Deep Impact

Development fee loss causes school funding fears

There’s an invisible target on Chatham County’s back.

A threat looming, with potential to damage the county’s ability to fund schools and provide for its children.

They saw what happened to their neighbors. The lobbying. The secret politicking. The millions in school revenue which seemed to disappear overnight.

For Chatham’s leaders, the question is unavoidable– Could it happen here?

The object of all this worry is impact fees.

Developers pay impact fees when they create new residential real estate. The revenue collected from these fees typically goes toward large county expenses like schools, water systems and sewers.

The theory is for each new house, apartment or townhome a certain number of people will be generated, who will then utilize county resources like schools. Under current state law the school impact fees can only fund capital improvements such as new buildings or renovations.

Chatham charges $3500 in school impact fees for each detached single family, mobile or a modular home and $1100 for each unit in multi-family residences like apartment complexes and townhouses.

At Board of Commissioners meeting in November, Interim County Manager Dan LaMontagne addressed the issue during a presentation of the capital improvements plan.

“We’re very worried. It’s an additional three cents on the tax rate if we lose that. It’s pretty significant. We haven’t gone up on our rates.. Ever.” LaMontagne said after the meeting.

“Frankly we don’t want a lot of attention… We are not real interested in the magnifying glass being on our back.”

To examine why Chatham County leaders are so worried about impact fees, residents need only look a few miles down the road.

In November 2016, after eight years of the doing things the same way, the Orange County Board of Commissioners knew it was time for a change.

Their existing impact fee schedule charged tiny homes the same amount as mansions. Studio apartments paid the rate same as four bedroom townhomes. There was no provision for seniors in age-restricted housing, who bore the costs even though most of their child-rearing days were over.

The fees weren’t the only things changing in Orange County. Instead of building single family homes as they did in days past, developers wanted to pursue larger projects like apartment complexes.

So in response to changing conditions, the commissioners changed the impact fee schedule, increasing the unit categories from three in Orange County Schools and four in Chapel Hill-Carrboro City Schools to nine for both districts. The new fee schedule, created new categories based on the number of bedrooms and provided special lower rates for homes under 800 square feet and age-restricted units.

For developers it wasn’t all good news.

While the rate for single family detached homes went down across the board, multifamily units increased dramatically. For developers building multifamily units with more than three bedrooms, under the re-evaluation they would pay more than 600 percent more than the rate established in 2012.

Anne Patterson Segar was one of those developers.

Segar is the owner of Townhouse, a complex on Hillsborough street about a half a mile from downtown Chapel Hill popular with students.

In December 2014 Segar submitted an application to Chapel Hill government to redevelop the complex and change the name to Grove Park. The redevelopment would demolish the 111 existing units and begin construction on a new 346 unit structure. A packet presented to the Chapel Hill planning commission said the development would be split between 197 one and two bedroom units and 149 units with more than three bedrooms.

Orange County Commissioner Penny Rich said although Chapel Hill approved the development in October 2015, Segar was waiting until market conditions improved to begin construction. This wait meant Segar would be subject to the 2016 impact fee increase. Assuming Segar paid the new rate for each of the 197 one to two bedroom units and the 149 units with more than three bedrooms, her payment would have been over $1.5 million, more than $1.1 more than the 2012 rates.

Town officials passed a grandfather clause which would allow developers to pay the earlier rates so long as they obtained a building permit prior to January 1, 2017, the permit is issued before 180 calendar days after the application was submitted and a Certificate of Occupancy is issued no later than 365 calendar days after obtaining the permit.

Orange County Planning Director Craig Benedict said in an interview that Grove Park could have taken advantage of the grandfathered fees. But Jeff Barnhart, a lobbyist hired by Segar said told WRAL she was not informed of any grandfathered fees prior to April 2017. Segar did not respond to any requests for comment on this story.

Documents from the North Carolina Secretary of State’s office show Townhouse hired four lobbyists between February and March of 2017: Barnhart, Bill Faison and Tom Apodaca,  all former N.C. General Assembly members, and Hannah Tedder, a general counsel for Vista Strategies and former legislative policy intern for the Speaker Pro Tempore’s office.

On March 20, N.C. Rep. Sarah Stevens (R, Surry), the speaker pro tempore for the N.C. House, introduced House Bill 406 a bill which would eliminate all impact fees in Orange County. Two days later she introduced House Bill 436, which targeted impact fees in municipalities statewide including Carrboro, Cary, Chapel Hill, Pittsboro, Raleigh and Wake Forrest as well as Catawba, Chatham and Orange counties.

Campaign finance reports show Stevens previously accepted campaign contributions from organizations who oppose impact fees. Stevens also operates S&E Properties, a Mt. Airy real estate leasing and rental company, with her husband.

Stevens did not respond to multiple requests to comment on this story, but confirmed to the Raleigh News and Observer in April of last year that she was specifically intervening on behalf of Townhouse.

On May 16, 2017 the Orange County Board of Commissioners passed a resolution lowering their impact fees back to earlier levels, maintaining only the age-restricted and single family detached under 800 square feet new categories, in an attempt to appease Stevens into amending the bill.

“We find ourselves in an unfortunate situation, we’ve talked a lot about the legislature and the difficulties it has imposed on local governments generally and on education in particular and this is yet another example where we find ourselves in that situation,” Chair Mark Dorosin said in the meeting. “I just hope that folks who are listening understand that these decisions are being made under the long shadow of the threat to pull this funding completely.”

The motion passed 6-1. Only Rich opposed the change saying her conscience would not allow it.

“Alright. Everybody go take a shower.” Dorosin told the board in disdain after the vote.

