- Meaningful Services/Significant Benefit

Recommendations to Reform

North Carolina’s Annexation Law

Daren Bakst,* J.D. LL.M.

Legal and Regulatory Policy Analyst

*The opinions expressed in this paper are those of the author alone and do not necessarily reflect the views of the John Locke Foundation.

Highlights of recommendations

According to the North Carolina Supreme Court, municipalities must provide services that confer meaningful and significant benefits on annexed property owners.

As a matter of common sense, a service never should be considered meaningful or significant if a property owner already has the service.

To address exclusionary practices, municipalities should be prohibited from annexing any area if there is another eligible area that is in more dire need of services.

As of now, a municipality simply chooses among a selection of weak criteria that would meet the “urban test.” A municipality does not even have to meet a density requirement. Municipalities should be required to meet several reasonable standards to ensure that an area is urban.

Proper notice should be given to affected property owners. At the time of passage of a resolution of intent, notice should be mailed by certified mail and include the actual forms to request water and sewer.

The Local Government Commission (LGC) should provide meaningful oversight. A municipality should have to prove to the LGC that an annexation is financially viable.

The county should be able to approve or deny an annexation. County commissioners represent affected property owners and have an interest in the sound urban development of both municipalities and unincorporated areas.

Affected property owners should be allowed to vote if they can obtain a significant number of signatures in the proposed annexed area (20 percent of registered voters).

Property owners should have real legal recourse in superior court. This means being able to challenge many critical issues affecting a forced annexation.

Municipalities should have the burden of proof in superior court—after all, they are the ones seeking to forcibly annex someone.

Annexed property owners should not have to pay property taxes until the major municipal services are provided (other than water and sewer).

Municipalities should demonstrate to the LGC that they have provided promised services on time. If municipalities take far too long, they should be prohibited from forcibly annexing any area for five years.

When an area is voluntarily annexed, surrounding communities should be given standing in court to ensure that the annexation was lawful.

Introduction

The House Select Committee on Municipal Annexation soon will decide what recommendations it will make to the full House regarding annexation reform. North Carolina’s regressive annexation law, and in particular forced annexation, has been both a source of controversy and failure.

Forced annexation is a process by which municipalities can unilaterally force individuals in unincorporated areas to live within the city, without the individuals having any recourse on the merits of the annexation.

The primary purpose of forced annexation is for municipalities to provide meaningful services to individuals in contiguous unincorporated areas. However, municipalities have ignored this purpose. The law instead has become a financial bailout mechanism for municipalities.

This paper will not restate the policy arguments for and against forced annexation.[i] It is designed to identify some specific recommendations to the existing annexation statute so that the law achieves its intended purpose and respects the rights of North Carolinians. The narrow details of the law are in many ways what make the annexation system such a problem. This paper gets into those details.

Background: Nolan v. Village of Marvin

In 2006, the North Carolina Supreme Court issued arguably its most important opinion on the state’s annexation statute. In very clear terms, the Court stated in a case called Nolan v. Village of Marvin[ii]:

The primary purpose of involuntary annexation, as regulated by these statutes, is to promote “sound urban development” through the organized extension of municipal services to fringe geographical areas. These services must provide a meaningful benefit to newly annexed property owners and residents, who are now municipal taxpayers, and must also be extended in a nondiscriminatory fashion.[iii]

In determining that the services (part-time administrative services, such as zoning and tax collection) being proposed by the Village of Marvin were insufficient, the Court reasoned that the Village of Marvin was not “conferring significant benefits on the annexed property owners and residents.”[iv]

To put this in plain English, forced annexation exists so that municipal services can be provided to fringe areas. These services must confer a meaningful and significant benefit on the property owners.

Therefore, the most important question is whether the existing annexation law does in fact achieve this purpose. As annexation victims expressed in hours of committee testimony, municipalities provide services to areas that do not need the services and do not provide services to areas that do need the services.

Recommendations to Codify Nolan and Provide Meaningful Services

General Rule: Municipalities that want to forcibly annex an area should be required to demonstrate that they are providing services that confer a meaningful and significant benefit—they should provide “meaningful services.” This is simply a restatement of the Nolan decision.

No Duplication: As a matter of common sense, a service should not be considered meaningful if a property owner already has the service or has secured the service. There could be an exception if the municipality proves the service is inadequate. Of course, the municipality would have to show that the service it would provide would be adequate.

