Recently, Charlotte City Council approved a legal settlement between Charlotte Water and a law firm representing local real estate developers and builders. The lawsuit is part of an overall class action lawsuit against more than two dozen cities in North Carolina, including Charlotte, over the legality of water utilities to charge system development fees. The developers and builders claimed that utilities’ system development fees should be stopped and paid back.
System development fees are a long-standing industry standard, state statute (North Carolina General Statute 162A Article 8), and important part of a water utility’s capacity-building program.
Charlotte Water, like other utilities in the state, charge system development fees to developers and other home builders to partially recover upfront costs associated with capacity investments. These fees – not charged to the average Charlotte Water customers – help offset the financial investment required to build the necessary water and sewer system expansions for new developments. Fees range from $3,500 to over a million and depend on the size of the meter being requested and are typically passed along to developers’ clients and products.
“Without system development fees all customers would bear the cost of the additional capacity needed when new developments add on to the water and sewer systems.”
The initial lawsuit was filed by the developers in November 2018. A second lawsuit was filed by the developers in April 2021 similar to the first but covering a different timeframe. Since the purpose of Charlotte Water’s system development fees and the extensiveness of our CIP program are fundamentally different than the other cities, Charlotte Water felt confident in the case. However, after four years of litigation, Charlotte Water lost the first suit and made the decision to settle the second to minimize the financial impact to customers.
“Though the City continues to dispute the allegations, a settlement was recommended to avoid further financial risk to all existing customers.”
The settlement, which includes two installments for a total of $106 million dollars, will be spread over two years. The first installment of $90 million, has already been paid for using mainly Charlotte Water reserves moved to take the brunt of the financial impact. The second settlement, $16 million, will be paid through a multi-prong solution of reduced cash flow to current capital investment projects, short-term delays to some projects, reserves, and a proposed additional $0.72/household annually rate increase, taking effect July 1, 2023.
Legal staff will bring forward during the January 23 Council meeting recommended changes to Chapter 23 of City Code to clarify and further define Charlotte Water revenues and use of funds.
UPDATE: City Council approved the changes during the January 23 Business Meeting.
