Summer 2011
Piedmont Triad Land Use Newsletter
Practice Group:
Real Estate Land Use,
Planning and Zoning
The Desire Is There, But Will the Future Bring a Streetcar to
Winston-Salem?
By Patrick Byker
Almost five years ago, the City of Winston-Salem released its Streetcar Feasibility Study, which
examined the possibility of a streetcar connecting Wake Forest Baptist Hospital to the Piedmont Triad
Research Park (PTRP), linking these two important employment centers through Winston-Salem’s
Downtown. Several cities across America have employed streetcars as new transportation
infrastructure to spur economic development, most notably Little Rock, AK, Tampa, FL and Portland,
OR. It is perhaps ironic that until World War II, streetcars were a commonplace piece of America’s
urban landscape, even in North Carolina. Nevertheless, the streetcar appears to be rebounding in a big
way as the transit infrastructure of choice for cities evaluating how to provide an alternative to
accommodating the private automobile.
Winston-Salem is poised to take the next step in planning for the return of the streetcar. Last
November, the Winston-Salem Metropolitan Planning Organization (MPO) combined $560,000 from
the federal government with $70,000 from Piedmont Authority for Regional Transportation (PART) to
move ahead with the alternatives analysis to select the specific corridors for the streetcar connection
from Baptist Hospital to Winston-Salem State University, beyond the original plan for only
connecting Baptist Hospital to PTRP. The MPO is interviewing consultants and reviewing bids to
conduct this important alternatives analysis. The analysis should be underway next month so that by
late 2011 or early 2012, there will be a specific corridor “on the table” for streetcars to run again in
Winston-Salem. Of course, the City Council will have to approve the findings of this analysis for
there to be the next step, which will be a complex process of implementation and financing for the
new infrastructure along the chosen route and the new streetcars.
As Winston-Salem’s streetcar planning moves forward, it creates opportunities for what is typically
referred to as “Transit Oriented Development” or “TOD.” For streetcars to be successful, it is vital for
there to be high residential and employment density within a one-quarter mile walk of the streetcar
lines. TOD is the term that captures the key elements of higher-density development that can be
implemented at appropriate locations in anticipation of enhanced transit infrastructure, such as a
streetcar line. To find out more about TOD and the components of a successful TOD project, feel free
to contact us.
Piedmont Triad Land Use Newsletter
Extension of Utilities in Exchange for Future Annexation: A
Legal Quandary
By Lewis Cheek
A recent North Carolina Court of Appeals decision involving the City of Greensboro addressed
agreements between developers and municipalities to trade annexation for water and sewer services.
In the case of Cunningham, et al. v. City of Greensboro, agreements entitled “Utility Agreements and
Annexation Petition” were entered into by three real estate developers and the City during the time
period 1997-2000. The City agreed to extend water and sewer service to properties planned for
subdivision. The developers agreed to and did petition for annexation of the properties and also
agreed to pay fees imposed for the water and sewer service. The agreements stated that the conditions
would run with the real property and that they were binding upon “heirs, assigns, transferees and
successors in interest.” The agreements were signed by the City and by the developers and were
recorded in the Guilford County Register of Deeds office.
Almost eight years after the last agreement was signed, annexation proceedings were begun by the
City. By then the properties had been subdivided and lots had been sold. Following commencement
of the annexation proceedings, a number of subsequent purchasers of lots signed Owner’s
Withdrawals of Petition for Annexation in which they purported to withdraw consent to the
annexation of their properties. The City contended that these subsequent purchasers were legally
precluded from withdrawing consent by virtue of the provisions of the Utility Agreement and
Annexation Petitions entered into by the developers.
The Court ruled that the subsequent purchasers were not barred from withdrawing consent to the
annexation petition and therefore ruled that the annexation ordinance adopted by the City of
Greensboro was null and void. Though the utility agreements contained language purporting to bar
successors in title from withdrawing consent, no reference was made to the agreements in the deeds to
individual lots or elsewhere in the chain of title. The Court, therefore, found that the subsequent
purchasers had not received proper notice of the agreements and were not bound by them. In so
ruling, the Court recited that public policy considerations favor allowing individual property owners to
withdraw their consent to voluntary annexation petitions.