Types of Services: In the annexation statute, “major municipal services” are identified.[v] They include police protection, fire protection, solid waste collection, street maintenance services, and water and sewer. The Court in Nolan implies that these are the types of services that are meaningful and significant.[vi] The annexation law should limit “meaningful services” to these types of services. Throughout this document, “meaningful services” will be used to describe these major municipal services.

Provide What is Needed: In Nolan, the Court expressly stated that municipalities do not have to provide all of the major municipal services.[vii] However, municipalities, if they want to forcibly annex an area, should be required to provide all the “major municipal services” (“meaningful services”) that an area needs. It would be absurd, for example, if a municipality could annex an area by providing police protection but not water and sewer.

Protect Excluded Communities: Many areas that in fact do need services are simply ignored by municipalities. As has been shown by the UNC Center for Civil Rights and the Cedar Grove Institute for Sustainable Communities, low-income minority communities regularly have been excluded from municipalities. [viii] Municipalities should be prohibited from annexing any area if there is another eligible area that is in more dire need of services.

Recommendations to Genuinely Require Areas to be “Developed for Urban Purposes”

Make Requirements Consistent: Municipalities may only annex areas that are “developed for urban purposes.”[ix] However, the “urban” definition for proposed annexed areas is different for municipalities with less than 5,000 people and for those with 5,000 people or more. A proposed annexed area either is developed for urban purposes or it is not. The size of the municipality should not make a difference in making this determination.

Need Multiple Requirements for the “Urban Test:” A municipality of 5,000 people or more simply chooses among a selection of weak criteria that would meet the “urban test.”[x] Much often is made of the “requirement” that an area has to have a total residential population of two and three-tenths persons per acre. There is no such requirement. An area would be deemed urban if it meets the density criteria, but it does not have to meet the criteria.[xi]

This density provision, by itself, is extremely weak. For example, an area could be 80 percent undeveloped but 20 percent of the area could have a very high density (i.e. apartments). When taken as a whole, the area could average two and three-tenths persons per acre. This however should not be considered “developed for urban purposes.”

The statute should require that an area meet several requirements, one of which is a density requirement. The other requirements should include the type of criteria already listed in the statute. There should only be a small percentage of land that is rural or undeveloped. There should only be a small percentage of lots that exceed certain sizes.

Specific Requirements for the Urban Test: An area, regardless of the size of the municipality, should be required to meet several criteria to be considered urban:

Residential density of 2.3 people per acre (the current density provision)
65 percent of the total acreage consists of lots three acres of less in size
70 percent of the total number of lots and tracts are one acre or less in size
At least 70 percent of the lots and tracts are developed and used for residential, commercial, industrial, institutional or governmental purposes.
No more than 5 percent of the total number of residential lots and tracts may be five acres or more.

Most of these requirements are just amendments to existing criteria in the statute. The statute defines “used for residential purposes” as including any lot or tract five acres or less.”[xii] For purposes of these requirements, “residential purposes” has no size requirement.

Delete Exceptions to Urban Requirements: The law does not require an area to be urban if it meets other exceptions.[xiii] All of these exceptions should be deleted. One of the exceptions, in particular, captures the nature of the annexation statute: A municipality can annex many types of undeveloped areas that are located between the municipality and an area “developed for urban purposes.”[xiv] This exception renders the urban requirement meaningless in many instances.

Recommendations to Reform the Forced Annexation Process

The following section outlines the existing forced annexation process for cities with over 5,000 residents. The process is slightly different for cities with less than 5,000 people. The existing process is described in Charts 1-4, which are located in the appendix. Chart 1 provides a detailed timeline for a process that begins with a resolution of consideration. A municipality does not have to adopt such a resolution though. Instead, the process could start with a resolution of intent. Chart 2 provides a detailed timeline that starts with a resolution of intent.

Charts 3 and 4 identify the minimum times needed to pass an annexation ordinance and for an annexation to go into effect. Chart 5 outlines the recommended process for all municipalities (regardless of size). The details and all of the proposed changes are included in the following discussion.

