CARY - The town illegally required developers and home builders to set aside money for schools in exchange for approving their projects, the N.C. Court of Appeals ruled Tuesday.

The ruling, reaffirming a lower court decision, means Cary may have to pay close to $1 million to a group of builders - and that others may request similar refunds.

From 1999 to 2004, Cary required developers to get the Wake County school system to certify that there were enough seats in town schools to handle the residents of new homes. In lieu of the school district's approval, builders and developers could pay fees to the town.

But the town had no statutory authority to adopt the adequate public school facilities ordinance, or use it to accept fees, according to the appellate panel's decision. The ordinance "illegally shifted the burden of paying for public education to the subdivision builder-plaintiffs in this case," the panel wrote.

The town repealed the ordinance in 2004 but said that developments under existing agreements would have to continue to pay the school impact fees.

To date, Cary has collected more than $4.8 million in school fees from builders and developers. But because of the ordinance's repeal and because the town had no agreement with the school system on what to do with the fees, the money has been in limbo.

Builders in the Cameron Pond subdivision filed a lawsuit in 2007 to get back the more than $600,000 they had paid in fees. Superior Court Judge Carl Fox ruled for the builders in March 2009.

Cary appealed, but the panel ruled 2-1 Tuesday in favor of the builders. Cary must now either appeal to the N.C. Supreme Court or refund the fees paid by Cameron Pond builders - plus more than $368,000 in attorneys' fees.

"Certainly we're disappointed with the ruling," Cary spokeswoman Susan Moran said. "We're reviewing it carefully to determine what further action we may take."

In its appeal, lawyers for the town said that since the ordinance was repealed, the builders' claims were moot. They also said the Cameron Pond builders voluntarily agreed to pay the fees as part of a rezoning agreement, not because of the ordinance itself.

To manage growth

Cary enacted the ordinance for schools in 1999 and a few years later attached a fee to developments that didn't get certificates from Wake County schools.

The money was supposed to go to the county school system to benefit western Wake, which was bursting with new growth.

Critics said the rules were unenforceable, and the county commissioners, who manage the school system's budget, never signed on.

The town also couldn't agree with the school system on what to do with the money collected from the impact fees. If the county did accept the cash from Cary, it wouldn't agree to use it solely for schools in the Cary area.

The law was repealed by a new, pro-growth Cary Town Council. Elected officials said then that there was a possibility for litigation or other renegotiation requests from builders.

The town said Tuesday that it could not speculate on any future litigation that may follow Tuesday's ruling.