In this case, then, the effort of the municipality to preserve the ability to annex property into the future
by agreeing to provide water and sewer services to developers in exchange for the filing of petitions
for annexation failed. It would appear, though, that the result would have been different had the
developers provided actual notice of the agreement to subsequent purchasers by deed or otherwise. In
an interesting sidelight, however, the language of the Court’s decision left some doubt as to the right
of a municipality to condition the provision of water and sewer services upon submission of a petition
for annexation. The Court noted that while N.C.G.S. §160A-314 authorizes municipalities to take
certain actions concerning extension of utility services, it does not speak to imposing conditions like
requiring that a petition for voluntary annexation be filed. The Court specifically pointed out that
cases cited by the City of Greensboro in support of its position made no reference to any right a
municipality might have to condition the provision of water and sewer services on a customer’s
consent to be voluntarily annexed. In the end, the Court sidestepped the legality question while ruling
on other grounds.
In recent years, there has been increasing scrutiny of annexation issues. Forced annexation, whatever
the nature of the force exerted, has become less and less favored. Developers who find themselves
called upon to petition for “voluntary” annexation in exchange for the provision of services must
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exercise extreme caution to insure that all documentation is in order, K&L Gates has experienced land
use lawyers capable of providing all necessary assistance to navigate these difficult waters.
North Carolina Building Code Council Votes to Require Higher
Energy Efficiency Standards for New Construction
By Jason L. Barron and James L. Joyce
The North Carolina Building Code Council (the “Council”) voted December 14, 2010 to adopt a new
North Carolina Energy Conservation Code (the “Energy Code”) that requires significant increases in
energy efficiency for new commercial and residential construction. However, as part of a compromise
between homebuilders and proponents of a stricter efficiency requirement, the Council also agreed to
consider amending the State’s building code to reduce the cost of residential construction by $3,000
for a typical new detached home.
As initially proposed in early 2010, the Energy Code would have introduced a set of standards
designed to reduce energy consumption in all new buildings by 30 percent. As passed by the Council,
the Energy Code will target efficiency improvements of 30 percent in commercial buildings and 15
percent in residential buildings. Also, some items that had been mandatory in the initial draft were
made voluntary, and the Energy Code opens the door to incentives for improvements that exceed
Energy Code requirements for efficiency.
The amount of the offset and what it means for new buildings remains a source of some contention.
One study estimated that the changes needed to improve energy consumption in a $180,000 home by
30 percent would cost $2,400, but homebuilders claim that the cost would be much greater.
Homebuilders have also claimed that, because appraisers would ignore the efficiency improvements in
assessing new homes, the efficiency improvements place a burden on builders at a time when the
housing market is still recovering from a sharp fall.
Governor Perdue’s office submitted a list of 20 proposed changes to the Council from which to amend
the State’s building code in order to provide the offsets. These amendments include items such as
reduced sprinkler requirements or allowing battery-operated rather than hard-wired smoke detectors.
Some members of the Council and a consultant that worked on the efficiency proposals have
expressed concerns that these offsets could result in increased safety risks.
Council staff received a 2009 grant from the U.S. Department of Energy’s Office of Energy Efficiency
and Renewable Energy to develop the Energy Code, and made an initial proposal in March to adopt
the 2009 International Energy Conservation Code. After an ad hoc committee recommended changes
to the initial draft, a public hearing took place in June, with significant comments both for and against
the proposed code. The proposed code was up for a vote in September, but was delayed until the
December meeting. The Governor’s office proposed the offsets in a letter to the Council just before
the December meeting.
The new codes will go into effect March 1, 2012.
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Piedmont Triad Land Use Newsletter
Local Government Commission Adopts Policy to Facilitate Use
of Special Assessment District Financing
By Mack A. Paul, Angela L. Cottrell, and R. Michael Birch, Jr.
On December 7, 2010, the North Carolina Local Government Commission (“LGC”) adopted a policy
that will facilitate the use of special assessment districts as financing tools for private developers.
Before this action, the LGC’s stringent requirements coupled with the distressed economy practically
prohibited the issuance of bonds backed by special assessments for the financing of public
infrastructure. In fact, no local government has issued bonds backed by special assessments under the
authority granted by the General Assembly in 2008. This new policy allows a Qualified Institutional
Buyer (“QIB“), as defined by Rule 144A of the Securities Act of 1933, to purchase special assessment
bonds. As a result of this policy shift, special assessment district financing is now a viable tool that
can be used by private developers partnering with local governments to facilitate development.
Bonds issued by local governments must meet the LGC’s “financial feasibility” standard. Historically,
this standard was met by obtaining an investment grade rating for the bonds, acquiring a letter of
credit from an institution with an investment grade rating, or having a bank commit to purchase and
hold the bonds in a private placement transaction. By permitting the purchase of bonds by QIBs, the
LGC has provided an additional method for meeting this feasibility standard.
