The Arizona Court of Appeals will hear arguments in two weeks in a lawsuit which accuses of the Town of Marana of using development impact fees from new construction to unlawfully pay for infrastructure repairs that benefit existing residents.
The Southern Arizona Home Builders Association (SAHBA) sued town officials in 2018 concerning the town’s $16.4 million purchase of Pima County’s Water Reclamation Facility (WRF) in 2013. The lawsuit alleged the facility could only serve existing residents, and that town officials then embarked on “a massive improvement” project to expand, upgrade, and modernize the reclamation facility in an effort to improve water quality and meet environmental compliance standards.
SAHBA contends development or impact fees are supposed pay for the cost of providing public services to a new development, but claims Marana approved an ordinance effective Jan. 19, 2018 which assesses a development fee on future development to cover the principal and interest of the 20-year bonds issued to finance the WRF purchase.
The new development fees also cover “nearly all of the cost” of “upgrades, modernization, improvements and additions” which the lawsuit contends provides a higher level of service to existing residents.
None of the existing residents as of that time have had to pay anything toward the multi-million dollar cost. And that, according to SAHBA, violates a state law in effect since 2011.
“For years, municipalities abused the privilege of assessing these fees, finding it politically expedient to make future development pick up the tab for as much as possible in order to avoid raising taxes or fees for their existing constituents,” SABHA’s appeal states.
Then in 2011, the Arizona Legislature amended state law to ensure “new development would never shoulder the burden of paying more than its fair share for services, or improvements to services, that also benefited existing residents,” according to the appeal, which called the amendment “a sea change in this area of the law.”
The change to ARS §9-463.05, SAHBA contends, mandates that development fees can be charged only for costs “made necessary by new development,” and “based on the same level of service provided to existing development.” The Legislature even included a list of costs which were not to be included in a development, such as improvements to existing facilities that were necessary to serve existing residents or would provide existing residents with a higher level of service than before.
Judge Paul Tang of the Pima County Superior Court recognized SAHBA’s standing to pursue the case, but ruled in favor of the Town of Marana. SAHBA then appealed and a three-judge panel will decide the case after hearing further arguments from the parties on July 14.
Attorneys for the town have argued in written briefs that Marana officials purchased and expanded the WRF to meet state requirement for an assured 100-year water supply to support new development.
“The Town’s entire reason for acquiring the WRF was to obtain rights to the effluent which it could recharge in order to obtain credits for future growth,” according to the town’s appellate answering brief. “While arguing legislative intent, purpose, and objectives, SAHBA ignores the Town’s intent, purpose, and objectives for acquiring the WRF and adopting impact fee ordinances pursuant to A.R.S. § 9-463.05 to fund the WRF’s debt and expansion.”
The town further argues that placing the costs of assuring adequate water for new development onto the developers “is reasonable” and complies with A.R.S. § 9-463.05.
“Developers reap the financial benefits from assured water supply every time they apply for and are granted a building permit,” the town’s appellate brief states. “The WRF is a fountainhead for new development as the steady stream of permits comes from the assured water supply it creates.”
Census records show Marana had a population of about 34,500 in 2012, which grew to roughly 40,000 in 2016. Its 2019 population is estimated to have been more than 45,000.
A decision by the court of appeals is not likely until late 2021. Whichever side does not prevail on appeal is expected to petition for review by the Arizona Supreme Court.