A challenge was brought against Harnett County's ordinance requiring residential property developers to pay one-time water and sewer capacity use fees for each lot to obtain the necessary permits from the North Carolina Department of Environmental Quality. The trial court granted the County's motion for judgment on the pleadings, dismissing most claims from the plaintiffs, which included multiple development companies. The Court of Appeals upheld this dismissal. The Supreme Court of North Carolina is tasked with determining if these capacity use fees are monetary land-use exactions that warrant constitutional scrutiny, specifically under the essential nexus and rough proportionality tests established in prior Supreme Court cases. After reviewing the arguments and relevant law, the Supreme Court reversed the Court of Appeals' decision and remanded the case to the Harnett County Superior Court for further proceedings.
On October 20, 1980, the Harnett County Board of Commissioners established the Buies Creek-Coats Water and Sewer District to manage wastewater collection and treatment. An interlocal agreement was made on July 23, 1984, whereby the County agreed to operate the District's water and sewer systems. The court confirmed that counties have the authority to enter such agreements and exercise the rights of water and sewer districts, including the ability to set and collect rates, fees, and penalties for services.
By 1998, Harnett County had established eight water and sewer districts and entered a joint interlocal agreement detailing the operation of these systems. This agreement stipulated that the districts would lease their property and transfer assets to the County, which would also assume most liabilities and manage all operations through its Department of Public Utilities. The County was responsible for establishing and revising rates and charges for services.
On July 1, 2016, the County adopted an ordinance under the 1998 Agreement to set rates, fees, and capacity use fees for new customers. Specifically, the ordinance mandated a one-time fee of $1,000 for water service and $1,200 for sewer service for each new residential connection, payable before the County would support the landowner's application for environmental permits. These fees are deemed reasonable and necessary to ensure equitable cost recovery for new growth without imposing undue financial burdens on existing customers. Plaintiffs involved in property development in Harnett County have complied with these capacity use fees in their development activities.
On March 1, 2017, the Anderson Creek plaintiffs filed a complaint against the County, seeking several reliefs: (1) a declaration of the County's lack of statutory authority to enforce an ordinance; (2) a declaration that the ordinance violated their rights to equal protection and substantive due process under the North Carolina Constitution; (3) a refund of over $25,000 in capacity use fees paid to the County, with prejudgment interest; (4) an award for costs and attorney's fees; (5) an accounting of all capacity use fees paid; and (6) permission to escrow future capacity use fees pending the final judgment. On May 19, 2017, the County responded with an amended answer denying the claims and asserting counterclaims against the plaintiffs for breach of agreements, while also seeking sanctions against their counsel.
On March 16, 2018, the plaintiffs amended their complaint to include claims regarding a 2018 settlement agreement with the County and its severability concerning capacity use fees. The County filed an answer asserting that it had the authority to collect the fees. On February 12, 2018, the County sought judgment on the pleadings for almost all claims and requested to join necessary parties.
On July 19, 2017, PF Development Group, LLC filed a similar complaint against the County. On November 8, 2018, the trial court consolidated the cases, granted the County’s motion for judgment on the pleadings for almost all claims, and dismissed those claims with prejudice, deeming the County's joinder motions moot. The plaintiffs appealed this decision.
In their appeal, the plaintiffs contended that the trial court erred in granting judgment on the pleadings, arguing that genuine issues of material fact existed, that the 1998 Agreement did not authorize the County to collect the disputed fees, and that the capacity use fees constituted an unconstitutional condition for permit approval, failing the nexus and proportionality requirements established in *Koontz*.
Plaintiffs argued that the trial court improperly took judicial notice of the 1984 and 1998 agreements without allowing them a proper opportunity to contest this action. The Court of Appeals evaluated this claim, noting that judicial notice is permissible for facts that are either generally known within the court's jurisdiction or can be determined accurately from reliable sources. The court stated that decisions to take judicial notice are reviewed for abuse of discretion. It determined that the agreements in question are public contracts between governmental entities and therefore not subject to reasonable dispute. Additionally, the Court of Appeals found that these agreements are essential public documents relevant to the case, with some plaintiffs referencing the 1998 Agreement in their pleadings.
The court further clarified that while the relevant statutes allowed the County to assess fees only for immediate use of its water and sewer systems, water and sewer districts had the authority to charge fees for future services. Unlike counties and cities, water and sewer districts could set rates for both current and future services. The court also noted that local government entities can collaborate through interlocal agreements to fulfill their functions. Thus, although the County itself could not charge future fees, it could enter into contracts with water and sewer districts, allowing it to exercise the authority granted to those districts. Consequently, the Court of Appeals concluded that the County could only charge prospective fees via an interlocal agreement that enabled it to exercise the authority held by the districts.
The Court of Appeals determined that the 1998 Agreement allowed the County to exercise the districts' authority to collect prospective fees, concluding there was no material issue of fact regarding the County’s right to do so, despite plaintiffs' claims about the County's management of infrastructure. The court emphasized that the relevant question was the County's authority to assess fees for future water and sewer services, regardless of the infrastructure involved. Furthermore, the court addressed the plaintiffs' assertion that the capacity use fees required unconstitutional conditions analysis under Koontz. It clarified that the government can condition land-use permit approvals on requirements to mitigate impacts, provided there is an essential nexus and rough proportionality between the government's demands and the proposed developments. The court classified the fees in question as impact fees, despite their requirement for payment prior to permit approval. While acknowledging the Supreme Court's stance that the unconstitutional conditions doctrine does not restrict the imposition of property taxes or user fees, the court noted that the application of this doctrine to monetary exactions in North Carolina was unprecedented. The court found the plaintiffs' reliance on cases from other jurisdictions unpersuasive, asserting that Koontz had clarified the issue of monetary demands under the Nollan/Dolan framework. In contrast, it considered the Maryland case Dabbs v. Anne Arundel County persuasive, which stated that generally applicable fees do not engage the unconstitutional conditions doctrine.
