Skip to Main Content

Legal Eagles: Water and Sewer Impact Fees Held to Be Without Statutory Authority 

By Gregg Schwitzgebel

On August 19, the North Carolina Supreme Court ruled in the case of Quality Built Homes v. Town of Carthage, and the decision has broad repercussions for municipalities that assess water and sewer impact fees. The Supreme Court held that the town’s impact fees went beyond the statutory authority granted in the public enterprises statutes and were therefore invalid.

As described in the opinion, the town’s ordinances provided that a final subdivision plat approval triggered immediate charges for future water and sewer system expansion, regardless of whether the system was ever expanded or the property owner ever connected to it. The impact fees ranged from $1,000 to $30,000 for each water or sewer connection, depending on meter size. The fees were in addition to the regular water and sewer tap fees and were due upon final plat approval from new  subdivisions or upon application for building permits, whichever occurred first.

Unanimously reversing both the trial court and the N.C. Court of Appeals, the Supreme Court held that the public enterprises statutes do not give municipalities the prospective charging power necessary to assess impact fees. “While the enabling statutes allow Carthage to charge for the contemporaneous use of its water and sewer systems, the plain language of the Public Enterprise Statutes clearly fails to empower the Town to impose impact fees for future services,” the ruling said. “These enabling statutes clearly and unambiguously empower Carthage to charge for the contemporaneous use of water and sewer services − not to collect fees for future discretionary spending.”

The court emphasized that the town has the authority to charge tap fees and to establish water and sewer rates to fund necessary improvements and maintain services to its inhabitants, which are “sufficient to address its expansion needs.” While the statutes allowed the town to charge for contemporaneous use of water and sewer systems, they “clearly and unambiguously” failed to provide “the essential prospective charging power necessary to assess impact fees.” The justices pointed out that the General Assembly has given some jurisdictions specific impact fee authority in local acts and opined that municipalities “routinely seek and obtain” such enabling legislation. (While a few local governments did obtain impact fee authorization by local act during the period between 1985 and 1993, no such local legislation has been enacted since. Those municipalities with local acts in place are not affected by the decision.)

Upon reversing the earlier rulings, the Supreme Court sent the case back to the Court of Appeals to address unresolved issues. Likely at the forefront of those issues will be the calculation of the amount of refund owed, which ultimately will depend on the total length of time upon which a claim can be made (that is, the statute of limitations). The parties obviously disagree as to which statute of limitations is applicable, and the range of that disagreement initially appears to span from three years to at least 10 years.

Ordinances and fee terminologies differ, so municipalities are urged to review their fee structures to determine if any water or sewer charges are impact fees as described in the case. Some developers are already signaling their intention to seek refunds of past fees. In this interim phase before issuance of the Court of Appeals opinion, if your municipality is presented with a demand for a refund, please present that letter to your town attorney for careful review and analysis.

The Supreme Court’s opinion may be accessed at https://appellate.nccourts.org/opinions/?c=1&pdf=34625.