S. Ariz. Home Builders Ass'n v. Town of Marana
| Decision Date | 17 January 2023 |
| Docket Number | CV-21-0211-PR |
| Parties | Southern Arizona Home Builders Association, Plaintiff/Appellant, v. Town of Marana, Defendant/Appellee. |
| Court | Arizona Supreme Court |
Appeal from the Superior Court in Pima County The Honorable Paul E Tang, Judge No. C20184411
Kevin E. O'Malley, Mark A. Fuller (argued), Gallagher &Kennedy, P.A., Phoenix, Attorneys for Southern Arizona Home Builders Association
Andrew J. Petersen (argued), Humphrey &Petersen, P.C., Tucson and Frank Cassidy, Frank Cassidy, P.C., Tucson, Attorneys for Town of Marana
Eileen Dennis GilBride, Jones, Skelton &Hochuli, P.L.C. Phoenix, Attorneys for Amicus Curiae Home Builders Association of Central Arizona
Nancy L. Davidson, General Counsel, League of Arizona Cities and Towns, Phoenix, Attorney for Amicus Curiae League of Arizona Cities and Towns
[*]
OPINION¶1 We hold in this case that the Town of Marana violated A.R.S. § 9-463.05 by assigning the entire cost of upgraded and expanded wastewater treatment facilities to future homeowners through development impact fees. Because the statute governing development fees was substantially changed following our seminal decision applying its prior provisions, Home Builders Association of Central Arizona v. City of Scottsdale, 187 Ariz. 479 (1997), we interpret the statute afresh in light of the revised statute's significant constraints on and requirements for the imposition of such fees.
¶2 Before approving new development, municipal governments must assure they have an adequate 100-year water supply. A.R.S § 45-576(B), (L).
¶3 Until 2012, Pima County provided sewer and water service to residents of the Town of Marana ("Town"). That year, the Town obtained operational control over a wastewater reclamation facility ("WRF") from Pima County, assuming the approximately $16.4 million outstanding debt on the facility. As acquired, the WRF's tertiary treatment system's capacity was 3.5 million gallons-per-day ("gpd").[1] However, the WRF's functional capacity was limited by the secondary treatment system's maximum capacity of 380,000 gpd.
¶4 In 2013, the Town acquired legal title to the WRF, including the infrastructure, land, and exclusive rights to the facility's effluent. As acquired, the Town's residents fully utilized WRF's operational capacity of 380,000 gpd. The Town improved the secondary treatment system to expand the WRF's output to 500,000 gpd.
¶5 Owning a facility's effluent contributes to the 100-year assured water supply required for new development, as it can be used to "recharge" the aquifer. Recharging, or replenishing, qualifies the Town to obtain "recharge credits" that help demonstrate an adequate long-term water supply. A.R.S. § 45-855.01 (); A.R.S. § 45-852.01(C)(1) (). Effluent rights to recharge the aquifer are so valuable to the Town, in fact, that it had been trying to acquire the WRF since 2007. The acquisition here provided a more efficient closed loop water system because reclaimed water is added back to the aquifer rather than purchased from Central Arizona Project. The Town estimated this would produce $350,000 in annual savings as early as 2018.
¶6 In 2013, the Town issued twenty-year bonds with an annual debt service of $1.8 million to finance the acquisition of the WRF. The Town also commissioned two infrastructure improvement plans ("IIPs"). An IIP is required before a municipality may assess fees like the ones at issue here. See § 9-463.05. Pursuant to the IIPs, half the acquisition costs were assigned to future water customers and half to future sewer customers in the form of development impact fees. Infra ¶ 10. None of the costs were assigned to existing users.
¶7 In 2017, the Town approved a Capital Improvement Project encompassing "multi-phase expansion and upgrades" to the water and sewer systems. At issue here is Phase 1, which was completed and became operational in 2018. The Town contends that the ultimate cost of Phase 1 was higher than projected in the Master Plan-around $23 million, not including design-however, the Town used the projected cost of $17.5 million as the basis for assessing the impact fees being challenged here.