The Court of Appeals addressed a challenge to impact fees collected by a county for real estate development aimed at improving transportation and education infrastructure. These fees were legislatively mandated, predetermined, and uniformly applied to all developers within the district. The Court rejected the plaintiffs' arguments, stating that the fees were not subject to constitutional scrutiny under the Nollan and Dolan framework because the ordinance did not require a specific monetary payment for permit approval, nor did it apply on a discretionary basis. Instead, the fees were applicable on a district-wide basis, distinguishing them from the conditional payments discussed in Koontz. The Court found that the definition of an exaction—fees required in lieu of compliance with obligations—did not encompass generally applicable fees that did not consider individual developers' impacts. Consequently, it held that impact and user fees imposed uniformly by a municipality to mitigate development impacts do not trigger unconstitutional conditions scrutiny. The Court concluded that the capacity use fees were predetermined, set forth in the ordinance, and not subject to negotiation or based on the specifics of any individual project, thereby falling outside the scope of the Koontz precedent.
The Court of Appeals distinguished the current case from the ruling in Dabbs, emphasizing that the water and sewer capacity use fees were assessed as a precondition for building permits, indicating they were not merely conditional payments for permit approval. This distinction is relevant to the coercive harms addressed in the Supreme Court case Koontz, which aims to prevent the government from imposing extortionate demands that compel landowners to relinquish property without just compensation. The Court of Appeals concluded that the plaintiffs did not establish a constitutional takings claim, as the fees were predetermined and uniformly applied, indicating no intent by the County to exert pressure on the plaintiffs.
The Court permitted a review of the plaintiffs' discretionary petitions to explore whether the essential nexus and rough proportionality tests under the unconstitutional conditions doctrine apply to generally applicable legislative impact fees. The analysis section outlines the standard for a motion for judgment on the pleadings under N.C.G.S. 1A-1, Rule 12(c), which allows courts to dismiss baseless claims when the pleadings reveal a lack of merit, requiring the trial court to view facts in favor of the nonmoving party. The unconstitutional conditions doctrine prevents the government from denying benefits based on the exercise of constitutional rights, as established in Regan v. Taxation With Representation and further supported by the cases of Nollan and Dolan, which safeguard the Fifth Amendment right to just compensation during land-use permit applications.
In land-use exactions, applicants for permits face significant vulnerability to coercion due to the government's extensive discretion to deny permits, which often hold greater value than the property it seeks to acquire. This dynamic can pressure property owners into relinquishing their property without the compensation required under the Fifth Amendment. However, the Supreme Court cases of Nollan and Dolan recognize that certain land uses may impose public costs, justifying property dedications to mitigate these costs as part of responsible land-use policy. These cases establish that the government can condition permit approval on a landowner's dedication of property if there is an essential nexus and rough proportionality between the required property and the social costs of the proposed use.
In the case of Koontz, the Supreme Court expanded these requirements to monetary exactions. The case involved a Florida resident seeking to develop wetlands, where the permit application required offsetting environmental damage through wetland conservation. The applicant proposed a conservation easement but faced alternative demands from the St. Johns River Water Management District, including limiting his development size or funding improvements on District-owned property. The Florida Supreme Court ruled that the Nollan/Dolan rule did not apply to monetary exactions. However, the U.S. Supreme Court countered that this interpretation would allow officials to circumvent the protections of Nollan and Dolan by simply offering a choice between surrendering property or making a payment equivalent to its value.
The Court asserts that in lieu of fees are equivalent to land use exactions and must adhere to the nexus and rough proportionality standards established in Nollan and Dolan. Conversely, the Supreme Court clarified that taxes and user fees do not constitute takings, thus permitting governments to impose them without infringing on property rights. The pivotal issue in this case is the necessity for a direct connection between government demands and specific properties, reflecting concerns raised in Nollan and Dolan regarding the potential misuse of government power in land-use permitting. Consequently, the Supreme Court ruled that any governmental demand for property from a land-use permit applicant must comply with Nollan and Dolan standards, regardless of whether the permit is ultimately denied or if the demand is monetary.
No North Carolina precedents have been cited relating to the unconstitutional conditions doctrine for monetary exactions since the Koontz decision in 2013, apart from the Court of Appeals’ ruling in this case. In Batch v. Town of Chapel Hill, prior to Koontz, a plaintiff's request for a subdivision permit was denied due to her failure to indicate a right-of-way dedication for a proposed parkway. The plaintiff claimed this denial violated her due process rights, constituted an unconstitutional taking, and involved inverse condemnation. On appeal, the Court of Appeals found that the town's requirement for a right-of-way dedication was an exaction with Fifth Amendment implications, defining exactions as conditions of development that necessitate public facilities to be provided at the developer's expense. Exactions generally fall into four categories: (1) land dedication for public use, (2) required improvements on dedicated land, (3) payment of in lieu fees, and (4) payment of impact fees based on the developer's share of costs for area improvements.