Rep. Verla Insko said she tried to speak to Rep. Stevens about the bills but she was not interested in listening and ended the meeting after a few minutes.

“I pointed out to her that the Orange County Board of Commissioners had understood the message strong and clear and that they were taking action to change that decision,” Insko said in an interview. “She said ‘It’s too late.’”

Despite the efforts by the Board of Commissioners and local representatives, on June 20 House Bill 406 was ratified by the General Assembly. The bill was not subject to Governor’s approval so upon ratification it became state law.

House Bill 436 was signed by N.C. Gov. Roy Cooper on July 20, but only after an amendment was added by Orange County Rep. Graig Meyer to simply study the effects of impact fees statewide, rather than banning them.

In January, Segar filed a form showing she paid Barnhart, Apodaca, Faison and Tedder more than $240,000.

Orange County estimated the lost school revenue to be about $2.8 million, which Rich said is yet to be made up.

After the passage of House Bill 406, Chatham is the only county left with the authority to collect school impact fees. Leaders for the county estimated their school impact fee revenue to be the same as Orange County, $2.8 million.

But unlike Orange County, Chatham is growing fast.

A county estimate last year showed only one development, Chatham Park, will generate enough students to require the construction of nine to 11 new schools. County documents also claim Chatham Park is the largest mixed use development in the state.

The Chatham capital improvements plan for 2017 to 2025 calls for either pushing back plans for a new high school in the northeast part of the county and expanding Northwood high, or finishing a new high school in the northeast part of the county by 2020. The Northwood expansion would cost roughly $27 million according to the Operations Research and Education Laboratory at N.C. State, whereas the new school would cost over $47 million.

Even if the board decides to go ahead with the expansion of Northwood it may just be a stop-gap. The county estimates that even with the expansion Northwood could only grow for 10 years until it reaches carrying capacity. The new high school would initially support 800 students but could expand to serve up to 400 more.

The CIP also calls for a new elementary school in the northeastern part of the county. The ORED said both North Chatham and Perry Harrison elementary will be over capacity in the next five years. The Board of Education recommended the elementary school open in 2019 requiring an additional 1.6 cents per $100 added to the debt model.

In addition to the news schools, Chatham also will or already has begun refurbishing bleachers, locker rooms and tracks in schools throughout the county.

Impact fees will likely to be a large part of the funding of these projects. The county estimates the fees will fund $42.8 million in debt payments between 2010 and 2020.

These fees are not only subject to legislative pressure. Several lawsuits regarding impact fees filed in the past few years place Chatham at greater risk of legal exposure.

The North Carolina Supreme Court found that the town of Carthage in Moore County collected impact fees outside of their legal authority. The lawsuit is already creating a chilling effect on other communities. In Hendersonville, a city in the Western part of the state outside of Asheville, the city council voted to suspend their impact fee collection after seeing the decision.

Another lawsuit, filed in March of last year, alleges Orange County used impact fee funds for things outside of their legal authority and also failed to comply with a required portion of state law which states they must estimate the total cost of school capital improvements that would be needed to provide in a “reasonable manner” for the “public health, safety and welfare of persons residing the county during a reasonable planning period not to exceed 20 years.”

The lawsuit, originally filed by Orange County residents Elizabeth Zander and Evan Galloway, expanded to a class action on August 3, when a superior court judge authorized the lawsuit to extend to anyone who paid an impact fee from 2009 to 2017. Attorney for the plaintiffs Matthew Tynan, of Brooks Pierce, said the case will be heard by the N.C. Supreme Court sometime soon.

Tynan said Orange County stands to lose $8 million in impact fee revenue if the court sides in their favor. A rough analysis of development data dating back to 2009 provided by Orange County as well as the towns of Chapel Hill, Carrboro, Hillsborough and Mebane shows Orange County may lose even more. For the 40 developments where data was provided, a guess based on the year in which the development was approved suggests the figure may be closer to $13 million.

Last year, Chatham county estimated impact fees generated $15.6 million for schools between 1999 and 2009. LaMontagne said the loss of any impact fee money could be devastating.

“It’s a huge impact, it really is,” LaMontagne said. “The state is going to have to fund schools if they don’t let us do that. They used to fund schools decades ago, now they don’t.”

The primary issue LaMontagne said is the General Assembly considers Chatham to be wealthier than it actually is and as a result spends less per pupil than is necessary. Chatham ranks 86th in state funding per pupil compared to Orange County Schools, which is 84th, and Chapel Hill-Carrboro schools, which received the lowest amount state funding of all 115 school districts with data available.

“That’s really something we are working to get changed,” LaMontage said. “It’s really not right when we have got 95-98 percent on free and reduced lunch in Siler City.”

According to N.C. Department of Public Instruction data, more than 90 percent of students at Siler City Elementary were eligible for free and reduced last year.

Despite the lack of state funding, Chatham schools are doing well. According to data from the North Carolina Public Instruction only 1 of Chatham’s 18 schools is considered “low-performing” by the state. “Low-performing” schools receive a school performance grade of D or F and a school growth score of “met expected growth” or “not met expected growth.” The performance grade is assessed on a number of metrics including standardized test pass rate, year-over-year progress and graduation rates.

Rich said the reason communities like Chatham and Orange county have such good schools is because, although they get little in state funds, they contribute at large amount at the local level which leads to a higher per pupil expenditure. Chapel Hill-Carrboro City Schools is number one in local per pupil spending, with Orange County schools coming in fourth and Chatham coming in sixth.

Rich said a large portion of the per pupil spending came from now gone impact fee revenue.

“Inside of North Carolina we need to do better for our schools and if that money comes from developers then that is what we need, across the state,” she said.

“These are our children and our future.”