The state Court of Appeals in Tacoma has ruled that developers building in Olympia’s Urban Growth Area don’t have to pay Olympia impact fees.

The 3-0 decision issued Aug. 20 affirmed a Thurston County Superior Court ruling that Olympia could not impose impact fees outside city limits.

The City had argued that it was entitled to impose the fees because the area being taxed was slated for future annexation, says Greg Overstreet, general in-house counsel for the Building Industry Association of Washington (BIAW). The key word in that argument was future, says Overstreet, whose association was a litigant in the case brought forward by builders David Nolte and Jeff Edwards.

“Cities don’t have the authority to impose fees beyond their boundaries,” maintains Overstreet.

City officials say the issue’s not that clear-cut.

“We are definitely disappointed in this decision,” says John Vanek, assistant city attorney. “We are studying the decision and its implications.”

Vanek says the City had an understanding with Thurston County in the area’s Comprehensive Plan that the City would be able to collect impact fees to pay for parks and transportation infrastructure improvements in the Urban Growth Area.

“It’s not like the City was collecting revenue from developments in the UGA to spend on projects in the City,” Vanek says. “The City and County agreed the City could collect this fee to spend on the UGA on projects to benefit people who live in that area.

“I think what other cities do is either they do not provide infrastructure or they plan for the UGA and rely upon SEPA (State Environmental Policy Act) mitigation monies to do that.”

That’s what the City of Olympia did before it started imposing impact fees in the UGA, says Tom Hill, Olympia’s development engineering supervisor.

“That’s the Old World way of doing business,” Hill says. “SEPA relies on a site-by-site evaluation.”

What that means is that developers building a project on Olympia’s westside will pay more SEPA fees than those with projects on the eastside because less infrastructure is already built in westside areas, Hill says. The impact fee equalized the costs somewhat.

“We haven’t had a rush from developers to build on the cheaper side,” Hill says. “Not yet, but they will.”

The City has until Sept. 9 to request the Court of Appeals to reconsider, Vanek says, and until Sept. 19 to ask the Supreme Court for discretionary review.

Nolte and Edwards initiated the court case when Olympia attempted to impose $330,000 in impact fees on their Chambers Creek Crossing development off Yelm Highway. The BIAW donated $27,500 to the legal cause and helped litigate the case.

At least 12 other builders whose developments were in the UGA have paid impact fees totalling more than $670,000 for projects within Olympia’s urban growth area.

Assuming the most recent court decision is not reversed, Overstreet says, some of the developers may not be entitled to refunds because such fees are subject to the statute of limitations.

The appeals decision is expected to have a chilling effect on other cities that wanted to follow Olympia and charge impact fees within their UGAs.

Olympia City staff say they don’t know how much the litigation has cost so far, but Finance Director Jane Kirkemo says that the City relied on in-house attorneys to argue its case.

“Olympia has lost twice,” Overstreet says. “I think that to do any more would be jousting at windmills and spending taxpayer money.

“I don’t think people shouldn’t pay for the privilege of connecting to utilities,” Overstreet says. “Thurston County has the obligation to have developers pay for the impacts. But these guys already paid once—they paid $30,000 in SEPA impacts to widen the road, and 30 percent of their land went to park space. The point is, Thurston County has the obligation to have developers pay for the impacts.”

By Kamilla K. McClelland, Business Examiner staff