Legislature Authorizes, But Limits, Water and Sewer Impact Fees

By Toby Coleman and Lacy Reaves

Controversy and litigation have erupted in North Carolina in recent years with regard to water and sewer impact fees levied by cities and counties on new real estate development. The fees are authorized in "local bill" State legislation and vary in amount from place to place. In many cases, the fees are felt by developers to be excessive. State legislation was recently approved that authorized all local government units providing those services to charge impact or "system development fees," but limited the fees to the actual cost of services for the new development.

The new legislation requires all cities and counties that want to charge the fees to modify existing ordinances or adopt new impact fee ordinances by July 1, 2018. Fees lawfully in effect may continue through that date. Ordinances imposing water and sewer fees taking effect on July 1, 2018 or thereafter must comply with the new legislation. The local government unit must engage an accounting or engineering professional with credentials spelled out in the legislation to calculate a fee structure that sets fees based on the actual cost of a new development's use of the city's or county's utility system. This can be based on the construction of new facilities when required or, where capacity is currently available, the incremental use of existing facilities, or a combination of the two when appropriate.

A new fee structure calculated on that basis must be made available for public written comment before approval. After review of the comments by the professional who calculated the proposed fee and a public hearing, the governing board of the city or county may approve the new fees after making any changes resulting from public input. Many believe that these objective criteria will result in the reduction of fees now being charged.

The new legislation reflects a compromise reached by local governments and the development industry. It is a big step forward in a state where real estate development is occurring rapidly and utility services for that development are essential.