Home Builders Ass'n of Cent. Arizona v. City of Scottsdale, No. 1

• Court: Court of Appeals of Arizona
• Writing for the Court: WEISBERG; EHRLICH; GRANT
• Citation: 179 Ariz. 5,150 Ariz.Adv.Rep. 47,875 P.2d 1310
• Docket Number: No. 1,CA-CV
• Decision Date: 26 October 1993
• Parties: HOME BUILDERS ASSOCIATION OF CENTRAL ARIZONA, a non-profit Arizona corporation; for and on behalf of all similarly situated; Grupe Development Co., Inc., an 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. Drinkwater, 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. 92-0210.

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875 P.2d 1310 179 Ariz. 5 HOME BUILDERS ASSOCIATION OF CENTRAL ARIZONA, a non-profit Arizona corporation; for and on behalf of all similarly situated; Grupe Development Co., Inc., an 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. Drinkwater, 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. 1 CA-CV 92-0210. Court of Appeals of Arizona,
Division 1, Department B. Oct. 26, 1993.
Review Granted and Remanded
July 6, 1994. ^*

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[179 Ariz. 6] Carmichael & Powell, P.C. by Ronald W. Carmichael, Sid A. Horwitz, Brian A. Hatch, Phoenix, for plaintiffs-appellees.

Richard W. Garnett III, Scottsdale City Atty., Scottsdale, and Johnston, Maynard, Grant & Parker by Charles J. Adornetto, Phoenix, for defendants-appellants.

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

OPINION

WEISBERG, Judge.

The City of Scottsdale appeals from a trial court ruling that Scottsdale Ordinance 1940, imposing a water resource development fee upon new developments, violates Ariz.Rev.Stat.Ann. ("A.R.S.") section 9-463.05. Because we hold that a municipality's factual determination should be upheld unless clearly erroneous, arbitrary, and wholly unwarranted, we reverse the trial court and, for other reasons discussed below, remand for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

In 1980, the Arizona Legislature passed the Groundwater Management Act ("Groundwater Code"). See A.R.S. §§ 45-401 to 704 (1987 & Supp.1992). The Groundwater Code requires municipalities to work toward achieving "safe yield," a long-term balance between the annual amount of groundwater withdrawn and the annual amount of natural and artificial groundwater recharge. Id. §§ 45-561, -562. Municipalities are required to provide an "assured water supply" before approving new development. Id. § 45-576(B). "Assured water supply" means that sufficient groundwater or surface water and appropriate delivery facilities will be continuously available to satisfy the water needs of all new development for 100 years. Id. § 45-576(L). Cities, including Scottsdale, with allocations of Central Arizona Project water are deemed to have an adequate water supply until December 31, 2000. Id. § 45-576(I). After that time, the director of water resources may find that the city does not have an assured water supply. Id.

In 1985, the Scottsdale city staff formulated a water resource plan. Based on the mandate of the Groundwater Code, the planners projected population growth, water demand, potential future sources, and potential financing for future sources. The planners proposed several new water sources including (1) transportation of water from Planet Ranch, a piece of land in La Paz and Mohave Counties that has renewable water rights to Bill Williams River, and (2) construction of a water treatment plant ("Water Factory 21") that would treat sewage effluent to a potable water standard and recharge it into the underground aquifer. To raise funds for these potential sources, the planners recommended the imposition of a water resource development fee upon new developments.

In 1987, the Scottsdale City Council passed Ordinance No. 1940 ("the ordinance") codifying the plan's recommended water resource development fee ("the fee"). The ordinance assessed a fee of $1,000 per single family unit, $600 per dwelling unit in a multifamily dwelling unit, and, for other uses, $2,000 per acre/foot of estimated annual use required in addition to the present annual use. These amounts were calculated after considering the new water resources' estimated costs and the projected growth and water usage in Scottsdale.

Shortly after the ordinance took effect, Home Builders Association of Central Arizona ("HBA"), representing several developers who had paid the development fee under protest, filed a complaint claiming that the ordinance was void. HBA alleged that the fee did not offset costs associated with providing necessary public services to the developments, that the fee did not result in a beneficial use to the developments, that the fee did not bear a reasonable relationship to any burden imposed upon Scottsdale, and that the fee discriminated against new homebuilders and new residents.

HBA subsequently filed a motion for summary judgment contending that the statutory

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[179 Ariz. 7] authority for development fees limited municipalities to the payment of costs of improvements that would actually and immediately accrue to the benefit of the new residents. Scottsdale filed its response and a cross-motion for summary judgment. The trial court granted partial summary judgment for Scottsdale, ruling that the benefit required by the statute need not accrue immediately.

