Many of you have heard by now of the recent court ruling regarding certain impact fees charged by various local governments. For those of you that are not aware of the ruling, or if you want more detailed information about the ruling, please see Kara Millonzi's blog post on Coates' Canons here.
It is imperative that each unit that has charged impact fees or other fees similar in nature (the specific name of the fee is irrelevant) consult with its legal counsel to determine if those fees fall under this ruling.
To summarize, the ruling stated that municipalities and counties are not authorized to charge certain impact fees, and those entities that had charged the types of fees in question will be required to refund at least some of the revenues collected. My purpose in this post is not to go through the details about the types of fees that are no longer permitted - please see the blog post for that discussion.
My purpose in this post is to go over the accounting for the refunds that are required of units that charged fees affected by the court ruling. SLGFD staff has reviewed the ruling and believes that for those units, a liability has been incurred and that liability should be reported on the 2016 financial statements, assuming the amount is material. The refund will cover at least three years of fees and the amount of the liability should be calculated based on that fact. Any fees collected in 2016 should be adjusted out of revenue with the offset being to the liability. Amounts collected in previous years should be adjusted out of equity as a prior period adjustment with that offset also going to the liability account.
Note disclosure will of course be required, and should include that the refund may extend to 10 years pending subsequent court rulings on that matter.
Again, it is imperative that each unit confer with its legal counsel to determine the applicability of the ruling to its specific circumstances. If legal counsel determines that the ruling applies, the unit should follow the guidance above to account for the resulting liability.
If you have questions about the accounting for this, please contact us at (919) 814-4299. Questions about the specifics of the court's ruling should be directed to the School of Government.