State ex rel. Brnovich v. City of Phx.

• Decision Date: 03 August 2020
• Docket Number: No. CV-20-0019-SA,CV-20-0019-SA
• Citation: 468 P.3d 1200,249 Ariz. 239
• Parties: STATE of Arizona, EX REL. Mark BRNOVICH, Attorney General, Petitioner, v. CITY OF PHOENIX, Respondent.
• Court: Arizona Supreme Court

249 Ariz. 239

468 P.3d 1200

STATE of Arizona, EX REL. Mark BRNOVICH, Attorney General, Petitioner,

v.CITY OF PHOENIX, Respondent.

No. CV-20-0019-SA

Supreme Court of Arizona.

Filed August 3, 2020

Mark Brnovich, Arizona Attorney General, O. H. Skinner, Solicitor General, Brunn W. Roysden III, Linley Wilson, Keena Patel, Assistant Attorneys General, Phoenix, Attorneys for State of Arizona

Jean-Jacques Cabou, Alexis E. Danneman, Matthew R. Koerner, Margo R. Casselman, Perkins Coie LLP, Phoenix, Attorneys for City of Phoenix

Mary R. O'Grady, Joseph N. Roth, Osborn Maledon, P.A., Phoenix, Attorneys for Amicus Curiae League of Arizona Cities and Towns

Patrick Irvine, Fennemore Craig, P.C., Phoenix, Attorneys for Amicus Curiae Arizona Association of Realtors

Grady Gammage Jr., Cameron C. Artigue, Gammage & Burnham, P.L.C., Phoenix; Daniel Reimer, Daniel S. Reimer LLC, Denver, CO, Attorneys for Amici Curiae Airports Council International-North America, American Association of Airport Executives, Airlines for America

Erin Adele Scharff, Phoenix, Attorney for Amici Curiae Law Professors

Timothy Sandefur, Matthew R. Miller, Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute, Phoenix, Attorneys for Amicus Curiae Ride-Sharing Drivers and Passengers

W. Eric Pilsk, Kaplan Kirsch & Rockwell LLP, Washington, D.C.; Susan M. Freeman, Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for Amicus Curiae Phoenix-Mesa Gateway Airport Authority, The Arizona Airports Association

Ian Heath Gershengorn, Devi M. Rao, Noah B. Bokat-Lindell, Jenner & Block LLP, Washington, D.C.; Mark Ogden, Littler Mendelson, Phoenix; Joshua Wilkenfeld, Uber Technologies, Inc., Washington, D.C., Attorneys for Amicus Curiae Rasier, LLC

Mark S. Kokanovich, Daniel A. Arellano, Ian O. Bucon, Ballard Spahr LLP, Phoenix, Attorneys for Amici Curiae Cities of Mesa, Scottsdale, Tempe, Flagstaff, and Sedona

Andrew J. McGuire, Trish Stuhan, Samantha Winter McAlpin, Gust Rosenfeld P.L.C., Phoenix, Attorneys for Amicus Curiae Tucson Airport Authority, Inc.

John "Jack" D. Wilenchik, Joshua C. Offentartz, Wilenchik & Bartness, P.C., Phoenix, Attorneys for Amicus Curiae Phoenix City Councilman Sal Diccicio

VICE CHIEF JUSTICE TIMMER authored the Opinion of the Court, in which CHIEF JUSTICE BRUTINEL, JUSTICES BOLICK, GOULD, LOPEZ, BEENE, and MONTGOMERY joined.

VICE CHIEF JUSTICE TIMMER, Opinion of the Court:

¶1 Article 9, section 25 of the Arizona Constitution prohibits the state and local governments from imposing or increasing taxes or other "transaction-based" fees on services. We are asked here to decide whether this prohibition extends to "trip fees" imposed by the City of Phoenix ("City") on commercial ground transportation providers who transport passengers to and from Phoenix Sky Harbor International Airport ("Airport"). We hold that because these fees are not "transaction-based," they are not constitutionally prohibited.

¶2 This is a special action filed pursuant to A.R.S. § 41-194.01(B)(2), which provides that this Court must require the local government whose law is challenged to file a substantial bond. We declare this bond provision unenforceable.

BACKGROUND

¶3 Cities in Arizona are empowered by the Arizona Constitution to engage in business to the same extent as private parties. See Ariz. Const. art. 13, § 5. Exercising that authority, and as permitted by state law, the City owns and operates the Airport. See A.R.S. § 28-8411(A) (authorizing cities to own and operate airports).

¶4 The City authorizes third-party commercial use of Airport property by lease, permit, or license agreement. See Phx., Ariz., Code ch. 4, art. 1, § 4-4; see also A.R.S. § 28-8419(B) (authorizing cities to "establish fees and charges" for use of airport facilities). All monies paid to the City for commercial activity must be used exclusively to maintain or operate the Airport. See 49 U.S.C. § 47107(a)(13)(A), (k)(3), (requiring revenue reinvestment to make an airport "as self-sustaining as possible" as a condition for receiving federal funding); id. § 47133(a) (restricting expenditure of "revenues generated by an airport that is the subject of Federal assistance" to "capital or operating costs" related to the airport); see also id. § 40116(d)(2)(A)(iv) (requiring all taxes, fees, and charges on businesses operating as permittees at an airport be "wholly utilized for airport or aeronautical purposes"). According to the City, more than one thousand businesses pay fees to use the Airport.

