnett County, is a fee charged in 2016 to any property owner seeking to connect to county-owned or operated water and sewer service. The county charged $1,000 for water service and $1,200 for sewer service for each new residential connection. Until that fee is paid, the county would not approve landowners obtaining essential state permits.

The majority of the state Supreme Court determined that these fees were “impact fees” and not “use fees”.

“As the county admits in its brief, the disputed ‘capacity utilization’ charge is intended to ‘cover the cost of expanding water and sewer system infrastructure to accommodate the new development,” a description that fits squarely within the definition of an “impact fee,” Judge Sam “Jimmy” Ervin IV wrote. “The charge at issue in this case is not a water service charge and sewer, paid by customers at a flat rate in accordance with their monthly metered water and sewer usage for the purpose of paying for the service they used. Further, the disputed charges are not “handling fee” paid at the time individual lots are connected to the county water and sewer system.”

“Instead, the charges at issue in this case are intended to provide the county with a contribution towards the cost of expanding its water and sewer infrastructure to accommodate the additional customers that will be added as a result of the development of the developer.”

Ervin and the majority also treated capacity use fees as “exactions,” meaning they are subject to additional constitutional scrutiny.

“[T]o the extent to which the disputed “capacity utilization” charges at issue in this case are intended to cover the cost of expanding the county’s water and sewer systems to accommodate developments in which complainants have been involved, and then complainants, rather than the general public (who already support the existing system through the payment of user fees and, perhaps, taxes), may be made to bear these costs to the extent where they are “roughly proportional” to the impact of the proposed developments on the county’s water and sewer system,” Ervin wrote.

Further legal proceedings should determine whether the water and sewer capacity user fee meets the test of being “roughly proportional,” Ervin said.

The majority decision also allows the county to present evidence before a trial judge that the plaintiffs, a group of developers, passed on “capacity utilization” fees to homebuyers. “In the event the trial court finds that the claimants have done so, it will be permitted to hear evidence regarding the proper manner in which such amount should be distributed to the parties in order to ensure that no party receives a boon as a result of these procedures,” Ervin wrote.

Ervin, a Democrat, joined the court’s three Republican justices to form a majority in the case. Yet two of those judges, Phil Berger Jr. and Chief Justice Paul Newby, disagreed with an element of Ervin’s opinion.

“I join the majority opinion in general,” Berger wrote. “However, if an unconstitutional hold has occurred, there is no scenario in which the county can retain the fees collected. The county should not benefit from its hold, and I respectfully disagree with this part of the opinion.

Meanwhile, the other three Democrats on the court disagreed with the bulk of opinion.

The majority decision “is based on a mischaracterization of the county’s actions and the choices presented to landowners in Harnett County,” dissenting Judge Anita Earls wrote.

“The result is an unwarranted and reckless extension of the scope of the revenue clause that will engender frequent litigation and could ultimately diminish the ability of municipalities to recover fees to offset the costs of maintaining vital public infrastructure for the benefit of the public. “, added Earls. “While this decision has few immediate practical consequences, it also signals heightened hostility towards the government reminiscent of a bygone era.”


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