System Development Fees are the New Impact Fees

UPDATED Spring 2021: In S.L. 2020-61, the legislature made changes to collection timing, as discussed here, and expanded the purposes for which SDFs assessed using the combination approach may be expended (see below). 

UPDATED August 2018: The legislature made a few changes to the System Development Fee law during the 2018 legislative session (S.L. 2018-34). For information on those changes, click here.

As detailed here, in 2016, the North Carolina Supreme Court held that municipalities (and by analogy counties) lack the statutory authority to impose certain upfront charges for water and sewer services. Upfront charges are charges imposed on new or existing development before a property parcel is actually connected (or under contract to connect) to a local government’s water or sewer system. Local government utilities across the state impose a wide variety of upfront charges, some that are assessed only on developers as a condition of securing development approvals, and others that are imposed on both new and existing property owners. The purposes of these fees range from reimbursing the utility for past investments, to reserving capacity, to covering the costs of extending infrastructure, to establishing a reserve for future maintenance or expansion of the system. In Quality Built Homes Inc. v. Town of Carthage, No. 315PA15, ___ N.C. ____ (Aug. 19, 2016), the supreme court invalidated certain types of upfront charges. Questions remained, however, as to whether government utilities have authority to impose other types of upfront charges pursuant to their general rate-making authority. As detailed in this post, local government utilities were left to make difficult decisions about who to charge, when to charge, and how to calculate the amount of the charge.

A new law, the Public Water and Sewer System Development Fee Act, S.L. 2017-138, clarifies a local government utility’s authority to assess upfront charges for water and sewer. The new law grants local government utilities specific authority to assess one type of upfront charge—a system development fee—albeit with significant limitations. It also preserves the authority of local government utilities to impose certain other upfront fees. At the same time, however, it prohibits local government utilities from assessing many of the types of fees that have become routine in recent years. Local government utility providers will need to act soon to bring their fee schedules into compliance.

This post sets out the basic contours of the new law. It discusses who must comply, who can be assessed and when, what the processes are for calculating and adopting the fee schedule, and how a local unit must administer the fee proceeds. It also lists the other types of allowable water and sewer charges. Finally, it identifies a few drafting quirks that may cause some implementation issues. The Generally Assembly has specified that the new law’s provisions be narrowly construed by the courts. To that end, local officials should carefully follow the statutory requirements and proceed cautiously when interpreting any statutory ambiguities. (Future posts will flesh out the details for the calculation requirements and deal with potential liability issues for past fees that were assessed unlawfully.) Read more »

Difficult Exemption Questions

To qualify for most property tax exemptions in North Carolina, property must be both owned by a qualifying taxpayer and used for a qualifying purpose. (You know that because you’ve read this post, right?)

A recent email from a county tax office highlights how difficult these question can become. Although you might never face the exact same scenarios as this county did, the analysis I share below should help with your next knotty exemption problem.

Here’s a brief description of the two property owners in question.  (Names changed to protect the innocent and the guilty, the taxable and the exempt.)  Should either of these property owners be exempt?

Local Government Lawyers: Take Care in Asserting Governmental Immunity

When a city, county, or other unit of local government is sued for negligence or other torts, it’s common practice for the unit’s attorney to file a motion asking the trial court to dismiss the lawsuit based on the defense of governmental immunity. (See blog posts available here and here for an explanation of governmental immunity fundamentals.)  Many local government attorneys believe that, if the trial court denies such a motion, the unit always has the right to an immediate appeal.  As a recent decision by the North Carolina Court of Appeals reminds us, however, whether the unit may immediately appeal can depend on how the immunity defense is framed in the motion.  This blog post aims to

• explain when a motion to dismiss that alleges governmental immunity is immediately appealable and
• identify practical steps local government lawyers should take to ensure that the right to an immediate appeal is preserved.

Read more »

Significant Change to North Carolina’s Rabies Law

In July 2016, I wrote a blog post entitled Rabies Prevention and Control: Integrating Recent Research into North Carolina’s Legal Framework. It tells the story of Duke – a dog that was potentially exposed to rabies. Since that time, the North Carolina General Assembly enacted legislation that will have a significant impact on public health practice as it relates to rabies post-exposure management for dogs, cats, and ferrets. Rather than retract my old blog post, I thought I would tell Duke’s story again but change the outcome to reflect the changes in the law.