¶8 Phase 1 encompassed multiple components. To increase the WRF's capacity to 1.5 million gpd to serve both existing residents and anticipated development, a new influent sewer main, a new headworks facility, and higher capacity influent pumps were installed at a projected cost of $982,800. Other new facilities built during the Phase 1 expansion included a new secondary treatment system at a projected cost of $4,047,600, two secondary clarifiers at a projected cost of $3,047,300, and a new solids handling facility at a projected cost of $1,615,700.
¶9 The upgraded secondary treatment system was necessary to bring the Town into compliance with the Class B+ water quality standard required by its Aquifer Protection Permit. In 2017, the proposal for the new upgraded secondary treatment system triggered an Arizona Department of Environmental Quality ("ADEQ") requirement that the Town produce the highest quality water, Class A+, based on the best available technology. The new system included two secondary clarifiers that settle out the solids in the liquid after the secondary treatment and send treated effluent to the existing downstream processes of final filtration and disinfection, which helps the system operate more efficiently. The new solids handling facility also eliminated the need to pay a third-party contractor to haul away sludge, saving residents about $400,000 annually. Through these upgrades, the new system improved water quality from barely meeting the Class B+ standard to Class A+ quality. The Class A+ water has re-use possibilities that Class B+ water did not have, such as improved crop irrigation, residential landscape irrigation, fire protection systems, and vineyard spray irrigation.
¶10 In 2017, the Town adopted new water and sewer impact fees in conjunction with the Capital Improvement Project, effectively replacing the 2013 development fees. The Town again assigned 100% of the debt service to future water and sewer customers via development impact fees. To account for the contributions made by the then-current customers for the existing utilized capacity, the Town contributed $3.2 million, which it received from a refund from an unrelated 2004 bond offering, toward financing the WRF and Phase 1.
¶11 In 2018, Southern Arizona Home Builders Association ("SAHBA") filed this declaratory judgment action against the Town. SAHBA argued that the development fees violated § 9-463.05 because they disproportionately imposed 100% of the cost of the WRF and Phase 1 expenses on new development despite those facilities also benefitting current residents by enabling a higher level of service and saving taxpayer money. The Town argued the development fees were valid because the expansion and improvements were undertaken to serve future development.
¶12 The trial court granted summary judgment in favor of the Town. Applying City of Scottsdale, 187 Ariz. at 482, the court ruled that the development impact fees bear "a presumption of validity, such which may be overturned only if SAHBA establishes the restrictions to be 'arbitrary and without a rational relation to a legitimate state interest.'" The court concluded that "the Town's chief goal in acquiring the WRF was to obtain its effluent as a water resource in order to secure recharge credits towards water rights as a means for sustaining growth by having access to a 100-year designated water supply." Although acknowledging that "[t]here can be no question that this goal benefits current residents along with those arriving in the future," the court concluded that § 9-463.05 was satisfied because the development fees "result in a beneficial use to the development." (citing § 9-463.05(B)(1)).
¶13 The court of appeals affirmed. S. Ariz. Home Builders Ass'n v. Town of Marana, 252 Ariz. 83, 84 ¶ 1 (App. 2021). Like the trial court, the court of appeals applied City of Scottsdale and its presumption of validity, id. at 86 ¶ 10 &n.2, and concluded that SAHBA "has not shown" that the project increased the level of service to existing development. Id. ¶ 11. The court held that because the "upgrades and modernization to the WRF," id. at 88 ¶ 16, were "undertaken for the existential benefit of new development," id. at 89 ¶ 18, the fact that the project also "happens to serve existing development as well" does not render the imposition of the entire cost upon new development unlawful under § 9-463.05, id. at 88 ¶ 16.
¶14 We granted review of whether the Town violated § 9-463.05 by (1) making future development bear 100% of the cost of acquiring the WRF facility; (2) making future development bear nearly all the cost of upgrading, modernizing, and improving the facility; and (3) failing to take into account what could or could not be included in development fees under that statute, and to make any proportionate allocation of costs between existing and future development. Because these issues present overlapping facts, issues, and legal principles, we consider them together.
¶15 This case...
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