Determining the constitutionality of exactions involves distinguishing between those that require individual property owners to contribute to community improvements versus those costs borne by the public. The Court of Appeals adopted a rational nexus test, which includes five steps: identifying the imposed condition, the regulation causing it, assessing whether the regulation advances a legitimate state interest, evaluating if the condition further advances that interest, and examining if the condition is proportionally related to the development's impact. This test was applied in the case of Franklin Road Properties, where the City of Raleigh required property dedication and paving as a condition for a building permit. The Court acknowledged that the rational nexus test aligns with the Supreme Court's requirements from Nollan and Dolan regarding exactions.
A critical aspect of the analysis is classifying the capacity use fees in question. The County views these fees as user fees, while the plaintiffs argue they are impact fees constituting an exaction. The Court supports the plaintiffs' position, clarifying that impact fees are distinct from user fees, as impact fees offset capital costs for needed services resulting from new development, rather than being associated with immediate service provision.
User fees are charges for the use of specific items or facilities, intended to cover regulatory service costs provided by government entities. These fees are generally upheld if deemed reasonable. The County's payments, labeled as capacity use fees, were treated by the Court of Appeals as impact fees. The County acknowledged these fees aim to fund the expansion of water and sewer infrastructure for new developments, fitting the definition of impact fees rather than user fees, which are typically based on actual service usage. The challenged fees differ from traditional service fees and tap-on fees, as they do not cover existing services but instead contribute to infrastructure costs for future customers. The fees are categorized as exactions, which include developers paying their share of costs for new utilities and facilities. Although North Carolina law has yet to define "exaction," the Court has not dismissed the definition used in previous cases, which aligns with the treatment of these capacity use fees.
The Court of Appeals adopted a definition of "land-use exaction" that aligns with Black’s Law Dictionary, describing it as a requirement for developers to either dedicate property for public use or pay fees to offset project impacts as a condition for land-use approval. The court recognized that monetary payments fit within this definition, affirming that the contested "capacity use fees" qualify as both "impact fees" and "monetary exactions."
The plaintiffs argue that all impact fees should be scrutinized under the "unconstitutional conditions" doctrine from landmark cases Nollan, Dolan, and Koontz, regardless of how the fees are assessed or the governmental entity involved. They contend that the ordinance mandating capacity use fees lacks sufficient analysis to demonstrate a necessary "nexus" or "proportionality" between the fees and the impact of their developments on the county's water and sewer systems. The plaintiffs highlight that the county has significantly increased these fees since 2005 and that developers are required to construct their own water and sewer infrastructure, which is then transferred to the county. They argue that the value of this infrastructure should be considered in assessing the true impact of their developments and whether the fees effectively mitigate that impact.
Additionally, the plaintiffs note that the commingling of impact fee revenue from individual districts into the county's enterprise funds, without proper accounting, undermines the principles of nexus and proportionality. They assert that these issues raise concerns of coercion and fairness, which the "unconstitutional conditions" doctrine aims to address.
Plaintiffs argue that the Court of Appeals erred in concluding that the "capacity use" fees are exempt from constitutional scrutiny simply because they are legislatively enacted and generally applicable. They assert that the Supreme Court's decisions in Nollan, Dolan, and Koontz do not limit the unconstitutional conditions doctrine to only ad hoc or administrative decisions, as all three cases involved legislatively mandated exactions. This interpretation has led two state appellate courts to apply a version of the Nollan/Dolan test to impact fees.
Plaintiffs challenge the Court of Appeals' reliance on the case of Dabbs, noting that it did not pertain to permit issuance conditioned on payment to the government. They highlight that the Court of Appeals acknowledged the coercive harms the Supreme Court aimed to prevent as outlined in Koontz, but ultimately deemed the predetermined and uniformly applied fees as non-material in the context of legislative processes. Plaintiffs counter that impact fees are politically favorable for local governments due to the absence of opposition from future residents, who will absorb these costs in higher housing prices. They conclude that the "capacity use" fees qualify as "monetary exactions" that should be analyzed under the unconstitutional conditions framework established in Koontz.
The County defends its position by asserting that the unconstitutional conditions doctrine does not apply to generally applicable fees, arguing that such fees are not considered "takings" under the constitution. It claims that North Carolina law supports the imposition of fees to cover regulatory costs, asserting that it is reasonable for local governments to require those seeking services to bear associated costs. The County further contends that plaintiffs misinterpret Koontz, as it pertains specifically to "in lieu of" fees, which are not alleged in this case, and distinguishes between takings and fees as fundamentally different concepts.
When the government imposes fees or taxes, it is viewed as collecting contributions from individuals for governmental support or authorized public expenditures, which are offset by the protection and benefits provided by the government. The County asserts that prior to the Koontz decision, it was established that the government could require fees for public services without constituting a taking. Koontz did not change this established rule. The County further argues that fees applied uniformly to all individuals do not target specific real properties, as required by the Koontz ruling, and references various cases affirming that Koontz does not apply to broadly applicable fees.
Additionally, the County emphasizes that the prevailing legal authority indicates non-discretionary, generally applicable fees are not subject to the unconstitutional conditions doctrine. Citing cases such as Building Industry Association-Bay Area v. City of Oakland, the County notes that regulations requiring conditions for project approvals do not invoke Koontz. Other cited cases support the position that obligations to pay money do not equate to takings, particularly when they do not affect specific property interests. Examples include various court rulings on utility fees, bankruptcy filing fees, and other mandatory payments, all deemed reasonable user fees not constituting unconstitutional takings under the Fifth Amendment.