I’ll talk a little bit about animal services in our upcoming Local Government Legislative Update Webinar. Several of my colleagues will be joining me to discuss changes and pending legislation in areas such as public records, land use and planning, elections administration, and public health. If you aren’t able to join us for the live program on Tuesday, July 25, the on-demand version will be available on our website shortly thereafter.

Enough marketing.  Read on to hear what happens to dear old Duke…

Read more »

Can A Gentle Nudge Increase Tax Collections?

What do fly stickers in men’s room urinals have in common with handwritten notes on the outside of delinquent tax notices?  Both are examples of the effective use of behavioral economics, the study of how psychological and emotional factors play into our everyday decision making.

Over the past decade, best-selling books and popular podcasts dedicated to behavioral economics have demonstrated how seemingly minor changes to our problem-solving approaches can produce big results. Great Britain was so excited about this field of study it created a new government agency dedicated entirely to behavioral nudges.

The goals of these nudges might be vital and life-saving (obtaining more organ donors by making the donation commitment “opt-out” rather than “opt-in” when you obtain your driver’s license) or kind of gross (improving “aim” and minimizing rest room messes by placing the above-mentioned fly stickers in urinals).  Regardless, behavioral economics proves that by applying what psychologists and economists have learned about humans’ decision making we can produce better societal results and make government more effective.

The Guilford County tax office recently put behavioral economics to the test by teaming up with a graduate student at Duke University’s Sanford School of Public Policy to see if some low-cost changes to the county’s collection procedures could improve taxpayer compliance. Read more »

Sunday Brunch Ordinances – Cheers!

In the waning days of the 2017 legislative session, the General Assembly passed an omnibus bill affecting a number of state laws regulating alcoholic beverages (SL 2017-87 (S155)).  Section 4 of the bill – commonly known as the “Brunch Bill” – enacts new statutes authorizing cities and counties to adopt ordinances allowing the sale of alcoholic beverages beginning at 10:00am on Sundays (in the absence of such an ordinance, state law prohibits the sale or consumption of alcoholic beverages before 12:00 noon on Sundays).  The new law’s authorization to imbibe mimosas and Bloody Marys on Sunday morning has generated a great deal of interest among cities and counties, not to mention their local restaurants.  Passed by the General Assembly on June 28th, the Brunch Bill became effective as soon as Governor Cooper signed it on June 30th.  Local government interest in adopting ordinances to allow “Sunday brunch” alcohol sales began quicker than you can say “Shaken, not stirred.”  The Town of Carrboro’s Board of Aldermen became the first local government in the state to take advantage of the new law, adopting its Sunday brunch ordinance on July 3rd.  The Raleigh City Council and Surf City followed suit two days later. By the end of the week, Atlantic Beach and Hendersonville also took action.  As cities and counties across the state gin up to consider whether to adopt their own Sunday brunch ordinance, the questions have been pouring in.

Read more »

North Carolina and the Specter of Partisan Gerrymandering

From the earliest days of the American republic, the party in power has drawn election district lines to enhance its own electoral chances and minimize the chances of the opposing party.  The very term gerrymander comes from just such a district drawn in Massachusetts in 1812.

How far can the legislature go?  Is there a point at which partisan advantage is such a controlling factor that the resulting district plan can be termed a “partisan gerrymander” and ruled unconstitutional?

The U.S. Supreme Court has never found a particular case of partisan gerrymandering to be unconstitutional, but it has said a number of times over the last three decades that it might.  In a 1986 case, a plurality of the Court said that a partisan gerrymander could be unconstitutional where there is “evidence of continued frustration of the will of a majority of the voters or an effective denial to a minority of voters of a fair chance to influence the political process.”  Davis v. Bandemer, 478 U.S. 109).  In 2004, a different plurality of the Supreme Court in another case said that “severe partisan gerrymanders” are “incompatib[le] . . . with democratic principles.” Vieth v. Jubelirer, 541 U.S. 267). In 2006, the Court again, with very split opinions, recognized that in the proper case a partisan gerrymander might be unconstitutional.  LULAC v. Perry, 548 U.S. 399 (2006).

Still, the Supreme Court has never found the right test, the right measuring stick, the right questions to ask to determine when the regular practice of taking political advantage has transgressed into such an entrenchment of power as to be unconstitutional.

Now the Supreme Court has North Carolina’s congressional districts before it on just that question. Read more »