Appeals Court upholds city assessment of impact fees
PHOENIX -- Cities are fee to charge what are known as "impact fees' on new home construction without imposing similar charges on commercial developers, the Arizona Court of Appeals has ruled.
"Local governments have a rational basis to distinguish residential from nonresidential development,' wrote appellate Judge Donn Kessler. "The decision to impose fees on one group does not necessarily render the decision not to impose fees on the other discriminatory.'
This ruling specifically involves a challenge by the Home Builders Association of Central Arizona to the impact fees imposed on its members by Prescott and Prescott Valley. But the ruling clears the way for other cities to have similar fee structures where fees can be levied on new homes but not businesses.
Kessler said the court's decision there is no illegal discrimination isn't the only problem facing the home builders. He said the organization also lacks the necessary legal standing to sue, saying a decision by the communities not to tax someone else does not necessarily harm home builders.
State law allows municipalities to charge what are formally called "development fees' on all new construction. That law requires that there be a "reasonable relationship' to the burden on the city or town to provide additional services.
Prescott never has imposed impact fees on non-residential development; Prescott Valley did until 2003 when the city suspended that fee.
Both continue to impose the fee on new residential development.
Kessler said there is nothing wrong with a different fee structure as long as the municipality has some rational basis for it.
In this case, he said, both communities determined that the sales taxes generated by commercial development justify not charging the impact fees.
The judge also cited testimony by a Prescott city council member during a discussion of whether to impose impact fees on commercial development. The council member said that for every dollar generated by non-residential development the city spends only between 30 and 40 cents providing services; residential development, the council member said, generates more expenses than revenues.
Similarly, the Prescott Valley council estimated that the $100,000 a year loss of impact fees from commercial development eventually would be made up in additional sales taxes.
Attorney Clint Bolick, representing the home builders, argued separately that the charges imposed on non-residential development -- in this case, none -- are invalid because they are not reasonably related to the expenses they create for the cities.
Kessler, however, said the appellate court won't consider that argument.
"Standing requires an injury in fact, economic or otherwise, caused by the complained-of conduct, and resulting in a distinct and palpable injury giving the plaintiff a personal stake in the controversy's outcome,' the judge wrote.
He pointed out that the home builders organization conceded that the impact fees on its members for residential development don't fully cover the costs of services. And it did not challenge those fees but only what is not imposed on others.
"Because its members are not injured by the decision not to tax someone else, it lacks standing to challenge whether another developer's fee is high enough,' Kessler wrote. And the judge said the mere possibility that lower -- or non-existent -- fees on commercial development might mean higher fees on residential development is legally insufficient to give the home builders the right to sue.