HOME BUILDERS ARE MAKING SOME HEADWAY in their long fight to prove that impact fees are nothing more than illegal taxes as two recent decisions—one in Mississippi, the other in North Carolina—ruled in favor of the builders.

The courts ruled in both cases that the local jurisdictions needed state approval to impose impact fees. In Mississippi, the state Supreme Court said the city of Ocean Springs lacked authority under state law to levy impact fees and affirmed a lower court order for the city to return the money, estimated to be in excess of $100,000, to the builders.

The North Carolina case is slightly different in that the state Supreme Court refused to hear the case, effectively upholding a state appellate court ruling on school impact fees that was favorable to the builders. The North Carolina appellate court upheld a lower court ruling that said that Durham County, N.C., could not charge school impact fees because it did not have state approval. The lower court also ordered the county to return $8.3 million in collected fees to the builders.

The NAHB was encouraged by the decisions in Mississippi and North Carolina.

“Any favorable decision by a state Supreme Court is good news for builders and can be used as a precedent in other cases,” says Chris Whitcomb, an NAHB staff attorney, who points out that it's unlikely an impact fee case would ever reach the U.S. Supreme Court since they are matters of state law and don't deal with constitutional issues the way the high-profile Kelo case focused on property rights.

“What we're seeing is that if there's nothing in state law that grants local jurisdictions the authority to impose impact fees, the courts have been willing to strike them down,” says Whitcomb. “At the very least, it will be more difficult for municipalities and counties to impose an impact fee,” he adds.

Whitcomb did caution builders that there are cases where the courts will rule that local governments have special powers to impose impact fees if they are targeted for necessary infrastructure such as streets, sewers, and parks.

In another decision, however, the Nebraska Supreme Court ruled that the city of Lincoln's impact fees were legal based on reserve powers outlined in the city's home rule charter. The charter has broad language that grants the city reserve powers if the state has not acted on a specific matter. The city determined that the reserve powers gave it the right to impose impact fees. The HBA of Lincoln fought the case every step of the way and lost.

Mark Hunzeker, the attorney for the builders in Nebraska, says the $5,000 impact fee per house the city is charging adds 3 percent to the cost of a new home. “The impact fee doesn't improve the value of the house, and it makes it harder for people to afford a house,” he notes, adding that single-family permits in Lincoln are down 40 percent over the last two years. Hunzeker says people are moving to nearby Waverly, where they can buy a lot for $20,000 less and don't have to pay a $5,000 impact fee.

Hunzeker says the Lincoln HBA plans to get more involved politically to help elect builder-friendly candidates in the city's spring 2007 election.

Learn more about markets featured in this article: Durham, NC.