• HERE ARE 7 QUESTIONS IN THE BATTLE OVER IMPACT FEES.
The Fort Mill School District may never get their hands on impact fees designed to help pay for the construction of new schools, putting the burden back on taxpayers and complicating the district’s pledge of dramatically lowering the millage rate.
A lingering lawsuit filed last October by York County accuses the school district of mishandling the use of the fees. It claims the county cannot legally hand over the collected monies since the school district wants to use it to repay bond debt instead of payment for new school construction costs. (Read the lawsuit here. Read the school district’s answer here.)
The suit puts the future use of over $50 million in a judge’s hands. And one possible option, according to the lawsuit, is to refund the fees “to the owner of record of property on which a development impact fee has been paid.”
After unsuccessful efforts in the spring by state legislators to fix the problem in the state budget, a loss in court could stop the district from reducing taxes by 55 percent, according to state Sen. Michael Johnson.
“If you can’t spend it, you can’t keep it,” state Sen. Michael Johnson told The Fort Mill Sun. “It would have to be returned to someone.”
For several years, the county has collected $18,158 for single family homes and $12,020 per unit for multifamily dwellings, something school officials said would make newcomers shoulder more of the burden for the growth they are bringing with them. Just two decades ago, there were under 6,000 students in Fort Mill schools. There are now more than 18,000, requiring the construction of several new schools. (Story continues below.)
Michael Pruner, president of the York County Home Builders Association, said he believes a judge will rule in favor of the county and order refunds. He said the district should never have included Catawba Ridge High School in its projection for needed impact fees.
“That was already financed,” he said. “They floated a bond to build Catawba Ridge High School. Then they got an impact fee to pay for the same thing. That is like financing a house twice. You can’t take two loans. … If the study would have subtracted the high school, they would had an impact fee $8,000 to $10,000. But they have been caught with their hand in the cookie jar.”
What does the school district say?
In a Tuesday statement to The Fort Mill Sun, the school district’s spokesman said they may be close to a resolution with the county. Chief Communications Officer Joe Burke boiled it down to “differing legal opinions regarding the impact fee law as it relates to the use of the funds to pay debt associated with building construction or direct contractor invoices.”
“This is a unique situation as the district was the first to implement the impact fee under the new legislation and at the time of collection, the law was being challenged at the South Carolina Supreme Court level,” Burke said. “The district did not feel it was financially responsible to tax payers to use the funds collected until the legal process had been concluded.”
Meanwhile, the district has been able to reach the goal of lowering the debt service millage rate for taxpayers by other means, Burke said. Bond refinancing, interest savings and increase in assessed value have helped lower the rate, he said.
“Our current debt service millage is set at 72 mils and there will not be a need to raise the millage for the coming year,” the spokesman said.
What is the legal dilemma?
The school district has repeatedly asked the county to turn over the monies. York County filed their suit last fall spelling out the “controversy,” as the lawsuit puts it.
The county says state Ordinance No. 7396 prohibits the use of collected impact fee monies on “principal payments and interest or other finance charges on bonds or other indebtedness except financial obligations issued by or on behalf of the governmental entity to finance capital improvements.”
The suit says the school district paid for school construction with bonds and now wants to use the impact fees to pay the debt on bonds. In 2017, the district issued General Obligation Bonds in the amount of $119 million to defraying the costs of capital improvements, a move they made without consulting the county. The district wants to utilize collected impact fee revenues to repay the principal and interest of the bonds.
Does York County want to keep the money?
It’s not that York County doesn’t want to transfer the money to Fort Mill. They have tried, the lawsuit says.
“Elected representatives of York County have, upon the District’s apparent solicitation, sought to amend or suspend the Act’s prohibition against a school district’s ability to utilize collected impact fees on bonded indebtedness obligations on three separate occasions since its enactment, including by 2005 amendment, and twice by proposed budget provisos,” the suit says. “The 2019 proposed budget proviso was passed by the General Assembly, only to be vetoed by the Governor because it was ‘not . . . wise,’ which veto was sustained.”