The proposed process adds much needed protections to a system that unreasonably favors municipalities. The current system, among other things, goes out of its way to limit the notice of key information to citizens, places unreasonable deadlines on citizens, imposes few requirements on municipalities, and requires little oversight to protect North Carolinians from the abuse of the system. The worst part of the process rightly gets most of the attention: residents of a proposed annexed area do not have a direct or representative voice regarding the merits of an annexation.

Need a “Resolution of Consideration”: A process that starts with a resolution of consideration gives citizens time to prepare for a proposed forced annexation (assuming they are aware of the resolution).[xv] A process that starts with a resolution of intent gives citizens virtually no time before an annexation ordinance is passed (it could be as short as 70 days after passage of the resolution of intent).[xvi]

Any process should begin with a “resolution of consideration” or as it is called in the proposed process a “resolution of preliminary intent.” This is more than a semantics issue. By the time a municipality passes a resolution of consideration, the city already has done preliminary analysis on the proposed annexation. If it has not done at least a reasonable amount of due diligence, this failure would show a disregard for residents in the proposed annexed area and the municipality by passing such a resolution.

Require Proper Notice after Passage of the “Resolution of Preliminary Intent”: Under current law, notice is provided to affected property owners by including “a statement in the resolution [of consideration] notifying persons subject to the annexation of their rights.”[xvii] The resolution must be filed with the city clerk.[xviii]

Unless people that live in unincorporated areas regularly check neighboring city clerks’ offices for resolutions, this is a seriously inadequate form of notice. The annexation statute does not require the resolution to have a proper description of the area (a metes or bounds description) or a map of the area—the law only states that a resolution may have such information.[xix]

At a minimum, affected property owners should receive the following additional information:

A map and metes and bounds description of the proposed annexed area
The “meaningful services” that will be provided to each property owner and why such services are “meaningful and significant benefits” to the property owner
The estimated taxes, water and sewer charges, and other costs that could be incurred
A detailed description and schedule of the annexation process
Information about how to challenge an annexation
Contact information for city officials if people have any questions
A copy of the resolution of preliminary intent
Reports, analysis, minutes, and any other documents used in or related to the consideration of the resolution of preliminary intent. A prominently highlighted link to this information on the municipality’s web site would be suitable—in general, the municipality should have a dedicated web page on the specific annexation that is easily accessible from the municipality’s home page
A preliminary assessment of short-term and long-term costs to the municipality
A preliminary assessment of short-term and long-term financial gains (or losses)
A preliminary assessment of the costs to the county
A certification that the annexation is being proposed in order to promote sound urban development through the provision of meaningful services and the annexation would not have been considered but for the need to provide meaningful services to the proposed annexed area

Notice of the resolution of preliminary intent should be mailed no later than two weeks after passage of the resolution. It should be mailed by first class mail to all affected property owners. Prominent notice should be published in a general circulation newspaper for two successive weeks in the affected area. This information also should be sent to the county clerk’s office by certified mail.

Municipal residents often are forgotten. Notice to the residents should indicate that a resolution has been passed and include the link to the annexation web page. This information should be provided to them through a prominent notice in a general circulation newspaper in the municipality. Information about the resolution should be disseminated at municipal governing board meetings for at least two months following passage of the resolution.

Annexation Report Should be Approved Before the Resolution: An annexation report, under existing law, can be approved after the resolution of intent is passed.[xx] The report should be approved before or on the same day as the resolution of intent. The content of the report should inform the decision-making process and not just be an afterthought.

Annexation Report Should Be an Update: Under the proposed process, an annexation report would primarily update information from the notice of the resolution of preliminary intent.

Proper Notice for the Public Information Meeting and the Public Hearing: It is critical that affected property owners learn about these meetings, the report, and the resolution of intent. A municipality should be required to mail notices similar to what is sent to property owners regarding the resolution of preliminary intent.

In addition to what is already required by the law (such as the date, hour, and place of the meetings),[xxi] the notice should include details about how to request water and sewer service, and the costs of the services. The forms for requesting water and sewer should be included in the mailed notice.

The mailing should take place, as it does now, four weeks prior to the public information meeting.[xxii] The mailing should go to affected property owners through certified mail, not first-class mail. Recently proposed legislation (HB 243)[xxiii] also recommended a change to certified mail. There also should be a notice published in a general circulation newspaper for two successive weeks, with the last notice published not more than seven days preceding the public information meeting (as is described in the current law).[xxiv]

Municipal residents should be notified through notices in a general circulation newspaper in the same manner as affected property owners. The municipality should mail the county clerk, by certified mail, the resolution of intent, the report, and all other information provided to affected property owners.