The County of Harnett argues that the imposition of generally applicable traffic impact fees and similar development fees does not trigger the Nollan/Dolan/Koontz scrutiny for takings, as these fees are legislatively prescribed rather than discretionary conditions imposed on individual cases. This position is supported by various court rulings, including Douglass Properties II, where the Washington Court of Appeals ruled that such fees do not fall under the expanded scope of monetary exactions defined in Koontz. The County highlights that the crucial factor for applying the Nollan/Dolan analysis is the discretionary imposition of land-use conditions, which is absent in cases of generally applicable fees.
Further supporting its stance, the County references multiple precedents that declined to apply the Nollan and Dolan tests to situations where regulations were applied uniformly, such as zoning restrictions affecting all land near an Air Force base or a one-time plant-improvement fee for sanitation infrastructure. The County asserts that its water and sewer fees are predetermined, uniformly applicable to all developers within the district, and thus do not warrant rough proportionality or nexus analysis. The argument emphasizes that these fees represent a monetary assessment rather than a requirement for property dedication for public use, reinforcing the idea that they stem from legislative rather than adjudicative actions.
The Dolan “rough proportionality” standard is deemed inapplicable to a city ordinance mandating mobile home park owners to assist residents with relocation costs upon park closure, as this analysis is reserved for adjudicative determinations conditioning land use approval on property transfer to the government. Similar reasoning applies to a city inclusionary zoning ordinance requiring residential developers to allocate 10% of land to affordable housing or pay an in-lieu fee, which is characterized as economic legislation rather than a land use bargain. Courts have limited Nollan/Dolan analysis to specific project approvals with property dedication requirements, indicating that legislative decisions do not pose the same coercive risks. The California Supreme Court noted that while individualized development fees may warrant scrutiny akin to Nollan and Dolan, generally applicable fees should receive more deferential review. The County asserts that the appellants failed to cite cases where courts applied these standards to generally applicable fees and argues that the Supreme Court indicated the rough proportionality test necessitates individualized determinations, which inherently do not apply to uniform fees. The County emphasizes that such fees enhance transparency and fairness, as all landowners are informed of the costs in advance. Finally, the County refutes plaintiffs' claims regarding the applicability of Koontz, asserting that the contested “capacity use” fees are legislative in nature, non-discretionary, and predetermined.
The County asserts that the distinction between fees that invoke the "unconstitutional conditions" doctrine is based on the nature of government action rather than the acting government branch. It contends that plaintiffs failed to identify any constitutional right they relinquished, emphasizing that there is no right to expand or utilize existing water and sewer systems or to avoid paying for government services. The County argues that the water and sewer districts could mandate payment for service expansions and that such fees do not require just compensation under the law, referring to the decision in Koontz.
The County claims that the plaintiffs did not allege any coercion, arguing that requiring developers to pay a standard fee for services cannot be classified as extortion, as per Supreme Court precedents. It highlights that the plaintiffs chose to connect to the County's water and sewer system to enhance density and market value of their properties, suggesting that the fee was a lawful charge for services that support their developments and mitigate the impact of new housing on existing infrastructure.
Further, the County posits that legislative processes, not the courts, should address complaints about fee amounts, noting that excessively high fees would likely provoke political backlash. It maintains that the judicial system is not the appropriate venue for this dispute, as the Takings Clause is designed to prevent some individuals from unfairly bearing public costs that should be shared by the community. The County argues that the capacity fees in question do not function as cost recovery mechanisms.
The County argues that the coercive element in this case is absent because it does not control the permit in question; rather, it conditions its agreement on obtaining a permit from the State. The necessity of the County's concurrence for permit approval remains unclear. Assuming it is required, the County's distinction is deemed irrelevant. The County cites the case of Landmark Development, asserting that the Constitution does not prohibit permitting authorities from requiring applicants to cover the full costs of their proposals, provided they do not engage in extortion. Furthermore, the County warns that accepting the plaintiffs’ argument would subject all governmental fees to the unconstitutional conditions analysis established in Nollan, Dolan, and Koontz, which could disrupt local governments' ability to levy fees for various public services, including parking, cemetery operations, and trade licenses. The County also contends that allowing plaintiffs to recoup fees would result in a “windfall,” as developers typically pass these costs onto consumers through higher land and construction prices. Additionally, the County asserts that plaintiffs have not adequately demonstrated that the “capacity use” fees fail the essential nexus and rough proportionality tests, highlighting the County’s legitimate interest in managing the financial impact of infrastructure expansion on existing customers and taxpayers. The County notes that plaintiffs have acknowledged the fees are intended to fund improvements to the water and sewer systems.
To satisfy the "essential nexus" requirement, plaintiffs failed to demonstrate that the $2,200 fees per residential property were disproportionate to the impact of new development on the County's water and sewer system, with their legal conclusion not needing to be credited at the Rule 12 stage, as referenced in Azure Dolphin, LLC v. Barton. The County asserts that demonstrating "rough proportionality" does not necessitate a detailed, formulaic analysis but rather the application of common sense, contending that the capacity use fees align with this standard without requiring further factual inquiry.
A thorough examination of the record reveals that the County's capacity use fees are subjected to the "essential nexus" and "rough proportionality" tests established in the cases of Nollan and Dolan. The Supreme Court's decision in Koontz clarified that any government demand for property associated with a land-use permit must adhere to these requirements, even when a permit is denied or when the demand is for monetary payment. The reference to “in lieu of” fees does not limit the Supreme Court's ruling but responds to a Florida Supreme Court conclusion regarding monetary demands not constituting a taking.
