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Supreme Court of NC Sides with Building Industry

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The Supreme Court of North Carolina recently decided a case of major significance to builders and developers. The decision establishes safeguards against local government “permit extortion” which, unfortunately, is a common practice in this state. NCHBA joined the Pacific Legal Foundation in support of the plaintiffs by filing an amicus curiae (friend of the court) brief in the Supreme Court.

In reversing a decision by a panel of the NC Court of Appeals, the Supreme Court held that the “capacity use” fees at issue in the case were “monetary exactions” subject to constitutional scrutiny and must, therefore, satisfy the “essential nexus” and “rough proportionality” test in order to avoid being treated as takings of plaintiffs’ property. This decision provides explicit legal protection to builders against permit demands which quite often exceed these constitutional restrictions.

John Scarbrough and Jim DeMay, the attorneys who successfully represented Anderson Creek, LP in this lawsuit, have written an excellent article illustrating the “real world” significance of the decision:

NC Supreme Court Sides with Building Industry, Establishes Safeguard Against Local Government Permit “Extortion”

On August 19, 2022 the North Carolina Supreme Court decided a case that every builder should know about. It is Anderson Creek, L.P. v. County of Harnett.[1] The Supreme Court reversed the NC Court of Appeals by deciding that a local government cannot require a builder or developer to give up property (whether it be land or money) in order to get a development permit unless the local government’s requirement is “proportional” to the public costs of the proposed development.

In other words, the local government “demand” must be proportional to the “impact” the project will cause. Permit conditions that fail to pass this test of reasonableness are nothing more than an “out-and-out plan of extortion” and an unconstitutional “taking” of the builder’s property.

While the legal principles discussed in the case are complex, their real-world application is straightforward. What follows is an actual scenario encountered by a builder and how the Anderson Creek ruling would stop this city’s overreach.

A local builder owns land within the city limits and wishes to build a 150-home subdivision. To do so, the builder must connect the subdivision to an existing pump station owned by the city which currently serves other developments in the area. The pump station is old and in need of repair; it will also have to be upgraded to serve the builder’s proposed subdivision.

Reluctantly, the builder offers to rehabilitate and upgrade the city’s pump station at his own expense – a cost of over $750,000.00. The builder views this as a more than generous offer since a lot of the work needed for the pump station is the result of years of service to existing developments (and a lack of city maintenance) and it not being caused by the need to expand capacity for the builder’s new subdivision.

Nevertheless, city staff wants more. They show the builder an ordinance which requires him to pay “a one-time fee equal to the present worth of the cost for the city to operate and maintain, rehabilitate, and repair the pump station…in perpetuity.” This “one-time fee” is calculated by city staff and is in addition to the $450,000.00 in water and sewer “system development fees” the builder already has to pay to connect 150 homes to the city’s water and sewer systems.

To recap: “negotiations” with city staff have left the builder (1) paying over $750,000.00 for pump station upgrades needed because of years of service to other developments; (2) paying a “one-time fee” for the city to maintain its own pump station “in perpetuity,” which is set at the discretion of city staff; and (3) paying $450,000.00 in system development fees which are supposed to reimburse the city for the cost of allowing the proposed subdivision to use the city’s water and sewer systems, including the pump station.

Before Anderson Creek, the builder’s options may have been limited to filing a lawsuit challenging the city’s statutory authority to charge the pump station fee, or perhaps lobbying the city council to do away with the ordinance. However, it was unclear whether the builder could challenge the “pump station fee” as being “unreasonable” or an unconstitutional “taking.” 

The importance of Anderson Creek is that now the city must prove that its demands of this builder are reasonable and not merely a money grab. Clearly, the city cannot pass this constitutional test. After all, the builder is going above and beyond what would be necessary to mitigate the impact of his proposed development – he is not only paying to upgrade the pump station but will have to pay a system development fee each time he requests a building permit. (Under these circumstances, the system development fees might even be excessive considering the builder’s work on the pump station.)

Such “negotiations” with local government take place every day across North Carolina, with the deck always stacked in favor of the local government – if the builder doesn’t meet staff’s demands, no permits will be issued and the project likely ends. It’s the proverbial “offer that can’t be refused.” With Anderson Creek, the North Carolina Supreme Court has taken steps to even the playing field — because a local government’s permits are never more valuable than a landowner’s constitutional rights.

Article provided by NCHBA

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