¶5 Commercial ground transportation providers operating at the Airport must obtain authorization permits from the City's aviation director. See Phx., Ariz., Code ch. 4, art. 4 § 4-68(A). "Transportation network companies" ("TNCs") are a type of commercial ground transportation provider. TNCs, such as Uber and Lyft, use "a digital network or software application" that permits passengers to arrange rides with TNC drivers. See id. § 4-67 (defining "transportation network company"). The City maintains that TNCs started operating at the Airport in 2016, quickly expanded, and now provide more than two-thirds of all ground transportation passenger pick-ups at the Airport.

¶6 In 2016, the Phoenix City Council amended the Phoenix City Code to require most commercial ground transportation providers, including TNCs, to pay a "trip fee" each time a driver picked up one or more passengers from the Airport. See id. § 4-78 (rev. 2016). The trip fee varied from $2.25 to $9.00, depending on when the provider was authorized to operate at the Airport and the vehicle's passenger capacity, and it automatically increased annually through January 1, 2019. See id. The Council simultaneously directed the City's aviation department to complete a study of trip fees imposed at comparable airports by January 1, 2020. For ease of reference, we collectively refer to TNCs and non-TNCs subject to trip fees, like taxis and limousines, as "providers."

¶7 In 2018, Arizona voters passed Proposition 126, "The Protect Arizona Taxpayers Act" initiative, amending the Arizona Constitution to prohibit the state, cities, and other political subdivisions from imposing new taxes on services. Ariz. Const. art. 9, § 25 (" Section 25"). Proposition 126 also amended other constitutional provisions to remove any conflicts with Section 25. See id. art. 13, § 2 (providing that a city charter cannot grant authority that violates Section 25 ); id. art 9, § 6 (vesting cities with power to impose special assessments or special taxes to make improvements "[e]xcept as provided by section 25"). The proposition's stated purpose was to prevent governmental entities from following other states’ leads and "taxing these vital everyday services," ranging from medical treatments and child care to haircuts "and much more," thereby increasing expenses for these services for both consumers and small businesses. See The Protect Arizona Taxpayers Act, Proposition 126, § 2 (2018).

¶8 Section 25 ’s prohibition applies only to taxes, fees, and other assessments imposed on or after January 1, 2018. See Ariz. Const. art. 9, § 25. Because the City's imposition of a pick-up trip fee with annual increases was in place before that date, Section 25 does not affect that fee, at least as to the fee schedule established in 2016.

¶9 In December 2019, the City Council adopted Ordinance G-6650 ("Ordinance"), which is the subject of the dispute before us. The Ordinance revised several Phoenix City Code provisions addressing commercial ground transportation at the Airport. Pertinent here, the Ordinance adjusted passenger pick-up fees and imposed new trip fees for dropping off departing passengers at the Airport. See Phx., Ariz., Code § 4-78. Adoption of the Ordinance followed the aviation department's study, which concluded that comparable airports consistently collected more revenue from ground transportation providers than the City. See Phx., Ariz., City Council Report, Item No. 42, at 1 (Agenda Date: 12/18/2019). The new fees were reportedly intended to recoup the City's costs for the providers’ "proportionate share of existing and future ground-transportation infrastructure, improvements, and operation/maintenance of this infrastructure, including maintenance of the PHX Sky Train, and to comply with federal law requiring [the Airport] to achieve and maintain economic self-sufficiency." Id.

¶10 The new fee structure imposed by the Ordinance, which was scheduled to commence on February 1, 2020, treats TNCs differently from non-TNCs. The pick-up and drop-off trip fees for TNCs now start at $4.00, increase annually to $5.00 by 2024, and automatically increase each subsequent year by at least 3%. Phx., Ariz., Code § 4-78(A)(1). The trip fees for non-TNCs decrease initially, ranging from $1.75 to $5.00, depending on passenger capacity, until 2021, when they automatically increase each subsequent year by at least 3%. Id. § 4-78(A)(2). Trip fees for both TNCs and non-TNCs are discounted when drivers use alternative-fuel-powered or zero-emission vehicles or pick-up/drop-off passengers at PHX Sky Train stations located away from terminals. Id. § 4-78(A)(6).

¶11 Trip fees apply one of two ways, depending on the trip-tracking technology used by providers at the Airport. See id. § 4-72 (requiring such technology). Providers using GPS technology track trips themselves and report the number of trips monthly. See id. 4-78(A)(5). Trip fees apply each time a driver enters a "geofence," makes one or more stops, and picks up or drops off a passenger. Id. § 4-78(A)(3); see also id. § 4-67 (defining a "geofence" as marking "an electronic perimeter" or "sub-perimeter" on Airport property). If the GPS system fails, the City assesses fees based on historical usage. See § 4-78(A)(4). The City invoices providers monthly for outstanding trip fees. See id. § 4-78(A)(7).

¶12 Providers using the Airport's system of radio frequency readers, which identify and track a vehicle's physical location in the Airport by ...