Allow Some Time Between the Public Information Meeting and the Public Hearing: Under current law, a public hearing could take place as few as five days after the public information meeting.[xxv] The public information meeting is supposed to be the time when the municipality explains the proposed annexation. Citizens need more time than five days to digest the information. The proposed process ensures that there is at least 35 days between the two meetings.

Provide Meaning to the Public Hearing: Currently, the public hearing is a façade. Municipal governing bodies generally just ignore whatever is stated at a hearing. It may be therapeutic to have a venting session, but it is not helpful for affected property owners in a fight against forced annexation.

To provide some minor importance to the hearing, participants should be able to provide written comments to the municipality at the public hearing. These comments, along with a transcript of the hearing, should be sent to the county and to the Local Government Commission (LGC) when they consider the annexation under this proposed process.

Do Not Ignore the Local Government Commission: When municipalities propose to issue bonds or take on financial risks, the LGC reviews these proposals. Annexations are extremely risky and directly affect people inside and outside the municipality. Quite simply, it makes no sense that the LGC does not review the financial viability of annexations.

A municipality should have to prove to the LGC that an annexation is a viable proposition. Specifically, the LGC should make clear findings and certify that a municipality has demonstrated (not exhaustive):

Meaningful services will be provided as promised and will be on time.
The municipality’s financial situation is strong enough to go forward with the annexation.
Municipal residents are unlikely to pay additional taxes or fees due to the annexation.
Mismanagement by the municipality has not led to the need for annexation.
The annexation will not financially harm the county.
Proposed costs and fees on affected property owners are reasonable.

The LGC would be required to reject the annexation if it is unable to certify any of the preceding information. In making its decision, the LGC would be required to consider the written comments provided to the municipality at the public hearing, along with the transcript of the public hearing.

Involve County Commissioners: There are two major reasons why involving county commissioners is critical. First, they can provide affected property owners representation on the annexation. Second, a county is in the best position to review the sound urban development of an area—it has an interest in the sound urban growth of both the municipalities and the unincorporated areas.

County Approval Process: A county commission would be able to approve an annexation. However, if county commissioners decided they did not want to vote on an annexation, this would be permissible. If a county commission did intend to vote on an annexation though, it would have to make findings that the municipality has proven, among other things:

The forced annexation is not being proposed due to financial reasons. The municipality is annexing an area in order to promote sound urban development through providing meaningful services and would have annexed the area even if there had not been a financial benefit.
There are no improper motives such as to political gerrymander an area or unlawfully discriminate against citizens.
There are no eligible areas that are in more dire need of meaningful services.
The proposed services would be meaningful. This means, as discussed before, that a service is one of the “major municipal services” and a property owner does not already have that service or has not yet secured the service. An individual would have “secured a service” if it has been secured at the time of the approval of the annexation report.

The annexation is necessary in order to promote sound urban development for the municipality and affected area.
There would not be a significant harm caused to the surrounding community, including other unincorporated areas and municipalities.
The area is “developed for urban purposes.”
The area meets other “character” requirements such as being contiguous. On an important side note, in the existing statute, everything may not be as it appears. A good example is the definition of “contiguous.”[xxvi]

An area that “abuts” a municipality would generally be thought of as contiguous. However, “contiguous” does not just mean abutting a municipality. An area is “contiguous” to a municipality even if land owned by another political subdivision separates the proposed annexed area and the municipality.[xxvii] For example, if Raleigh wanted to annex an area but Cary owned land in between Raleigh and the desired area, Raleigh could jump over Cary and grab the land.

If a county commission found that a municipality had not proven these preceding points, then it would be required to deny the application for annexation. In making its decision, the county would be required to consider the written comments provided to the municipality at the public hearing, along with the transcript of the public hearing.

Petition Process: Before there could be a vote on an annexation by registered voters in an annexed area, a petition signed by 20 percent of the registered voters in the area would have to be provided to the county. This voting method is modeled after legislation (HB 87)[xxviii] introduced by Representative Goforth (D-Buncombe County), the Co-Chair of the House Select Committee on Municipal Annexation. Once the petition is approved, there would be a timely election requiring a majority vote to reject the annexation.

