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Davidson defends ordinance: Developers seek refunds for payments made

gavelTwo developers have filed a lawsuit against the town of Davidson, claiming it exceeded the authority granted by the state Legislature in requiring homebuilders to include in their projects a portion of houses affordable to people making a less-than-median income.

Artisan Knox LLC and Woodlands at Davidson Development Co. Inc. filed suit in Mecklenburg County Superior Court on Oct. 14 seeking to collect refunds, interest and attorneys’ fees, and to have the ordinance requiring affordable housing declared void. They are also seeking an accounting of how fees paid under two ordinances were spent by the town.

In announcing the lawsuit’s filing, Davidson issued a statement saying, “The Davidson Board of Commissioners unanimously support our inclusionary zoning ordinance and our affordable housing program.”

“We are very sorry that this situation has arisen, but this lawsuit does not change our will to continue to support and encourage affordable housing,” said town Manager Leamon Brice in the statement. “We will defend our position and are confident that the Town of Davidson will prevail in this lawsuit.”

Davidson Public Information Officer Cristina Shaul said the town has not heard from other developers who want their fees refunded, and that 61 affordable housing units have been built under the ordinance.

The developers are challenging two town ordinances: one required residential developers to make a portion of their projects affordable, and the other, the adequate public facilities ordinance, required payments that were used to enhance police protection and parks. The town repealed the public facilities ordinance in March 2013, just seven months after the state Supreme Court ruled that Cabarrus County did not have the authority to enact a similarly named ordinance that required developers to pay impact fees to fund school construction.

The developers had made payments under the public facilities ordinance before it was repealed.

“The General Assembly has not authorized the Town to require developers of residential lots to provide or otherwise pay fees for affordable housing units or for adequate public facilities under a zoning ordinance,” the lawsuit says. It also claims the ordinance violated the plaintiffs’ rights to equal protection and due process under the U.S. and N.C. constitutions.

Davidson is one of only three North Carolina municipalities that require developers to build some affordable housing in their projects; the others are Chapel Hill and Manteo. Davidson’s ordinance requires that 12.5 percent of all residential units built be affordable. That share is divided again into 30 percent for households with annual gross incomes equal to or less than 50 percent of the median area income, and 70 percent for those with incomes no greater than 80 percent of the median.

Woodlands’ first 55 single-family homes were approved in 2006. According to the lawsuit, because it was difficult to find buyers for the low-income properties, the city agreed to allow the developer to make a payment that the city would use to develop affordable housing instead of requiring the developer to build it. The cost was $53,100 per unit. Woodlands made an initial payment of $53,100 and offered a letter of credit for the balance, $318,600. When another four lots were added, Woodlands agreed to pay another $53,100 in lieu of adding one more affordable unit.

In addition, under the then-existing public facilities ordinance, the developers paid $12,250 in law enforcement impact fees and $85,000 toward the construction of a park community center.

Artisan Knox, the developer of Davidson Woods, received approval for 52 units in 2005. A proposed Phase II would add 34 lots, for a total of 11 affordable lots. If the company instead were to pay the fee in liue, Knox would owe $584,100, as well as $14,300 for law enforcement fees and $88,400 towards a community center. Between 2005 and 2007, the company paid $102,700, according to the lawsuit. But the company has not constructed any affordable units, said Cindy Reid, the town’s affordable housing coordinator.

The lawsuit, filed by Roy H. Michaux Jr. of K&L Gates LLP, also asks for an accounting of how the public safety and community center fees were spent, and whether the fees in lieu of building affordable units were actually spent on affordable housing.

John B. Robbins, president of Greathorn Properties Inc. and manager at Woodlands at Davidson Development, declined to comment. Brad Remmey, managing partner of Artisan Knox, did not return a call seeking comment.

So far, the courts have not settled the question of whether affordable housing can be required by a municipality. And although the town repealed its public facilities ordinance, there’s a difference in the authority that the state gives to counties, as opposed to cities and towns, to enact regulations.

North Carolina is “somewhat unusual in terms of land-use authority,” said Howard Katz, a law professor at Elon University’s School of Law. “It’s not home rule; some think it’s Dillon’s Rule, but it’s not.”

The two are not mutually exclusive, but generally in home rule states, municipalities are given the authority to pass laws they deem appropriate as long as they don’t violate state and federal law. In Dillon’s Rule states, municipalities are granted only the specific power legislated to them by the state.

Dillon’s Rule is named for a federal judge, John F. Dillon, who in the late 1800s wrote extensively on the theory that cities derived their power to regulate only from state direction. The name “Dillon’s Rule” sprang from two 1868 cases, in one of which Dillon wrote: “Municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature. It breathes into them the breath of live, without which they cannot exist.”

State constitutions outline the scope of state and local government power.

The difficulty for North Carolina towns and cities lies in interpreting the specificity and ambiguity of enabling legislation passed by the state.

“It’s more like a Dillon’s Rule jurisdiction, but the North Carolina Supreme Court and the Legislature have said grants of authority should be interpreted broadly,” said Katz

Frayda Bluestein, associate dean for faculty development at the UNC School of Government, wrote in a blog post on the issue: “Instead of a broad delegation of authority, North Carolina local governments operate under authority granted by individual statutes, including specific statutes directing courts to interpret the grants of authority broadly. Notwithstanding that legislative directive, our courts have, I think it’s fair to say, meandered among various standards in the course of our state’s history, struggling to adopt a consistent standard for analyzing the scope of local authority.”

But in recent years, state Supreme Court decisions seem to be interpreting grants of authority more narrowly than in the past, Katz said.

In August 2012, the N.C. Supreme Court ruled that Cabarrus County did not have the authority to adopt the ordinance that would require new residential developments to pay a fee to subsidize new school construction to prevent overcrowding. While the court differentiated between the powers that counties have versus incorporated municipalities, it also indicated that the ability to assess zoning-related fees needed to be explicitly and unambiguously granted by the state Legislature.

Although only three municipalities have ordinances requiring affordable housing to be built along with residential development, or pay a fee instead, others, including Charlotte and Asheville, have discussed it. Charlotte currently requests that developers along the Lynx Blue Line, where apartment construction is booming, set aside a portion of affordable apartments, without much effect.

Debra Campbell, assistant city manager and former planning director, said at a Mecklenburg Times-sponsored panel discussion Oct. 8 that if developers don’t voluntarily participate, the city may look at making it a requirement.

Debra Campbell was on vacation and not available to comment on the city’s plans.

 

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