CHARLOTTE — The city of Charlotte will pay out $106 million after losing and settling two long running lawsuits.
The lawsuits, filed by Daedalus, LLC, are over the city charging a system development fee to some customers including developers and builders.
The city’s system development fee dates back to the 60s and partially recovers Charlotte Water’s investment in capacity that accommodates the additional burden of new development, Charlotte Water says. Revenue from the fee pays for prior capital improvement program projects that created the reserve capacity.
According to Charlotte Water, without these fees, all customers would be on the hook for the cost of additional capacity when new developments add to the water and sewer systems.
As a result of the payout, Charlotte Water customers will see a $0.06 a month increase on their bills next fiscal year. This will be added to the scheduled rate increase that Charlotte Water annually requests during the budget period.
Some Charlotte Water projects will also be delayed.
In 2017, the North Carolina legislature passed HB317, giving Charlotte and other municipalities “more explicit” authority to charge these feeds. The law was sparked in part due to a challenge to similar fees charged in Carthage, Moore County.
In 2018, a group of developers sued the city, claiming Charlotte Water did not have the authority to charge system development fees prior to the law’s passage. Charlotte is one of several cities across North Carolina that was targeted with this lawsuit.
Other municipalities that were targeted with similar court challenges include Raleigh, Durham, Asheville and Greensboro. The same law firm representing the developers filed a lawsuit against Charlotte Water in 2021 challenging the methodology Charlotte Water used to determine the fees and comply with state law.
State courts disagreed with city staff’s belief that Charlotte Water had the authority to charge a system development fee prior to 2017. The State Supreme Court declined to take up the case.
After four years of litigation, Charlotte Water lost the first suit. The judgement for the first suit was $90 million. The $90 million accounts for all of the system development fees paid from FY16-FY18, six percent interest and attorney fees.
The city of Charlotte settled the second suit for $16 million. Despite the settlement, the city disputes it overcharged developers.
In addition to the small rise in water bills, some Charlotte Water projects will be delayed. Charlotte Water Director Angela Charles tells Channel 9 that the city’s Thermal Hydrolysis Process project will be delayed by a year. The new treatment process is more sustainable and improves biosolids quality, according to the city. Some plant upgrades will also be delayed. Property taxes are not impacted.
Charlotte City Council will discuss the lawsuits on Monday. Councilmembers are expected to update city code to clarify and further define Charlotte Water rates, charges and fees.
In FY23, system development fees range from $3,710-$1,020,338 depending on the size of the requested meter. Charlotte Water is talking to rate consultants to review and modify system development fees in the next budget.
The city of Charlotte is unsure of how plaintiffs will pass along the $106 million to their customers.
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