The Supreme Court emphasized that accepting arguments against the applicability of Nollan and Dolan could allow permitting officials to bypass these limitations. Moreover, the Court recognized that monetary exactions must also meet the nexus and rough proportionality standards, reinforcing that the relationship between the government's demand and a specific property is crucial. Consequently, the notion that monetary exactions pertain solely to “in lieu of” fees is dismissed, expanding the scope to include a variety of governmental monetary demands tied to land-use permits.
The County argues that the principles from Koontz do not apply to the challenged capacity use fees because they are uniform and do not target specific properties.
The dissent in Koontz criticized the majority for extending the Nollan/Dolan test to all monetary exactions, arguing it restricts local governments' ability to manage new developments' impacts on communities. This dissent recognized that the Supreme Court's ruling was not confined to "in lieu of" fees. The case distinguished itself from Eastern Enterprises v. Apfel, where the Supreme Court ruled that a financial obligation did not constitute a taking since it did not affect a specific property interest. In Koontz, the demand for payment directly impacted a specific parcel of property, as the County required "capacity use" fees as a condition for water and sewer permit approvals, effectively linking the fee to the property in question.
The analysis indicates that the Koontz decision is not limited to ad hoc fees or exempting generally applicable fees, countering the dissent's suggestion that such fees might not fall under the same scrutiny. Despite the fees being generally applicable, the County still exercises significant discretion in land-use permitting, exerting coercive pressure on developers by conditioning permit approvals on fee payments. The County also has the authority to increase these fees, as demonstrated by its decision to double the fees between 2005 and 2017, indicating retained discretionary power in fee imposition.
In Anderson Creek Partners, L.P. v. County of Harnett, the court addressed concerns regarding the substantial increase in fees imposed by local authorities for development projects. Similar issues were highlighted in previous cases, such as Lanvale Properties, where Cabarrus County's “adequate public facilities ordinance” was deemed an improper use of zoning powers. The ordinance, which conditioned new construction approvals on fees for school construction, resulted in fee increases exceeding 1,600% from 2003 to 2008. The court concluded that this ordinance functioned primarily as a revenue-generating tool rather than a legitimate zoning measure, illustrating potential harm from such ordinances lacking specific legislative backing.
In Quality Built Homes v. Town of Carthage, the town's assessment of water and sewer impact fees for new developments was similarly challenged. The court found the town lacked the authority to impose these fees, leading to remand for consideration of potential legal defenses. Ultimately, the court rejected the town's estoppel argument, stating that the plaintiffs had not received any benefits from the fees beyond what they were entitled to, reinforcing that payments made under duress or illegal exaction are not considered voluntary acts.
Neither Lanvale Properties nor Quality Built Homes II addressed a Takings Clause claim or referenced the Koontz decision, despite their relevance. The court expressed concern that local governments could use impact fee ordinances to coerce landowners into either paying fees or abandoning development. The Court of Appeals recognized this issue in its discussion of the Dabbs case, noting a critical distinction: the fees in Dabbs were not conditional upon permit approval, unlike the "capacity use" fees in the current case. The court emphasized that the "unconstitutional conditions" doctrine aims to prevent governments from leveraging their authority to impose excessive demands on landowners, potentially forcing them to forfeit property rights without just compensation. However, the Court of Appeals found the difference in fee application immaterial, asserting that the fees were uniformly applied and did not indicate coercion. This reasoning was deemed unpersuasive, as the lack of conditionality in Dabbs was precisely why Koontz was deemed inapplicable there. The court highlighted that conditioning permit approval on property rights is at the core of the unconstitutional conditions doctrine, as illustrated in Koontz. The Court of Appeals' conclusion, which suggested that uniformly applied fees negate any coercive intent by the County, overlooks the foundational purpose of the legal standards established in Nollan and Dolan, which address the risk of governmental coercion in land use contexts.
The trial court may determine that the County’s capacity use fees meet the "essential nexus" and "rough proportionality" requirements, thus not constituting a "taking." However, this determination does not resolve whether these tests must initially be satisfied. The Court disagrees with the Court of Appeals' reliance on the Dabbs framework for this case. The County argues that prevailing authority suggests non-discretionary, generally applicable fees are not subject to the unconstitutional conditions doctrine. However, most cited decisions predate Koontz or do not address land-use exactions, leaving only a few cases that align with the County's stance, which the Court finds unpersuasive and inconsistent with North Carolina precedent. The Court also asserts that the applicability of the Nollan and Dolan tests does not depend on whether the conditions were imposed administratively or legislatively. It notes that previous courts have varied in their application of these tests to impact fees, but emphasizes that nothing in Nollan, Dolan, or Koontz limits their application to administrative decisions. The Supreme Court's interpretation focuses on preventing coercion of constitutional rights rather than restricting a government branch's actions.
The imposition of "capacity use" fees through a legislative process suggests these fees are based on a deliberate assessment of need rather than being an arbitrary or coercive measure targeting specific landowners. Courts have distinguished cases upholding land use planning's constitutionality, which involved broad legislative determinations, from those like Dolan, where decisions affected individual properties. While earlier cases concerned zoning and general land-use regulations, the recent Public Water and Sewer System Development Act indicates that future implementation of such fees is likely to meet the constitutional requirements of "essential nexus" and "rough proportionality" established in Nollan and Dolan. However, limiting the application of these tests to administrative decisions risks undermining the "unconstitutional conditions" doctrine, which focuses on government power rather than its source. The conclusion emphasizes that the applicability of Nollan and Dolan's tests is determined by whether property is demanded from a land-use permit applicant, irrespective of whether the imposition comes from legislative or administrative actors. The County’s argument that plaintiffs did not identify a coerced constitutional right or any coercion is dismissed, as the plaintiffs' claim is based on the principles outlined in Koontz.
