We recommend you review the North Carolina Supreme Court's opinion in Anderson Creek Partners, L.P. v. County of Harnett, No. 63PA21-1 (Aug. 19, 2022). It's long (70 page majority, plus 19 pages of concurring and dissenting opinions), but worth your time because the majority concludes that legislatively-imposed fees, applicable to all, are "exactions" that are subject to the nexus/rough proportionality requirements of Nollan/Dolan/Koontz.
The county adopted a requirement that residential property developers pay a per-lot, one-time water and sewer capacity use fee as a condition of the county accepting applications for a water or sewer permit. The details:
Section 28(h) of the ordinance provides for the collection of “capacity use” fees for the purpose of “partially recover[ing] directly from new customers the costs of capacity of the utility system to serve them.” More specifically, the ordinance provides that, for each new residential connection to a water or sewer system owned or operated by the County, the landowner must pay a one-time, non-negotiable fee of $1,000 for water service and $1,200 for sewer service, with the landowner being required to make the required payment prior to the County’s concurrence in the landowner’s application to the North Carolina Department of Environment and Natural Resources1 for the issuance of the required water and/or sewer permits. According to the ordinance, “such charges are reasonable and necessary and result in a more equitable and economically efficient method of recovery of such costs to handle new growth and to serve new customers without placing an additional financial burden on existing customers solely through inordinate enhancement of water and sewer rates.”
Slip op. at 5.
Anderson Creek had paid more than $25,000 in fees, and sought a state court declaration that the fee violated its due process and equal protection rights under the N.C. Constitution (recall that the state constitution does not contain a formal "takings" clause). The trial court entered judgment on the pleadings for the county, and the court of appeals affirmed because these are generally-applicable user fees, not subject to the N/D/K unconstitutional conditions analysis. "Exactions" are reserved for ad hoc fees, not fees imposed by legislative action. See slip op. at 14-16.
The Supreme Court disagreed. Viewing this as a due process problem, the majority noted that the point of the N/D/K doctrine is to prevent governmental coercion, and forcing people to choose which of their constitutional rights they'd like to exercise.
The heart of the court's analysis starts at page 25, where the opinion concludes that the county's "capacity use fee" is properly classified as a fee to cover new infrastructure, "a description that falls squarely within the definition of an 'impact fee' as discussed above. Slip op. at 27 (footnote omitted).
The fees at issue in this case are not water and sewer service fees, paid by customers at a fixed rate in accordance with their monthly metered water and sewer usage for the purpose of paying for the service that they used. In addition, the challenged fees are not “tap-on fees” paid at the time that individual lots are connected to the County’s water and sewer system. Instead, the fees at issue in this case are intended to provide the County with a contribution toward the cost of expanding its water and sewer infrastructure to account for the additional customers that will be added as a result of the developer’s development. Thus, the “capacity use” fees at issue in this case, which are not intended to cover the cost of any service that is currently being provided to the person paying them “at the time of actual use,” Quality Built Homes, I, 369 N.C. at 21, are clearly different from those at issue in Homebuilders Association of Charlotte, which were specifically intended to “cover the costs of regulatory services provided by the city,” including the labor costs associated with reviewing permit applications, 336 N.C. at 45. As a result, for all of these reasons, we hold that the challenged “capacity use fees” are properly categorized as impact fees rather than “user fees,” a determination that renders much of the authority upon which the County relies inapplicable.
Slip op. at 27-28 (footnote omitted)
Next, the court determined that as "exactions," the fees are subject to N/D/K requirements, even though they were not imposed ad hoc, but applied to everyone equally. The court rejected other courts' conclusions that legislatively-imposed fees are not subject to the nexus and proportionality requirement. See slip op. at 25-26.
The court was having none of it:
A careful review of the record and the applicable law convinces us that the County’s capacity use fees are subject to scrutiny under the “essential nexus” and “rough proportionality” tests articulated in Nollan and Dolan. In Koontz, the Supreme Court specifically held that “the government’s demand for property from a land-use permit application must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money,” 570 U.S. at 619 (emphasis added), with the Supreme Court’s reference to “in lieu of” fees, rather than limiting the reach of the Supreme Court’s decision, simply being a response to the Florida Supreme Court’s conclusion that a governmental demand for money rather than an interference in tangible property rights did not constitute a taking.
Slip op. at 43. "As a result, we conclude that the 'monetary exactions' with which Koontz was concerned were not limited to 'in lieu of' fees and, instead, encompassed a broader range of governmental demands for the payment of money as a precondition for the approval of a land-use permit." Slip op. at 45 (footnote omitted). The county's fees were imposed upon an identified property interest, even though those fees applied to everyone with a similar interest. Slip op. at 46 ("In other words, the fee at issue in this case is, in fact, linked to a specific piece of property, in each case the specific parcel of land that has been proposed for development.").
The court also concluded that neither Nollan nor Dolan turned on whether the condition being challenged was imposed administratively or legislatively:
In addition, we are not persuaded that the applicability of the test enunciated in Nollan and Dolan depends upon whether the challenged condition was imposed administratively or legislatively. As at least one member of the Supreme Court has recognized, the lower courts have reached differing conclusions with respect to this issue, which the Supreme Court has yet to address. See Cal. Bldg. Indus. Ass’n v. City of San Jose, 577 U.S. 1179 (2016) (Thomas, J., concurring in the denial of certiorari).13 After carefully reviewing the relevant decisions, we agree with plaintiffs that nothing in Nollan, Dolan, or Koontz supports a view that those decisions only apply in the context of “administrative” decisions, with the Supreme Court having consistently described the “unconstitutional conditions” doctrine as “preventing the government from coercing people into giving up” a constitutional right rather than preventing a particular branch of government from acting in a particular manner. Koontz, 570 U.S. at 604 (emphasis added); see also Dolan, 512 U.S. at 385 (noting that “the government may not require a person to give up a constitutional right—here the right to receive just compensation when property is taken for a public use—in exchange for a discretionary benefit conferred by the government where the benefit sought has little or no relationship to the property”) (emphasis added).
Slip op. at 52-52 (footnote omitted).
So there it is. Worth your time checking out.
Disclosure: our Pacific Legal Foundation colleagues filed an amicus brief in support of the property owners here.
Anderson Creek Partners, L.P. v. County of Harnett, No. 63PA21-1 (N.C. Aug. 19, 2022)