Following trial, the trial court found that the ordinance failed to meet the statutory requirements because (1) any benefit received by new development resulting from the fee was too remote in time and speculative in nature, (2) the fee did not bear a reasonable relationship to the burden imposed on Scottsdale by new development, and (3) the fee discriminated against new developers. The trial court ordered Scottsdale to refund all fees collected under the ordinance.

Scottsdale subsequently amended the ordinance, adding a "refund" provision requiring Scottsdale to refund the fees if not appropriately spent within ten years from the date the fee was paid. Scottsdale filed a motion for new trial under Rule 59, Arizona Rules of Civil Procedure, and a motion to amend filings under Rule 52. ¹ Scottsdale contended that the amended ordinance justified a new trial. The trial court denied the motions and entered judgment in HBA's favor. This appeal followed.

DISCUSSION

A. Standard of Review

1. Judicial Review of Municipal Ordinances

a. Mandatory Effect

A.R.S. section 9-463.05 enables municipalities to assess development fees. ² The statute requires that the fee "shall result in a beneficial use to the development," that the fee "must bear a reasonable relationship to the burden," and that the fee "shall be assessed in a non-discriminatory manner." A.R.S. § 9-463.05 (emphasis added). The use of "shall" and "must" indicates the mandatory nature of these requirements. See McDonald v. Frohmiller, 63 Ariz. 479, 486, 163 P.2d 671, 674 (1945). Municipalities may not use fees for any purpose or in any manner that will not meet the statutory requirements. The underlying issue is whether the courts or the municipality should determine whether a fee meets these requirements when it is levied. This issue is resolved by examining the power of the courts to review policy determinations by municipalities.

b. Deference to Legislature on Fact Issues

The Arizona Supreme Court has adopted the rule that "courts will acquiesce in the legislative determination of all matters of fact unless it is clearly erroneous, arbitrary and wholly unwarranted." Edwards v. State Bd. of Barber Examiners, 72 Ariz. 108, 113, 231 P.2d 450, 452 (1951); see also Folsom

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[179 Ariz. 8] Invs., Inc. v. City of Scottsdale, 620 F.Supp. 1372, 1375 (D.Ariz.1985) ("The courts are to interfere only when the ordinance enacted pursuant to the grant is arbitrary and unreasonable."); City of Glendale v. White, 67 Ariz. 231, 238, 194 P.2d 435, 439 (1948) (whether act constitutes a public purpose and method of performing act is within judgment of city council; courts will not overturn unless discretion "unquestionably abused"). The court also noted that "where an enactment bears any reasonable relationship to the end sought the courts may not substitute their judgment for the judgment of the legislature." Edwards, 72 Ariz. at 112-13, 231 P.2d at 452. Section 9-463.05 puts few specific restrictions on the municipality when determining what measures will meet the statutory requirements. Instead, the statute uses broad phrases: "result in a beneficial use" and "bear a reasonable relationship." A municipality should be given deference when determining whether an ordinance meets these requirements. White, 67 Ariz. at 238, 194 P.2d at 439.

HBA urges us to infer from the statute additional restrictions on municipalities, requiring specific plans and definite timetables before development fees would be upheld. Essentially, HBA encourages us to find requirements substantively similar to those statutorily imposed on municipalities when making special assessments. See A.R.S. §§ 48-571 to -619 (1988). ³ Unlike the statutory requirements for special assessments, however, the legislature has not included any specific requirements in the statutory grant for development fees. "Courts will not read into a statute something which is not within the manifest intent of the legislature as gathered from the statute itself." State ex rel. Smith v. Bohannan, 101 Ariz. 520, 524, 421 P.2d 877, 881 (1966). We therefore must examine the history and background of development fees to determine if the legislature intended such specific requirements.

2. Historical Background of Development Fees

Development fees, also known as impact fees, "are charges levied by local governments against new development in order to generate revenue for capital funding necessitated by the new development." Julian C. Juergensmeyer & Robert M. Blake, Impact Fees: An Answer to Local Governments' Capital Funding Dilemma, 9 Fla.St.U.L.Rev. 415, 417 (1981). Development fees allow municipalities to transfer the costs of new infrastructure required by those new developments to the new developments themselves, as opposed to funding them through general revenue. Responding to developers' challenges, different states' courts have set out...