Monetary exactions imposed by local governments for development approvals must demonstrate an essential nexus and rough proportionality to the impact of the proposed development on existing infrastructure. In this case, the challenged capacity use fees are not only required to ensure adequate water and sewer capacity for the plaintiffs’ developments but also serve as a prerequisite for the County’s endorsement of water and sewer permits from the Department of Environmental Quality. The plaintiffs argue that the County’s actions violate the “unconstitutional conditions” doctrine as established in Koontz, Dolan, and Nollan, citing the Fifth Amendment's protection against governmental takings without just compensation. The court finds the County's requirement for the payment of capacity use fees as coercive, given that the plaintiffs could not proceed with their development plans without these payments, which were essential for obtaining necessary permits. The County's assertion that the plaintiffs had alternative development options does not mitigate the unconstitutional nature of the exactions, as established in prior Supreme Court cases. Furthermore, while the County's actions could suggest a regulatory taking claim, the plaintiffs did not pursue this argument, and the facts do not support such a claim.
The "capacity use" fee in question is determined not to be a form of regulatory taking as per the precedent set in *Penn Central Transportation Co. v. City of New York*, which deemed a New York City law regulating historic landmarks a valid exercise of police power. Instead, cases involving land-use exactions are more appropriately governed by the standards established in *Nollan* and *Dolan*. The court dismisses the argument that plaintiffs should address their grievances through the legislative branch, referencing California's view that while legislated fees can be problematic, they are typically subject to democratic processes. In contrast, the Texas Supreme Court warns that specific exactions can unfairly burden particular groups while evading broader political scrutiny. The court further highlights that the imposition of fees by local governments can serve as a revenue-generating mechanism rather than a regulatory measure, as seen in cases involving school impact fees. The findings align with the principle that the Takings Clause aims to prevent the government from imposing disproportionate burdens on specific individuals for public expenses that should be distributed among the public.
Challenged "capacity use" fees are intended to fund the expansion of the County’s water and sewer systems to support new developments. Plaintiffs, as developers, may be held responsible for these costs if they are "roughly proportional" to the developments' impact on the systems. The Supreme Court’s ruling in Koontz supports the notion that permitting authorities can require developers to cover the costs associated with their proposals, emphasizing the need for landowners to internalize negative externalities as a responsible land-use management practice.
However, this does not preclude judicial review of the legality of such fees, as governments cannot impose fees that amount to extortion, violating the Fifth Amendment’s right to just compensation. The County's argument incorrectly categorizes the fees as "user fees" instead of "impact fees," a distinction that affects their legality. If these impact fees establish an "essential nexus" and are "roughly proportional" to the burdens imposed by developers, then no taking occurs. The court, however, cannot assume this standard is met based on the current record and leaves the determination to the trial court.
The analysis highlighted applies specifically to "impact fees" or "monetary exactions" and does not alter the treatment of true user fees, which cover actual service costs or regulatory enforcement. The court's decision is consistent with previous rulings regarding regulatory authority and fees.
Definitions of "impact fee" and "exaction" will assist trial courts in future cases. The North Carolina Water Quality Association and the National Association of Clean Water Agencies express concerns that applying the "unconstitutional conditions" doctrine to impact fees is unnecessary, given that the Public Water and Sewer System Development Fee Act mandates a connection between impact fees and the actual capital costs of water and sewer systems. They argue this ensures a rational relationship between fees and costs. The requirement for impact fees to meet the "essential nexus" and "rough proportionality" standards from Nollan and Dolan should not burden local governments but rather ensure constitutional compliance.
The County contends that even if the Koontz case applies, the plaintiffs have not sufficiently alleged that the "capacity use" fees lack the required "essential nexus" and "rough proportionality" to mitigate impacts on water and sewer infrastructure. The County bears the burden of demonstrating compliance with these standards, as established in F.P. Dev. LLC v. Charter Township of Canton. The court notes that there is no basis for judgment on the pleadings since the plaintiffs have not presented facts that undermine their legal theory. The plaintiffs' assertion that the County collects water and sewer impact fees for future improvements supports the argument for an "essential nexus" but does not confirm that the fees are roughly proportional to expansion costs. While the plaintiffs acknowledge that the fees are based on the County's estimates of expansion costs, they dispute the accuracy of these estimates in reflecting the impacts of their developments on the County's systems. No specific mathematical calculation is required for this assessment.
The County is required to demonstrate that its capacity use fees are “roughly proportional” to the actual costs incurred in expanding its water and sewer system for the plaintiffs' proposed developments, referencing the Dolan case. The County has not substantiated its claim that this proportionality assessment is merely a matter of common sense, nor has it proven that the fees comply with such a standard without further factual inquiry. Consequently, the determination of whether the fees meet the “rough proportionality” standard will be addressed on remand.
Additionally, while the plaintiffs' legal theory is acknowledged, the County argues against allowing the plaintiffs to recover previously paid capacity use fees if those costs have been passed on to other parties, thereby preventing any party from receiving an unwarranted benefit. On remand, the County will be allowed to present evidence regarding whether the plaintiffs included the challenged fees in their lot sale prices, with the trial court to consider how any recovered amounts should be fairly allocated to avoid a windfall.
