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Town of Leland Statement Regarding Class Action Lawsuit

November 18, 2021

The Town of Leland continues monitoring the ongoing class action lawsuit regarding the collection of System Development Charges (SDC) between September 2015 and June 2018. The Town fully believes these charges were collected lawfully to fund investments to sustain the water and sewer systems to accommodate new development, pay for treatment allocation and availability, and other contemporaneous new demands on these systems. It is reasonable and appropriate for developers/builders to bear the cost of upgrades needed to accommodate their new demand on the systems and the cost for sewer treatment capacity that they consume by developing and building new homes and businesses. It would be inappropriate for these costs to be borne by the existing customers and users of the system. During this time, NC G.S. 160A-314 stated the municipality "may establish and revise from time-to-time schedules of rents, rates, fees, charges, and penalties for the use of or the services furnished by [the Town]". The Town did exactly as the law allowed; charged for the use and services provided.   

The law does not limit the type of fee by name, thus an “impact” fee, “capacity” fee, or some other SDC falls within the construct of the law for use of the public enterprise’s system infrastructure and treatment capacity allocation consumed, which must be built and available beforehand, accounted for in the calculations, and reduced from the Town’s allotment by NC DEQ mandate before every development or building begins, and for the service of being able to connect to the Town’s sewer system that was constructed and made available to the developers/builders.  If the Town did not provide this service, there could have been no construction of buildings except through private sewer and water systems, such as septic tanks and wells, which require large areas of land and separation.  The developers/builders chose to use the Town’s services and connect to the Town’s systems to increase their density and land use.  Furthermore, the Town used the funds collected for contemporaneous expenses and not for future discretionary expenses.  Unlike other municipalities charging “impact fees” prior to the enactment of the System Development Fee statute, the Town did not realize a surplus from charging and receiving these fees, rather, these revenues were used to sustain the system and to purchase capacity to enable new development.  Accordingly, the Town believes the fees it charged were authorized under the public enterprise statute referenced above. 

Leland continues growing rapidly and has been for more than 20 years. Building water and sewer systems to match this exponential growth is challenging and requires forecasting and the implementation of capital projects that meet the changing demands on the systems. When the Town operated its own Public Utilities Department that provided water and sewer services, builders or property owners who established new water and sewer connections paid a one-time charge for the use of water and sewer system capacity as a service furnished by the Town. That money was then used to finance growth-related and capacity-related projects to meet new demands. The SDC accounted for the expenses related to initially constructing the water and sewer systems, and subsequently, expanding water and sewer systems with contemporaneous water and sewer projects, as necessary to accommodate the growth and development within the Town. Specifically, the money collected through SDC during the time period in question went to the following projects, all of which constituted major infrastructure improvements to the backbone of the water and sewer systems to meet the demands of growth: Highway 17 Force Main and Lift Station #10 upgrade, construction of a water tower, completion of the Mallory Creek Water/Sewer Line Extension, and paying the annual availability charge to Brunswick County to sustain the Town’s allocated treatment capacity in the Northeast Wastewater Treatment Facility and to sustain the Town’s allocated transmission capacity in the County’s sewer transmission system.   

During the period between September 2015 and June 2018, the Town collected $4,106,778 in SDC revenue but invested $7,011,306 on the new projects and capacity expenses. Thus, the Town spent $2,904,528 more than it collected during that period for these contemporaneous projects and expenses. The SDC revenues were not spent on the normal operations and maintenance to provide service to existing customers, as these expenses were paid for by revenue the Town received through water and sewer volumetric usage rates charged to individual retail metered customers. The charging of SDC was the result of a thorough analysis, and with the approval of the annual rates and fees each budget year by Town Council. The money collected was invested in projects designed to better serve new residents and builders/developers. Leland is a community that is transparent, fair, and fiscally responsible with the Town’s resources to ensure the future sustainability of the Town and its citizens. That has long been part of the Town’s mission and will continue to be in the years to come. As part of the 2021 Interlocal Agreement for the Operation and Joint Ownership of Water Distribution and Wastewater Collection Systems, the Town’s financial obligations related to prior utility liabilities, including this class action lawsuit, have been transferred to Brunswick Regional Water and Sewer H2GO.