The LGC endorsed the policy of permitting QIBs to purchase special assessment bonds because the
LGC was satisfied that QIBs are sophisticated investors that have a record of performing a thorough
analysis and due diligence. This new policy requires special assessment bonds purchased by QIBs to
contain (i) a continuing disclosure undertaking, (ii) requirements for an independent third-party
administrator to oversee the collection of the special assessments, (iii) limitations on the transfer and
sale of the bonds, (iv) limitations on the term length and amount of capitalized interest, (v) limitations
on the ratio of debt to appraised value, and (vi) requirements for loan commitments for vertical
infrastructure within the special assessment district. The LGC noted that by adopting this policy with
these guiding principles, it followed the model established by the State of Utah, which is recognized
for its fiscally conservative policies and AAA bond rating.
The LGC’s action is the most recent step taken by the State to encourage the use of special assessment
districts to finance public infrastructure improvements. In 2008, the General Assembly expanded the
authority of local governments to use special assessments to finance public infrastructure needs.
Specifically, the General Assembly enabled local governments to issue bonds backed by special
assessments, extended the repayment term of assessments from 10 years to 30 years, and provided a
list of projects that could be financed by special assessment bonds. Such projects include water and
sewer systems, school facilities, and public transportation facilities such as streets and sidewalks.
Also, the costs of creating the special assessment district and the interest on the first few years of the
bonds can be capitalized and rolled into the total special assessment amount. In 2009, the General
Assembly expanded the list of projects for which special assessment bonds can be issued to include
renewable energy projects, parking facilities, parks and recreation facilities, and affordable housing.
We are aware of a number of projects that have been waiting patiently for this action by the LGC.
Expect to see significant activity involving special assessment districts in the coming months.
For information on how special assessment districts are created and how they can facilitate private
development, please review K&L Gates’ prior analysis on the topic here and here. Also, please read
the full text of the statutes authorizing special assessment districts for counties and cities.
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Piedmont Triad Land Use Newsletter
Confusion at DWQ over Variances Resolved
By Keith P. Anthony and Nathaniel C. Parker
On August 3, 2010, the Division of Water Quality of the North Carolina Department of Environment
and Natural Resources (“DWQ”) upturned on its head the general understanding of the transferability
of variances from one property owner to the next. Specifically, DWQ initially announced in an official
memorandum that variances issued under certain state water quality programs for riparian buffers do
not run with the land. Therefore, according to the interpretation DWQ describes in this memorandum,
a variance obtained by one property owner could not be transferred to a subsequent purchaser even
when the subsequent purchaser intended to continue with the same project for which the variance was
approved. Consequently, the subsequent purchaser would have to obtain a variance independently,
potentially subjecting the project to delay, added expense, and the risk that a new variance could be
denied.
DWQ’s announcement was shocking because it ran counter to the general rule that variances run with
the land. As is true for the specific riparian buffer variances at issue, variances generally are granted
based upon established criteria, including a hardship created by the restrictions that affect the use or
development of the land. Generally speaking, the personal circumstances of the property owner are
not considered as part of this analysis. Therefore, there was little basis for DWQ to prohibit the
transfer of a variance from one property owner to the next where the subsequent property owner is
continuing with the same project for which the variance was obtained.
As a result of the backlash from its announcement, DWQ sought the advice of the Attorney General’s
Office, which fortunately stepped in to correct this error. On August 30, 2010, the Attorney General’s
Office advised DWQ that variances in fact run with the land and could be transferred from one
property owner to the next, thereby reversing DWQ’s announcement. Consequently, DWQ now has
confirmed that variances do in fact transfer with the land and do not expire unless specifically stated in
the variance approval.
Introducing Amy Fullbright, Government Affairs Counselor
Currently serving as President of the NC Professional Lobbyists Association, Amy Fullbright's
practice focuses on legislative and regulatory affairs in North Carolina as the firm's Government
Affairs Counselor. Representing businesses, industry and associations before the North Carolina
General Assembly and the Executive Branch for over 15 years, Amy has successfully worked on a
variety of legislative matters, including electronics recycling, interbasin transfers, land use and zoning,
brownfields, risk based remediation, air toxics, renewable energy and agency regulation review
Contacts:
William J. Brian, Jr.
bill.brian@klgates.com
+1.919.466.1261
Patrick L. Byker
patrick.byker@klgates.com
+1.919.466.1264
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