Home Builders Ass'n v. City of Scottsdale

GRANT, Presiding Judge,

dissenting.

I respectfully dissent because I believe that the decision of the trial court should be affirmed.

I agree with the majority that deference should be afforded a municipality’s determination of the reasonable amount of a development fee. I disagree with the standard of review the majority applies to the trial court’s determination of a “beneficial use” to the new subdivisions. The trial court should, as was done in this case, independently review the proposed expenditure and determine if it will result in a “beneficial use” to the new developments as required by the enabling statute. To facilitate this review, plans must exist in sufficient detail to enable the trial court to reasonably conclude that the expenditure will result in a “beneficial use.”

A Amount: Reasonable Relationship

AR.S. section 9-463.05(B)(4) requires the following: “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 majority applies a deferential standard of review to the municipality’s determination of the cost of future water supplies. *14With this, I agree. How much it will cost to provide new sources of water is a question of fact involving judgments as to degree and estimates of non-verifiable factors. This type of factual determination is best resolved through the political process at the legislative level. The city council should be afforded this discretion when determining the reasonable amount of the charge. See Town of Peoria v. Hensley, 26 Ariz.App. 30, 545 P.2d 992 (1976) (“Hensley II ”) (deferring to town council on the amount of benefit for a special assessment). The court should not substitute its judgment for that of the legislative body and should not overturn such a legislative finding unless it is clearly erroneous, arbitrary and wholly unwarranted. Id. at 32, 545 P.2d at 994; contra Banberry Development Corp. v. South Jordan City, 631 P.2d 899, 901 (Utah 1981) (“[The] reasonableness of the dedication or cash requirement in a particular case [is] a question of fact that must be resolved at trial.”); Hollywood, Inc. v. Broward County, 431 So.2d 606 (Fla.Dist.Ct.App.1983).

The amount of Scottsdale’s development fee is based on Planet Ranch, Water Factory 21, and other projects considered since the adoption of the ordinance, such as obtaining water from the San Carlos Apache Tribe. Using the projected costs of these projects to establish the cost of new water supplies could possibly satisfy the “reasonable relationship” requirement of the statute under the not clearly erroneous deferential standard of review.8

The trial court correctly refrained from reaching this issue, however, because the application of the funds to the specific projects proposed by the city violates a different element, the “beneficial use” requirement imposed by A.R.S. section 9-463.05(B)(l).

B. Beneficial Use: Standard of Review

What constitutes a beneficial use is a question of law to be judicially determined. Whether the facts in a particular case show that a project will result in a beneficial use to a development is a question of fact that should be determined at the trial court level. Hensley v. Town of Peoria, 14 Ariz.App. 581, 485 P.2d 570 (1971) (“Hensley I”). Unlike the issue of a reasonable relationship between the burden and the fee, the beneficial use issue does not involve judgments as to degree nor weighing of non-verifiable factors. The trial court has not simply substituted its judgment for that of the municipality by reviewing a mere error in judgment on the part of the city. The question is more fundamental in nature. Simply stated, does the fee result in a beneficial use to the development charged or not?

Arizona courts addressed this issue in Hensley I. There the Town of Peoria assessed the plaintiffs for the installation of a sewer system which fronted their property. Id. at 582, 485 P.2d at 571. The plaintiffs contended that the sewer system would not benefit their property. Id. This court reversed a grant of summary judgment in favor of the town concluding that “[i]t is thus a factual question [for the trial court to determine] as to whether plaintiffs’ property ... can at this time directly benefit from the sewer system.” Id. at 583-84, 485 P.2d at 572-73. On remand, the trial court found that the sewer system did benefit the property. See Hensley II, 26 Ariz.App. at 31, 545 P.2d at 993. It was only after the trial court made this determination that we applied a deferential standard of review to the town’s determination of the amount of the benefit. Hensley II, 26 Ariz.App. at 32, 545 P.2d at 994.

The majority cites Edwards v. State Board of Barber Examiners, 72 Ariz. 108, 231 P.2d *15450 (1951), Folsom Investments, Inc. v. City of Scottsdale, 620 F.Supp. 1372 (D.Ariz.1985), and City of Glendale v. White, 67 Ariz. 231, 194 P.2d 435 (1948), for the proposition that the legislative determination of the existence of a beneficial use to the subdivision should be given great deference. The majority interprets these cases as requiring a court to offer great deference to all legislative findings of fact. Such a broad and generalized interpretation should be avoided.

Edwards and Folsom involved challenges to an exercise of police powers which requires that the action reasonably tend to secure the public health, safety or general welfare. Edwards involved a challenge to a regulation establishing a minimum charge for a hair cut and Folsom involved a challenge to a land use zoning restriction.

