Home Builders Ass'n v. City of Scottsdale
187 Ariz. 479, 930 P.2d 993, 233 Ariz. Adv. Rep. 23 (1997)
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Rule of Law:
A municipal development fee imposed to fund future necessary public services is valid if the municipality has plausible, good-faith plans to use the funds for that purpose within a reasonable time. The statutory requirement of a "beneficial use" does not mandate that the municipality's plans be finalized or unchangeable at the time the fee is imposed.
Facts:
- In response to the Arizona Groundwater Management Act of 1980, the City of Scottsdale conducted a study which concluded it lacked sufficient water for future growth and needed capital to acquire new water sources.
- To secure future water, Scottsdale purchased Planet Ranch and its water rights in the Bill Williams River.
- Scottsdale's water resources plan also proposed other potential projects, such as constructing an advanced water treatment plant and purchasing water rights from Native American tribes.
- To fund these efforts, the Scottsdale City Council enacted Ordinance No. 1940, imposing a water resources development fee on all new real estate developments.
- The ordinance set fees at $1,000 per single-family residence and $600 per apartment unit, among other rates.
- Members of the Home Builders Association of Central Arizona (HBA) paid the required fee under protest before challenging its legality.
Procedural Posture:
- The Home Builders Association of Central Arizona (HBA) filed suit against the City of Scottsdale in Arizona superior court (the trial court).
- The trial court found the development fee invalid, ruling that Scottsdale's plans were too speculative to confer a 'beneficial use' on the developers.
- The City of Scottsdale, as appellant, appealed to the Arizona Court of Appeals.
- The court of appeals reversed the trial court, holding the fee was a legislative act presumed to be valid and that HBA, as appellee, had not proven it was arbitrary.
- The Arizona Supreme Court granted review but remanded the case to the court of appeals for reconsideration in light of the U.S. Supreme Court's decision in Dolan v. City of Tigard.
- On remand, the court of appeals reaffirmed its decision, finding Dolan inapplicable.
- The HBA then petitioned for review to the Arizona Supreme Court, which is the subject of this opinion.
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Issue:
Does a municipal water development fee, imposed to fund long-term water acquisition plans that are not yet finalized, satisfy the statutory requirement under A.R.S. § 9-463.05 that the fee result in a 'beneficial use' to the new development?
Opinions:
Majority - Ares, J.
Yes. A municipal water development fee imposed to fund long-term water acquisition plans provides the requisite 'beneficial use' to new developments by ensuring the city can demonstrate an assured water supply, which is a prerequisite for approving new development. The ordinance imposing the fee is a legislative act entitled to a presumption of validity, and courts must defer to the city's legislative choices unless they are arbitrary or without factual justification. The trial court erred by requiring Scottsdale's plans to be concrete and 'locked in,' as the plain language of A.R.S. § 9-463.05 does not impose such a strict requirement. The primary benefit to developers is the city's continued ability to approve new construction projects, which would cease without an assured long-term water supply. Furthermore, the heightened 'rough proportionality' standard from Dolan v. City of Tigard does not apply because this case involves a generally applicable legislative fee, not an individualized, adjudicative exaction demanding the dedication of land.
Analysis:
This decision grants Arizona municipalities significant flexibility in using development fees for long-range capital planning. It clarifies that the 'beneficial use' requirement is met by enabling development to continue, rather than requiring a direct, immediate, and specifically identified improvement for each development that pays the fee. The ruling also reinforces the distinction between generally applicable legislative exactions, which are reviewed with deference, and individualized adjudicative exactions, which are subject to heightened scrutiny under Dolan. This provides a clearer safe harbor for cities to impose broad-based impact fees to manage growth without facing the more stringent constitutional takings analysis.
