This week the Court of Appeals decided in Union Land Owners Association, et. al. v. Union County that the North Carolina zoning and subdivision statutes did not authorize Union County to adopt an APFO (adequate public facilities ordinance) to pay for schools.
The Background
Union County is a hotbed of growth. Residential growth. Risking some over generalization, Union County is a bedroom community for folks who work in Charlotte. Charlotte has the jobs. Union County provides the homes. And residential growth doesn’t pay for schools and infrastructure as well as industrial and commercial uses.
Union County asked the General Assembly on three occasions for authority to impose school impact fees. It was turned down each time. Our General Assembly has a strong bias against impact fees and anything that resembles them.
Union County wanted to shift some of its school facility obligations to developers. Education, after all, is expensive. Although public schools are governed by a statewide curriculum and staffed by teachers on state salary, the school facilities themselves, from classroom chalkboards to basketball backboards, are paid for at the county level.
Facts of the Case
Union County hired an out-of-state law firm to draft an APFO ordinance that would comply with state statutes while not running afoul of Durham Land Owners v. County of Durham, a 2006 case which held that Durham County could not shift the financial responsibility of financing schools to developers through an “impact fee.” The Durham ordinance required every developer to pay if it wanted to play.
The Union County Ordinance was different. It provided a formula for determining a development’s impact on the school system. If school capacity was determined to become overburdened by a development proposal, then approval could be 1) denied 2) deferred or 3) subject to reduced density, construction of school facilities by the developer, or payment of a “voluntary mitigation payment.”
The Decision
The Court held that the General Assembly has never given Union County (or any county) express or implied authority to impose an APFO. The duty to provide school facilities is foremost “a duty of the County itself.” It emphasized its point, saying “Defendant (Union County) may not use the APFO to obtain indirectly the payment of what amounts to an impact fee given that defendant lacks authority to impose school impact fees directly.”
Legal Analysis and Commentary
a) Legal Analysis
Union County claimed three sources of authority for imposing an APFO: general police powers, zoning statutes and subdivision statutes. The Court quickly dismissed general police powers as a source of authority, reasoning that the regulation of real estate is limited to the zoning and subdivision statutes.
The Court dismissed the subdivision statutes, noting in broad terms that those statutes contain no express authority to require developers to donate money or land for schools.
The powers inherent in the zoning statutes were analyzed through an in pari materia consideration (combined reading) of sections 153A-340 (the “powers” statute) and 153A-341 (the “purposes” statute). Although Section 341 provided for facilitation of schools as one of many purposes for enabling counties to zone land, counties are nonetheless limited to the powers enumerated in Section 340 to achieve that goal, and none of those powers expressly or impliedly allows an APFO.
b) Legal Commentary
This decision is a clear punt to the General Assembly. The real message is that impact fees and their first and second cousins are matters of state policy to be decided by statute, not the courts. If the General Assembly wants to provide for them, it needs to do so without ambiguity. Unlike many opinions, the Court signaled its holding in the first sentence of the second paragraph, noting that Union had sought permission in 1998, 2000 and 2005 to impose school impact fees, and the General Assembly refused.
The Court’s decision is not without flaws, the main one being that it focused exclusively on the county’s authority to impose a Voluntary Mitigation Payment and ignored the rest of the ordinance. Union County [not to mention the rest of the state] still does not know if it can consider school capacity when making zoning decisions as long as no fees are involved.
If the “take away” point is that school capacity cannot be considered at all (with or without fees involved) when making zoning and subdivision decisions, then we have a conflict with a previous case, Tate Terrace v. Currituck County. Tate Terrace was a special use permit case, but the Court seems to have allowed consideration of school capacity. There is also a general conflict with decades of legal opinions and treatises concluding that local governments are essentially unbridled in the factors they may consider when making legislative zoning decisions. There are no North Carolina cases that limit a board’s legislative zoning decision to the enumerated powers in 153A-340.
Another underlying legal issue is the amount of flexibility the General Assembly is willing to cede to local governments to become local fiefdoms operating under their own sovereign local powers. This type of “home rule” has gained little traction in North Carolina.
I predict that Union County will petition the North Carolina Supreme Court to grant review. However, the Supreme Court may refuse to hear the case. When a Court of Appeals decision is unanimous, the high court may grant appeal in its discretion, and one of the allowable reasons is that the decision is a matter of significant public importance.
I further predict that the decision will not be overturned. One of two things will happen. The fairly conservative N.C. Supreme Court will deny appeal outright and allow the matter to be decided by elected representatives, or it will grant review and uphold the decision, sending the same message back to the General Assembly: tell the courts what you want. We won’t try to read your minds on this issue. On other issues, yes, but not on this one.
Political Analysis and Commentary
Union County’s situation is not unique. Residential growth often occurs in hotspots where the influx taxes or outstrips the infrastructure that supports it. Practically every one of these hotspots claims there’s a study somewhere placing them in the top ten growth markets in the country.
When growth outstrips resources or infrastructure, local governments can do one of three things. They can close the door, narrow the door, or upgrade and expand services and infrastructure.
One of the problems with APFOs is that they are based on the faulty premise that subdivision developments create population growth and housing demand. With the exception of destination retirement communities, new subdivisions don’t generate housing demand. They meet it.
Housing demand primarily is a function of two things: organic population growth (i.e. mom and dad have children) and jobs. Nobody from Ohio has ever come to North Carolina just because they especially liked one of our new subdivisions. But North Carolina is full of folks from Ohio and New York and Pennsylvania and West Virginia who came here looking for jobs.
This raises an interesting irony. Some counties spend millions of dollars in incentives to lure new companies that will create jobs and expand the tax base so that infrastructure such as schools can be more easily paid for. But instead of using the added tax base to build more schools to meet the expanding population that came for the jobs, these same counties are tempted to restrict the ensuing population growth to protect existing school budgets.
Counties like Union that receive spillover growth from counties where the jobs are created are in a bind. They have the burden but not the benefit of job growth. If they cannot adequately balance their budgets to include new and expanded schools, then perhaps closing the door to new subdivisions until the tax base expands is the best option.
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