Home Builders Ass'n of Cent. Arizona v. City of Scottsdale, CV-95-0160-PR

• Decision Date: 07 January 1997
• Docket Number: No. CV-95-0160-PR,CV-95-0160-PR
• Parties: , 44 ERC 1447, 233 Ariz. Adv. Rep. 23 HOME BUILDERS ASSOCIATION OF CENTRAL ARIZONA, a non-profit Arizona corporation; for and on behalf of all similarly situated; Grupe Development Co., Inc., and Arizona corporation; Knoell Bros. Construction, Inc., an Arizona corporation; Marlborough Development Corporation, an Arizona corporation, Plaintiffs-Appellees, v. CITY OF SCOTTSDALE, a municipal corporation, Herbert R. Drink-Water, Rene Wendell, James D. Bruner, Kathryn Campana, Myron R. Deibel, William Soderquist, and Bill Walton, members of the City Council of the City of Scottsdale, Defendants-Appellants.
• Court: Arizona Supreme Court

Page 993

930 P.2d 993

187 Ariz. 479, 44 ERC 1447, 233 Ariz. Adv. Rep. 23

HOME BUILDERS ASSOCIATION OF CENTRAL ARIZONA, a non-profit Arizona corporation; for and on behalf of all similarly situated; Grupe Development Co., Inc., and Arizona corporation; Knoell Bros. Construction, Inc., an Arizona corporation; Marlborough Development Corporation, an Arizona corporation, Plaintiffs-Appellees, v. CITY OF SCOTTSDALE, a municipal corporation, Herbert R. Drink-Water, Rene Wendell, James D. Bruner, Kathryn Campana, Myron R. Deibel, William Soderquist, and Bill Walton, members of the City Council of the City of Scottsdale, Defendants-Appellants.

No. CV-95-0160-PR.

Supreme Court of Arizona,

In Banc.

Jan. 7, 1997.

[187 Ariz. 480] Carmichael & Powell, P.C. by Ronald W. Carmichael, Sid A. Horwitz, Brian A. Hatch, Claudia J. Resnick, Phoenix, for Plaintiffs/Appellees.

Lieberman, Dodge, Sendrow & Gerding, Ltd. by Marc R. Lieberman, Susan G. Sendrow, Phoenix, and Fredda J. Bisman, Scottsdale City Attorney by Barbara R. Goldberg, Scottsdale, for Defendants/Appellants.

Snell & Wilmer by Regina L. Nassen, Clague A. Van Slyke, Tucson, for Amicus Curiae. Southern Arizona Home Builders Association.

Shelley & Bethea by J. LaMar Shelley, Mesa, for Amicus Curiae League of Arizona Cities and Towns.

OPINION

CHARLES E. ARES, Judge Pro Tem.

Driven by the Groundwater Management Act of 1980 to drastically reduce its dependence on underground water, the City of Scottsdale imposed a water resources development fee on all new realty developments. The Home Builders Association of Central Arizona (HBA), some of whose members paid the fee under protest, challenged in superior court the fee's validity under Arizona's enabling act, A.R.S. § 9-463.05. The trial court declared the fee invalid on the ground that Scottsdale's plans to acquire new water were too speculative to confer a beneficial use on the developer, as required by the statute.

The court of appeals reversed that decision because the trial judge had failed to accord proper deference to the Scottsdale city council's legislative decision to adopt the fee. The court held the development fee was entitled to a presumption of validity and that the HBA had not proven that the city's decision was arbitrary. Home Builders Ass'n v. City of Scottsdale, 179 Ariz. 5, 13, 875 P.2d 1310, 1318 (App.1993) (Home Builders I ).

This court granted review but remanded the case for reconsideration in light of the recent United States Supreme Court decision in Dolan v. City of Tigard, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994). On reconsideration, the court of appeals reaffirmed its initial decision, holding that Dolan did not dictate a different result. Home Builders Ass'n v. City of Scottsdale, 183 Ariz. 243, 902 P.2d 1347 (App.1995) (Home Builders II ).

The case is now before us on petition for review. We must determine the validity of the city's development fee under A.R.S. § 9-463.05 and in light of the takings law of the United States. We hold Scottsdale's fee valid.

I. FACTUAL BACKGROUND OF THE SCOTTSDALE FEE

The Groundwater Management Act of 1980, A.R.S. §§ 45-401 to 704 (1987 & Supp.), requires municipalities to reduce their dependence on groundwater by achieving safe yield--a balance between the amount of underground water pumped out of the aquifers and the amount naturally and artificially recharged. Because Scottsdale has a contract to receive surface water from the Central Arizona Project (CAP), it is statutorily deemed to have an assured water supply; however, by the year 2001 the city must demonstrate to the state director of water resources that in fact it has sufficient water supplies to meet its developing needs for 100 years. (This deadline has now been moved to January 1, 1998. A.R.S. § 45-576(E).) Before adopting the development fee at issue here, the city undertook a detailed study of the water resources needed to comply with the Groundwater Management Act. The study, "Water Resources Plan 1985," concluded that Scottsdale clearly lacks sufficient water for the future. It also found that Scottsdale would need to raise capital to acquire new supplies of surface water and to construct a system to transport that water.