The County also asserts that the plaintiffs' petition for discretionary review should be dismissed as moot, arguing that the plaintiffs lack a justiciable claim for a declaration regarding the old ordinance, which no longer addresses their alleged injuries. The County contends that the plaintiffs have not sought retrospective monetary relief related to their claims and that the relevant statutory provisions have changed during the case, referencing the Public Water and Sewer Development Fee Act passed by the General Assembly, which establishes how local governments can calculate and assess system development fees.
The County asserts compliance with statutory provisions regarding water and sewer system development fees since 2017, claiming it can impose significantly higher fees than those contested by the plaintiffs. The County argues that even if the court supports the plaintiffs' constitutional claims, it would not alter the plaintiffs' legal rights moving forward. The plaintiffs seek a declaration that the "capacity use" fees are unlawful and demand a refund of all such fees paid, including prejudgment interest, referencing statutory and constitutional grounds. The court finds that the plaintiffs' request for monetary relief is closely linked to their declaratory relief claim, countering the County's mootness argument. The court emphasizes that the constitutional prohibition against taking property without just compensation is self-executing and not influenced by legislation, indicating that the 2017 Public Water and Sewer Development Fee Act does not render the plaintiffs' constitutional claims moot. Furthermore, the plaintiffs contend that the trial court mistakenly favored the County by ruling on the pleadings, as there exists a genuine issue of material fact regarding whether the "capacity use" fees have the required "essential nexus" and "rough proportionality" to the impacts of the plaintiffs' proposed developments on the County's infrastructure.
Plaintiffs have not explicitly argued the issue of “capacity use” fees in their brief, but the examination of pleadings reveals that while there is consensus that these fees possess an “essential nexus” to the impact of the plaintiffs' development on the County’s water and sewer systems, there is a significant dispute regarding whether the fees are “roughly proportional” to that impact. Consequently, the case is remanded for further discovery and evidence presentation concerning this proportionality. If it is determined that the fees are proportionate to the costs incurred by the County for necessary water and sewer services for the developments, no taking will be found. Conversely, if the fees are not deemed proportional, evidence will be allowed regarding whether plaintiffs have passed these fees to purchasers and how any excess should be distributed to avoid a “windfall.” The court holds that these fees are “monetary exactions” subject to constitutional scrutiny under the Koontz standard, necessitating both an “essential nexus” and “rough proportionality” to prevent classification as a taking. The Court of Appeals' decision is reversed, and the case is remanded to the Superior Court for further proceedings.
Justice Berger concurs in part, dissenting on the point that if a taking is found to be unconstitutional, the County should not retain the collected fees, asserting that it should not profit from such a taking. He emphasizes the importance of adhering to fundamental principles to preserve liberties as outlined in the North Carolina Constitution, suggesting that state provisions may offer greater protections than federal ones.
The Court asserts that the North Carolina Constitution offers more extensive protections for citizen rights than the federal Constitution, emphasizing a liberal interpretation that prioritizes individual liberty and security concerning person and property. The foundational principle of the Declaration of Rights asserts that all individuals possess inalienable rights, including life, liberty, and the pursuit of happiness. The Court holds a duty to safeguard these fundamental rights against arbitrary governmental actions.
The unconstitutional conditions doctrine and the Takings Clause of the Fifth Amendment protect against government demands for just compensation. Key precedents, Nollan and Dolan, establish a constitutional baseline, although heightened scrutiny may also apply under the North Carolina Constitution due to its strong property rights history. The doctrine focuses on preventing government coercion that could lead individuals to abandon their constitutional rights, particularly in land-use cases where conditions for permits may require property owners to relinquish property interests or pay monetary fees.
In the current case, the majority opinion identifies Harnett County's imposition of a uniform impact fee for water and sewer infrastructure expansion as potentially coercive, posing a threat to the plaintiffs' rights under the Takings Clause due to the lack of essential nexus and proportionality between the fee and the proposed property use.
The dissent argues that the County's infrastructure fee should not be classified as a "monetary exaction" subject to the unconstitutional conditions doctrine. This fee, required for property owners seeking to extend water and sewer services, does not constitute a taking and is not coercive. The dissent warns that mischaracterizing this fee could lead to unnecessary litigation and hinder municipalities' ability to fund essential public infrastructure. It contrasts the infrastructure fee with the monetary exactions discussed in Koontz, highlighting that the County does not demand an interest in property, unlike the conditions in prior Supreme Court cases (Nollan and Dolan). The dissent suggests that the majority's ruling improperly expands the scope of the Takings Clause, echoing concerns about increasing governmental hostility reminiscent of past legal eras. The dissent emphasizes the critical differences between the current infrastructure fee and the monetary exactions at issue in Koontz, noting that the latter involved coercive conditions tied to property interests.
The municipality's actions in Koontz aimed to achieve what would constitute a "per se taking" of land without just compensation through the permitting process. The ruling established that governments cannot bypass the requirements set by Nollan and Dolan by framing demands for easements as monetary payments equivalent to the easement's value. In contrast, the County's requirement for developers to pay fees is not akin to a demand for an interest in land; it seeks to offset the costs of specific public services they wish to access. Unlike the exaction in Koontz, which was not tied to particular services and was simply a condition for development approval, the County's fees are intended to fund the expansion of its water and sewer infrastructure. The majority opinion acknowledges this distinction, asserting that the fees are necessary for service provision.
