Arizona Court of Appeals Division One Holds That A.R.S. § 9-463.05(B)(4) Requires Municipalities Imposing Development Impact Fees to Consider Only Those Future Revenues Paid by Development Property Owners That Will Be Applied to Growth-Related Capital Costs.

In 2006, Defendant City of Goodyear (the “City”) adopted ordinances increasing development impact fees.  Plaintiff Home Builders Association of Central Arizona (“HBA”) filed a complaint for special action relief alleging that the City violated A.R.S. § 9-463.05(B)(4) by setting the impact fee amounts without considering future revenues from development property owners that would be used for the same growth-related costs as the impact fees.  HBA moved, and the City cross-moved, for summary judgment.  The trial court held an evidentiary hearing to determine whether the City had considered the future taxes and fees to be collected from development property owners as required by the statute, and found that the City presented substantial evidence that it had complied with the statute.  Accordingly, the court denied HBA’s motion and entered judgment for the City.  HBA timely appealed.

The Arizona Appeals Court affirmed.  The Court first explained that A.R.S. § 9-463.05(B)(4) only requires that an impact fee be “reasonably related” or “roughly proportional” to the actual burden imposed by the development, and thus municipalities only need to “actually account, in some meaningful way, for future revenues to be paid by a development property owner and applied to the growth-related capital costs on which impact fees were calculated.” 

The Court then reviewed the evidence presented at the evidentiary hearing to determine whether it supported the trial court’s finding that the City properly considered future revenues to be used for growth-related costs when calculating the impact fees.  A consultant who had prepared the City’s impact fee plan testified that if future revenues collected from development property owners were to be used to fund growth-related improvements, it would be appropriate to consider those revenues when calculating the impact fees.  Based on his conversations with the City staff, however, the consultant learned that any future revenues from development property owners would not be used for growth-related costs, and thus did not need to be considered.  Based on this evidence, the Court held that HBA failed to satisfy its burden to prove that, in calculating the impact fees, the City failed to account for future tax revenues from the development that would be applied to the costs on which the impact fees were calculated.

The Court rejected HBA’s argument that the City failed to prove that it would not use tax revenues collected from the development for the same growth-related capital costs to be funded by the impact fee, explaining that the consultant’s testimony about what the City staff told him was not inadmissible hearsay, but was instead admissible to show the consultant’s state of mind as he created the City’s plan.  The Court also rejected HBA’s argument that the trial court failed to find that the impact fees bore a reasonable relationship or were roughly proportionate to the burden imposed by the new development, noting that this conclusion was implicit in the trial court’s decision.

Judge Portley authored the opinion; Presiding Judge Johnsen and Judge Barker concurred.