White involved a challenge to a city’s expenditure of funds for membership dues in the Arizona Municipal League. The issue was whether the expenditure was for a “public purpose.” Central to the court’s holding, giving deference to the legislative determination of “public purpose,” was the absence of any constitutional provision or law forbidding such action by the city. White, 67 Ariz. at 238, 194 P.2d at 439. In the case at bar, a statutoiy restriction on the city’s action does exist and the issue is whether the city’s action comes within this restriction. Therefore the holding in White should not be applied.

The issue presented in this case does not involve the broad concept of “public welfare” or “public purpose,” but is much narrower: will the city’s expenditure of funds in the manner proposed reasonably result in a beneficial use to the new subdivisions? This question does not require determinations of policy or weighing of benefits to the general public as the police power issue does. Therefore Edwards, Folsom and White are inapposite. The legislative determination of beneficial use need not be given the same deference as in the police power cases. See Hensley I, 14 Ariz.App. at 583-84, 485 P.2d at 572-73.

The Michigan courts have used this less deferential standard of review in the context of special assessments for street improvements. Fluckey v. City of Plymouth, 100 N.W.2d 486 (Mich.1960). Deference is afforded legislative findings on the issue of the amount of benefit but not for the more fundamental question of whether a benefit exists as opposed to a detriment. Id. at 489. The Supreme Court of Michigan reasoned that in an earlier time almost any possible improvement to a street was automatically a benefit to the abutting properties. Id. In modem times, this is no longer the case. Under some circumstances, such as changing a small residential lane into a major arterial highway, the abutting properties may in fact experience a detriment as opposed to a benefit. Id. I consider this view to be well reasoned, although I recognize this modern approach is the minority view. See Wade R. Habeeb, Widening of City Street as Local Improvement Justifying Special Assessment of Adjacent Property, 46 AL.R.3d 127 (1972). The Michigan approach parallels existing Arizona case law. See Hensley I, 14 Ariz. App. at 583-84, 485 P.2d at 572-73.

In this case, at trial the plaintiff established by a preponderance of the evidence that the proposed expenditure will not reasonably provide a beneficial use to the new development. On appeal, this court is bound by the trial court’s finding of this fact unless it is demonstrated to be clearly erroneous.

C. Plan

The majority correctly points out that the statutory requirements for plans and specifications imposed on special assessments are not present in the context of development fees. This does not mean the municipality may proceed without any plans other than its mere allegation that plans exist. Rather, the only implication is that the plans may not require the same level of specificity and detail. Plans must exist in sufficient detail for a court to determine if the proposed expenditure of funds falls within the restrictions imposed by the enabling statute. Julian C. Juergensmeyer & Robert M. Blake, Impact Fees: An Answer to Local Governments’ Capital Funding Dilemma, 9 Fla.St. U.L.Rev. 415, 432 n. 99 (1981). The bare assertion of the legislative body that the funds will be expended in accordance with *16the statute will not suffice. See Home Builders Ass’n of Cent. Ariz. v. Riddel, 109 Ariz. 404, 510 P.2d 376 (1973) (involving a parks and recreation facilities tax).

D. Benefit

The second prong of the dual rational nexus test contains a benefit element requiring the funds to be “earmarked for the substantial benefit of a series of developments.” Juergensmeyer & Blake, supra, at 432. Juergensmeyer & Blake give the following example:

[W]hen the capital improvements financed by the fee requirements are remote from the particular subdivision the “benefit” requirements would not be met. For example, if no parks or playgrounds have been constructed or planned to meet the needs of the particular subdivision and none are contemplated, an impact fee for recreational facilities would not substantially benefit the development. The second rational nexus requirement would not be met.

Id at 432 n. 99. This “benefit” element was incorporated into the Arizona statute by requiring that “[development fees shall result in a beneficial use to the development.” AR.S. § 9-463.05(B)(l) (emphasis added).

I agree with the majority that “beneficial use” calls for a less restrictive test than would be required for special assessments. In the context of special assessments the improvement must not be “one of practically equal benefit for the entire city.” Mosher v. City of Phoenix, 39 Ariz. 470, 480, 7 P.2d 622, 626 (1932). For example, a sewer system that is declared a benefit to the whole community cannot be financed by special assessment. City of Globe v. Willis, 16 Ariz. 378, 146 P. 544 (1915). Conversely, if expansion of a sewer plant was necessitated by new residential developments, a development fee could be imposed on the new subdivisions to finance the expansion of the facility so long as it results in beneficial use to the subdivision, even though the new facility would also benefit the entire city equally.