Calling it a controversy that only a judge can resolve, the suit claims the school district has requested that the county turn over the impact fee balance “in a manner that does not fully comply with the 2018 IGA.”
“The County has a special interest in and is statutorily charged with the responsibility of ensuring impact fees that it imposes and collects are appropriated and utilized for a lawful purpose,” the suit says.
What else does York County want in its lawsuit?
The suit also asks a judge to order the school district to provide an accurate accounting of all:
• Projects undertaken by the District under the Capital Improvements Plan, including financing for same;
• Expenditures incurred or planned to date on public education facilities the District contends should be paid by or reimbursed from 2018 Impact Fee collections, including the $5 million in disbursements to date,
• Bonded indebtedness issued by the District which is currently outstanding and incurred for the purpose of defraying the costs of acquisition, construction, and/or equipping of capital improvements and facilities of the District.
How would a refund work?
Should the school district fail to provide a legal reason to hand over the money, York County says it must refund the money. The law says refunds must be made if “the impact fees have not been expended within three years of the date they were scheduled to be expended.” They must be refunded on a “first-in, first-out basis.”
“Further, under Ordinance No. 2718, the county is obligated at the end of the three-year period to notify the owners of record that the fees were not expended and that they are entitled to apply for a refund,” the suit says. “Notified owners of record must apply for a refund within 120 days of being notified by the County … and the County is obligated to pay approved refunds within 90 days of such determination.”
But the county is asking a judge to “suspend and/or toll the operative refund or disposition deadlines for all 2018 Impact Fees collected” pending resolution of the case.
What did the school district do wrong?
The suit spells out how the district should have used the impact fees in accordance with the law.
Impact fees are defined in the state law as fees that are “imposed as a condition of development approval to pay a proportionate share of the cost of system improvements needed to serve the people utilizing the improvements.”
“System improvements” are defined as “costs incurred for construction or reconstruction of system improvements, including design, acquisition, engineering, and other costs attributable to the improvements, and also including the costs of providing additional public facilities needed to serve new growth and development,”
In 2016, the General Assembly amended the term “public facilities” to include “public education facilities for grades K-12 including, but not limited to, schools, offices, classrooms, parking areas, playgrounds, libraries, cafeterias, gymnasiums, health and music rooms, computer and science laboratories, and other facilities considered necessary for the proper public education of the state’s children.”
Certain costs are expressly excluded in the law’s definition of system improvement costs, including “principal payments and interest or other finance charges on bonds or other indebtedness except financial obligations issued by or on behalf of the governmental entity to finance capital improvements identified in the capital improvements plan.”
What is the school district’s defense?
The school district filed an answer to the county’s lawsuit in December, admitting that they didn’t consult the county when issuing bonds. They also agree that a “genuine dispute” exists.
The district references a study commissioned by the county that set out the capital improvement plan and setting an appropriate impact fee. The district says the county’s study “contemplates the impact fee funds will be used to offset bonded indebtedness and applies credit in the calculation of the maximum supportable school impact fee as a result.”
As a result, the district claims that the county is supposed to collect impact fees and transfer them in a reasonable time “for the purpose of funding public education facilities whose need results from new residential growth.”
The school district says the law requires the county to transfer the money when requested. (Story continues below.)
“The county has failed to comply,” the district says.
Additionally, the county ordinance passed by the council references the study that was done on impact fees and contemplates that “that impact fees will be used to offset bonded indebtedness and applies credit in the calculation of the maximum supportable school impact fee as a result.”
“The District seeks a declaration of this Court that the Act does not prohibit the reimbursement of funds expended for system improvements identified in the CIP or payments of principal and interest on bonded indebtedness incurred to finance capital improvements identified in the CIP,” the answer says.
No trial date has been set, and recent court filings suggest that mediation may be scheduled soon for Alternative Dispute Resolution hearings.