Fed up with government fees, developers turn to lawsuits

In Davidson, an ordinance is pitting developers against town officials.

At the crux of the conflict is a section of the town’s planning ordinance that is requiring the developer of Summers Walk, a master-planned residential community, to cover the cost of additional public services, such as fire stations and police cars, to help the town cope with growth.

A federal judge in October remanded the lawsuit to Mecklenburg County Superior Court, where it is pending, said Charlotte attorney Roy Michaux Jr., who is representing the developer.

The case is not unique, though.

Many towns and counties across North Carolina and the country adopted such ordinances when the economy and real estate market were booming as a way to keep public services on pace with development and population growth, said Jeff Michael, director of the University of North Carolina at Charlotte’s Urban Institute.

Known as adequate public facilities ordinances, or APFOs, they require developers to help pay to maintain a baseline level of public services — from schools and parks to police protection — when building developments.

But these days, faced with tougher lending practices and a drop in business, developers have taken governments to court over the fees, and some have been successful.

All of those lawsuits are likely to make towns rethink using the ordinance as a source of revenue, said Michael, who will discuss APFOs at the Demographic and Market Studies seminar Thursday at the Charlotte law firm K&L Gates in uptown.

“There’s been a lot of litigation throughout North Carolina concerning APFOs, and they’ve gone against the local governments,” said Rich Koch, an attorney in Cabarrus County. “Until the Supreme Court says otherwise, or the General Assembly steps in and clarifies the law in this area, I don’t think you’ll find other local governments rushing in to enact an APFO at this point.”

How it works

Huntersville adopted its APFO in 2008, said the town’s principal planner, Zachary Gordon. He said the ordinance is a way to raise capital and ensure that the demand for police and fire services and parks and recreation can be met by existing supply.

Based on whether it’s a single-family, multifamily, office, commercial or industrial project, the town calculates the amount of facilities required to serve new developments and then issues a “determination of adequacy,” spelling out how much a developer must pay if there’s insufficient public services to meet demand. To date, Huntersville has not collected any fees as part of its APFO, Gordon said.

Neither Charlotte nor Cornelius has an APFO.

Davidson adopted its APFO in 2001 to control growth, said Leamon Brice, town manager. The ordinance established what public services were available and set that as a baseline to follow amid future growth, he said.

To date, Davidson has collected through the APFO $506,594 in cash, $25,192 in escrow and $823,312 in bonds, said Sandra Kragh, administrative assistant for Davidson’s planning department.

Brice said the ordinance has been applied to all new developments since it was adopted. The Summers Walk lawsuit is the first to result from the town’s ordinance, he said.

Fees exceed $1M

Davidson adopted the Summers Walk master plan in 2002 and again in 2004 when the plan was revised, Kragh said. The APFO fee details, or “determinations,” for Summers Walk were issued in 2005, the same year the developer, Cleveland-based Forest City Land Group, broke ground at the 103-acre site on the eastern edge of town, she said.

The APFO determinations were adjusted in 2006 as the Summers Walk master plan was revised to include a total of 329 residential units.

The APFO required Summers Walk to pay an additional $3,149 per lot — $275 for law enforcement, $1,700 for parks and recreation and $1,174 for a new fire station and equipment — Kragh said. The developer paid the costs, for a total of $1.03 million, by posting a bond with the town, Brice said.

In 2006, the developer appealed the APFO assessment to the town’s Board of Adjustment, which ruled against the developer in early 2009, Michaux said. Summer’s Walk then filed a complaint against Davidson in Mecklenburg County Superior Court in May 2009, saying the ordinance violated the state and U.S. constitutions and that it doesn’t owe the money posted in the bond. The case was later moved to U.S. District Court in Charlotte at the town’s request but in October was remanded to Mecklenburg County Superior Court, Michaux said.

Michaux said he’s optimistic about the case, because the North Carolina Court of Appeals ruled against local APFOs in similar cases last year, including in Union and Cabarrus counties. In those cases, the ordinances required developers help pay to build new schools.

Michaux said that while public schools are not a part of Davidson’s APFO — Mecklenburg County runs the public school system — the cases are based on the same principle.

But Brice said Davidson’s APFO is different from the other ordinances and the town still fully supports it.

Ordinance tossed

Some counties have already ditched their APFO’s.

Union County adopted an APFO in 2006 but did away with it after a group of homebuilders formed the Union Landowners Association that same year and filed two lawsuits in Superior Court, said Richard Black, Union County’s planning director. The Court of Appeals ruled against the county in December 2009, indicating the ordinance was not within the statutory authority granted to local governments in the state, Black said.

Cabarrus County adopted its APFO in 1998, said county spokeswoman Aimee Hawkins. The ordinance requires developers to pay $7,631 for a single-family detached home, $4,048 for a townhome and $3,678 per multifamily unit. As of Feb. 9, the county had collected $7.3 million through the APFO, she said.

Koch said developers have filed lawsuits against the county over the APFO, the most recent being Crescent Resources, which sued in November 2009.

The Charlotte-based developer, which filed for bankruptcy protection in June, owes the county more than $1 million, on top of $415,000 it has already paid, to build two apartment complexes, Koch said.

Koch said the county and Crescent Resources have agreed to put the lawsuit on hold, pending the outcome of three similar lawsuits filed against the county in 2008.

Cabarrus County appealed the decision late last year and is waiting to learn if the Supreme Court will hear the case or deny the petition, he said.

‘It will be passed down’

Jim Benham, president of Benham Builders in Charlotte, said he understands the need for the ordinances.

He said he agrees with them as long as they, one, don’t price development out of the market and, two, augments tax dollars as opposed to replacing them.

“The new facilities or services will be used by many people, so I feel taxes should be a part of how they are funded,” he said. “With the reduced tax revenue we are experiencing currently, I think there will be more impact fees on new development.

“Of course, it will be passed down to the consumer, so it really becomes another tax.”

Sam Boykin can be reached at [email protected].