ELM SPRINGS -- The city must refund $342,384 in fees it charged developers, a judge ruled.
Capstone Builders of Springdale, owned by Norm Ditch, sued Elm Springs in Washington County Circuit Court. The lawsuit claimed the city didn't follow the law on impact fees.
The city argued its fee is a capacity fee based on use of a city utility -- in this case, the sewer system -- and not an impact fee.
Judge Doug Martin agreed with Capstone in a Jan. 21 ruling. A distribution plan filed by the city Feb. 2 noted the city also must pay $181,166 in attorney fees and $20,000 to Capstone for damages.
Amanda LaFever, a lawyer with the Municipal League of Arkansas representing the city, didn't return messages Thursday. Phone calls to Elm Springs City Attorney Jay Williams weren't returned Wednesday or Thursday. Mayor Harold Douthit in an email Wednesday deferred questions to Williams.
The U.S. Census gives an estimated 2019 population of 2,399 for Elm Springs.
The payout for the court judgment would be more than one-third of the city's general fund budget in 2017. The city had a cash balance of $1,535,931 in its general fund as of Dec. 17, 2017, according to a Legislative Audit report in April 2019. The report is the latest available on the agency's website.
Mark Henry, executive director of the Arkansas Municipal League, said the city probably could enter an agreement to pay the money back over time or negotiate another settlement. He noted conditions for receivership and bankruptcy for municipalities seem unheard of in Arkansas.
The lawsuit filed in November 2018 by attorney Tim Hutchinson of the Williams Law Group in Rogers claimed the fee -- benefiting the Sewer Department -- is a development impact fee.
The city required Capstone to pay $2,500 when it applied for a building permit. Capstone paid the fee on two projects, according to court documents.
The city in February 2005 instituted a fee of $2,000 per 4,000 gallons a month of wastewater sent to its sewer treatment facility. The fee was charged for every new connection to its sewer service and was required at the time a builder received a building permit.
The city removed the fee in 2013, but reinstated it in April 2016 at a cost of $2,500 for 4,000 gallons per month.
The state in 2003 allowed cities to charge impact fees so the city could make improvements to infrastructure. The revenue from the fee could pay for or recoup expenditures attributed to the use of development, according to the law.
Elm Springs in 2017 signed contracts with the Northwest Arkansas Conservation Authority to tie on to its sewer treatment plant in south Bentonville. The city began building a 3-mile pipeline connection to the plant.
The lawsuit detailed four points in the law required to institute an impact fee and said the city didn't meet the requirements.
The law said the city must have a capital plan, which includes a description of the improvements and cost and capacity estimates, when it institutes the fee. The city must state explicitly what a new facility is for and include the formula for how the fee was determined. The city must refund any money collected not used for the stated project in seven years. The money from the impact fee must be kept in a segregated interest-bearing account and used only for the project stated.
The lawsuit alleged the city wasn't spending the fee on building a new system, but rather in overhead and administration. The suit said the city isn't keeping the money in a separate account and not returning money as required.
How the city spent the money wasn't explained in court documents.
Those wanting refunds must contact Hutchinson's office by April 3.
Businesses or individuals who paid an impact fee of $2,000 will receive $1,558 for each payment of the fee, according to the distribution plan. Those paying $2,500 will receive $1,259.