Meaningful Legal Recourse: Currently, if property owners want to challenge an annexation in superior court, they would face significant obstacles and would only be able to challenge very limited issues.[xxix]

The burden is on the property owner to prove any legal deficiencies. The property owner has to prove that “he will suffer material injury by reason of the failure of the municipal governing board to comply with the procedure…or to meet [character of area requirements].”[xxx] It may literally be impossible to show that a serious procedural error caused material injury to a property owner.

Property owners should not have the burden of proof—after all, they are not the ones seeking to forcibly annex someone. A property owner should be required to provide prima facie evidence that the annexation is invalid. This means evidence that on its face appears to show the annexation is invalid. A municipality would then have the burden of proof to refute the claims and to demonstrate that the annexation is in fact valid.

An annexation would be invalid if any of the critical factors, such as those reviewed by a county and the LGC, have not been proven.

LGC and No Meaningful Services: Under current law, a property owner through the LGC can seek abatement of taxes if promised major municipal services are not provided within 60 days after the effective date of the annexation (not including water and sewer).[xxxi]

As recommended in legislation (HB 1958)[xxxii] last year, abatement of taxes is inadequate. Instead, an annexed property owner should not have to pay property taxes until all the promised services are provided.

There also should be additional protections. Each municipality, as part of the annexation process, should be required to report back to the LGC at the time the services must have been provided. The municipality would be required to show that the services were being provided as promised. Property owners that did not want to be annexed in the first place should not have to go to the LGC to receive what was promised.

If the services were not provided within 120 days after the effective date of the annexation, the LGC could declare the entire annexation null and void. If the services were not provided within 180 days after the effective date of the annexation, the LGC would be required to find the annexation null and void, and the municipality could not forcibly annex an area for a period of five years. This may seem harsh, but it is mild in comparison to a municipality forcibly annexing a community and then not providing the services.

LGC and Water: A municipality must provide requested water and sewer lines within two years.[xxxiii] Like the above process, the municipality should have to show that requested water and sewer lines have been provided.

If the water and sewer were not provided within 2 and one-half years after the effective date of the annexation, the LGC could declare the annexation null and void. If the water and sewer were not provided within 2 years and 9 months, the LGC would be required to declare the annexation null and void. The municipality also would be prohibited from forcibly annexing an area for five years.

The statute has an exception to the two-year requirement for requested water and sewer lines. It does not apply to areas that have problematic topography.[xxxiv] The municipality can “provide septic system maintenance and repair service until such time as sewer service is provided to properties similarly situated.”[xxxv]

There is nothing about the septic service being free—the city gets to charge whatever it wants. There also is no clear timeline for providing the requested water and sewer lines—it gets done whenever the municipality gets to it.

The timeline is not the primary concern when it comes to problems with topography. Municipalities should not be annexing areas where it is “not economically feasible”[xxxvi] to provide water and sewer. If the topography is a problem, then the area should not be annexed.

Recommendation to Permit Surrounding Communities to Challenge Voluntary Annexations

As of now, a voluntary annexation generally will occur even if the law is not being followed. There are few parties, if any, which can legally challenge a voluntary annexation. In the legal system, a plaintiff must have standing, which in simple terms means the party must have incurred some type of injury.

If an area is going to be voluntarily annexed, surrounding communities may want to challenge the annexation because the voluntary annexation could provide a municipality the land necessary to forcibly annex surrounding communities. The problem for these communities though is there has not been an injury yet—the issue is not “ripe.”

These communities should be provided standing through the annexation statute. This would permit them to protect themselves and to ensure that voluntary annexations are in fact lawful.

Conclusion

In developing reforms for the full House, the annexation commission hopefully will articulate the changes that need to be made, not the changes that feasibly can be made. Even if the legislature fails to take action in the short session, a strong report (with proposed legislation) outlining the problems with the state’s annexation laws would be invaluable to future efforts in making meaningful reforms. A watered down report could set the reform movement back for years.

Fortunately, the commission has shown a real interest in the needs of North Carolinians. There is reason to hope that the leadership exists on the committee to make a real difference. Make no mistake—this is a critical moment for the state. It is time for annexation to serve the people as intended, not for the people to serve the interests of municipal leaders.