Moreover, even if the fees were similar to those in Koontz, applying the unconstitutional conditions doctrine is inappropriate for two reasons: first, the fee does not infringe upon any rights protected under the Takings Clause; second, uniform fees imposed by legislation do not create a meaningful risk of coercion. Consequently, the conditions for applying the unconstitutional conditions doctrine are not met in this case. The doctrine, which addresses coercive governmental pressure that leads individuals to relinquish constitutional rights, does not apply here as the developers are not being forced to give up rights in exchange for receiving governmental benefits.
An unconstitutional conditions claim arises from a government action that threatens an underlying enumerated constitutional right. In this case, the majority asserts that the unconstitutional conditions doctrine is relevant because the County's infrastructure fee jeopardizes developers' rights under the Takings Clause, which guarantees just compensation for property taken for public use. The appropriation of an easement is classified as a physical taking, as established in Cedar Point Nursery v. Hassid. Previous cases, Nollan and Dolan, illustrate that governmental conditions on building permits involved the conveyance of easements, directly implicating constitutional rights.
However, the majority's application of the Koontz case to support the idea that the infrastructure fee constitutes a taking is contested. The imposition of an impact fee for specific services does not equate to a taking, as the developers are not coerced into relinquishing constitutional rights. If they refuse to pay the fee, they will not receive the benefit of the County's water and sewer infrastructure, nor do they possess a constitutional right to access these services without contributing to their costs. The County is justified in requiring payment from those who benefit from its services. Furthermore, developers do not have a constitutional right to build residential subdivisions without adhering to relevant regulations. The County's refusal to extend infrastructure to those who do not pay the fee does not equate to denying a benefit due to the exercise of a constitutional right, and the developers have not claimed a physical taking of their property.
Requiring payment for services rendered, such as fees or taxes, does not constitute a taking of property, as established in *Atlas Corp. v. United States*. The County's denial of a benefit related to a service that developers prefer not to pay for does not equate to a taking. The dissent argues that claims regarding the inability to proceed with development due to regulatory restrictions should be analyzed under the “regulatory takings” doctrine from *Penn Central Transportation Co. v. City of New York*, rather than the per se taking framework of *Nollan*, *Dolan*, and *Koontz*. A regulation that limits development but does not eliminate all economically beneficial use requires a case-specific analysis considering the economic impact, investment-backed expectations, and the nature of governmental action. The dissent emphasizes that a generally applicable development fee should be assessed through the Penn Central analysis rather than as an adjudicative land-use exaction. The choice presented to the developers involves funding public service extensions necessary for their desired development, which does not trigger the unconstitutional conditions doctrine as outlined in *Koontz*. Additionally, a non-discretionary, uniform legislative fee does not present a substantial risk of coercion.
The majority's ruling improperly applies the unconstitutional conditions doctrine to the County’s infrastructure fee by failing to recognize key differences from prior Supreme Court cases like Nollan, Dolan, and Koontz. Those cases involved discretionary, ad hoc conditions imposed after permit applications, whereas the County’s fee is non-discretionary, uniformly applied to all property owners. This uniform application reduces the potential for coercion, which is a central concern of the unconstitutional conditions doctrine. The dissent notes that in Koontz, the risk of coercion arose from a permitting process where a government could leverage broad discretion to deny permits, thus compelling property owners to accept unreasonable fees. In contrast, a fixed fee that does not vary with property value eliminates this coercive risk. Courts have recognized that the Nollan/Dolan standard applies only to individualized land-use decisions, not to generally applicable regulations. The dissent argues that the majority fails to adequately differentiate between these contexts in their analysis.
The excerpt emphasizes the special vulnerability of land use permit applicants to extortionate monetary demands. It asserts that traffic impact fees are not subject to the Nollan/Dolan test, as they are general, legislatively prescribed fees rather than ad hoc demands as seen in Koontz. The demand for fees in this case stems from a straightforward ordinance, making it compliant with legal standards. The fees are predetermined, non-negotiable, and apply uniformly to all developers in the county, distinguishing them from individualized assessments. This situation contrasts with Koontz, likened to a gas station with posted prices versus one where the price is arbitrarily set by an attendant. The dissent argues that while municipalities could theoretically set unreasonable fees, legal and practical constraints make this unlikely. Regulatory takings doctrine and state law already limit municipalities from imposing unreasonable fees. Furthermore, developers have opportunities to influence fee legislation through participation in the democratic process, ensuring that general legislation adheres to ordinary political restraints.
The dissenting opinion in *Anderson Creek Partners v. Harnett* addresses concerns regarding the majority's stance on legislative impact fees and the unconstitutional conditions doctrine. The majority suggests that the government could unfairly impose exactions on specific groups, although the dissent emphasizes that such burdens are often a necessary aspect of promoting general welfare, and that developers have a right to participate in legislative processes but not to control their outcomes. The dissent argues that the majority's ruling, which aims to prevent developers from profiting excessively from passed-on fees, could blur the lines between impact fees and true user fees, resulting in increased governmental resource expenditure to justify fee impositions. Furthermore, the dissent critiques the majority's expansion of the unconstitutional conditions doctrine as a regression to outdated legal principles, which historically protected certain rights against regulatory measures. The dissent warns that this could lead to preferential treatment of specific litigants and calls for a balanced application of the doctrine to avoid inconsistencies in constitutional law. Justice Hudson and Justice Morgan concur with the dissenting opinion.