The benefit to be conferred under a fee as opposed to a tax has been discussed in Stewart v. Verde River Irrigation & Power Dist., 49 Ariz. 531, 68 P.2d 329 (1937).

A tax is imposed upon the party paying it by mandate of the public authorities, without his being consulted in regard to its necessity, or having any option as to its payment. The amount is not determined by any reference to the service which he receives from the government, but by his ability to pay, based on property or income. On the other hand, a fee is always voluntary, in the sense that the party who pays it originally has, of his own volition, asked a public officer to perform certain services for him, which presumably bestow upon him a benefit not shared by other members of society. We think it is clear that the payment which plaintiff is seeking to recover is in no sense a tax, but is rather a fee. In the first place, the necessity of its payment does not arise unless and until the individual request [sic] the public authority to perform some particular service. So long as the service is not asked, the money will never be demanded. In the second place, the service which is requested of the defendant is one which obviously and admittedly will confer a particular benefit on plaintiff alone, and upon no other person, natural nor artificial.

Id at 544-45, 68 P.2d at 334-35.

In Kyrene School Dist. No. 28 v. City of Chandler, 150 Ariz. 240, 722 P.2d 967 (App. 1986), on facts closer to the present case, this court took a somewhat softer view toward the benefit requirement. The rigid language of “benefit not shared by other members of society” and “benefit on plaintiff alone, and upon no other person, natural nor artificial” was rejected. “[W]e do not interpret Stewart as setting forth an inflexible guide by which a tax and a fee are measured. Since broad general concepts are involved, it would be virtually impossible to set forth a rigid definition of a tax and a fee.” Id at 243, 722 P.2d at 970. Kyrene School District involved a challenged wastewater system development fee slated to finance expansion of the city’s water and sewer system under a council approved five-year wastewater capital improvement program and a water and wastewater system master plan. This court held that the charge satisfied the benefit requirement because the school district was receiving the *17overall benefit of the water and wastewater systems in exchange for the system development charges. Id,

The present case is analogous to Kyrene School District in the sense that, if the funds were spent to upgrade the capacity of Scottsdale’s water system, this would benefit the new subdivisions and meet the benefit requirement of the statute.

E. Use

In addition to the requirement that the fee result in a benefit, the fee must also result in a “use” to the development. A.R.S. § 9-463.05(B)(1). This element is specifically included in the enabling legislation but the majority relegates it to obscurity and seems to completely overlook the impact of this term.

The word “use” has been subjected to differing interpretations. The words of a statute should be given their ordinary meaning unless it appears from the context that a special meaning was intended. Mid Kansas Federal Savs. & Loan Ass’n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 128, 804 P.2d 1310, 1316 (1991). If possible, courts should give meaning to all the language used in a statute and avoid an interpretation that renders a term duplicative or meaningless. Wiseman v. Arizona Highway Dep’t ex rel Campbell, 11 Ariz.App. 301, 303, 464 P.2d 372, 374 (1970). In the context of reviewing an exercise of eminent domain the word “use” has been held to mean simply “benefit.” Citizens Utils. Water Co. v. Superior Ct., 108 Ariz. 296, 299, 497 P.2d 55, 58 (1972). Utilizing this interpretation in the context of A.R.S. section 9-463.05 would render the word duplicative and meaningless: the fee shall result in a beneficial benefit to the development. The legislature must have intended a more traditional definition of the word “use” such as “the act or practice of employing something.” Webster’s Ninth New Collegiate Dictionary (1984). Under this interpretation of the statute, the fee must result in the development directly employing something to its benefit.

Scottsdale’s plan is almost nonexistent. The trial court found that the projects conceptually described in the plan are most likely not going to produce water. The trial court heard extensive testimony on this issue and reasonably concluded that there would be no beneficial use to these developments for the foreseeable future. Since there is. ample evidence in the record to support this finding, the trial court’s finding should be upheld. Absent a beneficial use to the development, the city’s imposition of a development fee to fund the proposed projects cannot be upheld on the basis of A.R.S. section 9-463.05. I would therefore affirm the trial court.

. It is possible for a city to reasonably establish the amount of the fee based on the projected cost of projects the city never expects to implement. There are many possible ways for a city to reasonably estimate the future capital cost of obtaining new sources of water. For example, data on the cost of recent projects implemented by other cities could be reviewed to determine an average range of expense. Then, by estimating the projected growth of the city and through application of accounting techniques, the future cost to the city could be projected and this could be related to the per residence development fee charged. Even though the actual project eventually implemented to provide new sources of water would be entirely different than any of the projects studied to develop a basis for the amount of the fee, the fee could possibly withstand a deferential review.