Anticipating the need for more water, Scottsdale had already purchased Planet Ranch and its surface water rights in the Bill Williams River in La Paz and Mohave Counties. City planners proposed that water from Planet Ranch be brought to the city through a canal system tied to the CAP. Planet Ranch cost more than $11 million, and the cost of carrying the water to the CAP aqueduct was estimated at $18 million more. In addition, the water resources plan proposed the city increase its recharge capacity by constructing Water Factory 21, an advanced effluent treatment plant that would produce potable water. Other sources of surface water such as the purchase or lease of water rights from various native American tribes were also outlined in the plan.

To assist in accumulating capital, the plan proposed the adoption of a development fee for all new real estate developments. The city council adopted Ordinance No.1940, imposing a fee of $1,000 per single family residence, $600 per apartment unit, and $2,000 per acre foot of estimated water consumption for other new uses. The fees are imposed as a condition on the approval of new developments.

II. STATUTORY VALIDITY OF SCOTTSDALE FEE

A. Trial Court Findings

HBA challenged the Scottsdale fee for failing to meet the requirements of the enabling statute:

A.R.S. § 9-463.05. Development fees; imposition by cities and towns

A. A municipality may assess development fees to offset costs to the municipality associated with providing necessary public services to a development.

B. Development fees assessed by a municipality under this section are subject to the following requirements:

1. Development fees shall result in a beneficial use to the development.

2. Monies received from development fees assessed pursuant to this section shall be placed in a separate fund and accounted for separately and may only be used for the purposes authorized by this section. Interest earned on monies in the separate fund shall be credited to the fund.

3. The schedule for payment of fees shall be provided by the municipality. The municipality shall provide a credit toward the payment of a development fee for the required dedication of public sites and improvements provided by the developer for which that development fee is assessed. The developer of residential dwelling units shall be required to pay development fees when construction permits for the dwelling units are issued.

4. The amount of any development fees assessed pursuant to this section must bear a reasonable relationship to the burden imposed upon the municipality to provide additional necessary public services to the development. The municipality, in determining the extent of the burden imposed by the development, shall consider, among other things, the contribution made or to be made in the future in cash by taxes, fees or assessments by the property owner towards the capital costs of the necessary public service covered by the development fee.

5. If development fees are assessed by a municipality, such fees shall be assessed in a non-discriminatory manner.

(Emphasis added.)

HBA's principal witness was Leonard Dueker, the director of the city's Water Resources Department and author of "Water Resources Plan 1985," who testified in detail about the city's need for new water and its plans to obtain it. Taken as a whole, the evidence overwhelmingly supported the city's decision that it needed more water. The trial court found HBA failed to prove Scottsdale had an adequate water supply for the foreseeable future. The court also found the city reasonably could have concluded that it needed to acquire new water resources. Findings of Fact Nos. 10 and 11. The trial court held, as a matter of law, the enactment of the development fee in this case was a legislative decision within the discretion of the city council. Conclusion of Law No. 4. Despite that conclusion, the court held any benefit to the developers who were assessed the fee was too remote in time and speculative in nature to satisfy the benefit criterion of § 9-463.05(B)(1). Finding of Fact No. 13, Conclusion of Law No. 6. The record discloses that the trial judge's conclusion in this respect was based on Dueker's testimony that it was possible Planet Ranch water might never be brought to Scottsdale if an alternative source of water were developed. At the time of trial, Scottsdale was exploring the possibility of obtaining surface water from the San Carlos Apache Tribe; in addition, no specific plans for building the canal system to carry Planet Ranch water to Scottsdale had yet been developed. Testimony indicated that if San Carlos water could be obtained, Scottsdale might try to sell Planet Ranch to the U.S. Fish and Wildlife Service or the Bureau of Land Management.

B. Presumption of Validity of Legislative Actions

We agree with the court of appeals that the trial judge committed error. The adoption of Ordinance No.1940 was a legislative act that came to the court cloaked with a presumption of validity. City of Phoenix v. Fehlner, 90 Ariz. 13, 17, 363 P.2d 607, 609 (1961). Land use regulations of general application will be overturned by the courts only if a challenger shows the restrictions to be arbitrary and without a rational relation to a legitimate state interest. Euclid v. Ambler Realty Co., 272 U.S. 365, 388, 47 S.Ct. 114, 118, 71 L.Ed. 303 (1926); Cardon Oil Co. v. City of Phoenix, 122 Ariz. 102, 104, 593 P.2d 656, 658 (1979); see also Edwards v. State Bd. of Barber Examiners, 72 Ariz. 108, 112-13, 231 P.2d 450, 452 (1951). Development or impact fees are presumed valid as exercises by legislative bodies of the power to regulate land use.

It is important to recognize just what the presumption...