Arizona Court of Appeals Division Two Holds That Municipality Has No Obligation To Provide Utility Services to an Unincorporated Parcel If It Has No Statutory or Contractual Obligation To Do So.

Developer TDB sought and received a Water Availability letter from the City of Tucson in February 2007 for a parcel of unincorporated land in Pima County adjacent to the City of Tucson.  The letter certified that the City was capable and willing to provide water service to the property.  In August 2007 Pima County approved TDB’s plan to develop the property into a residential subdivision.  Later that year, the City changed its water policy, announcing that it would no longer provide water service outside its corporate boundaries unless legally obligated to do so.  In October 2008 the City notified TDB that it would not provide water to the property in keeping with the new policy.

TDB sued the City in May 2010, citing the Groundwater Management Act (“GMA”), codified at A.R.S. § 45-492(A), to support its argument that the City was legally obligated to provide water service because the property was within the City’s service area.  The City argued that the GMA only applies when water service has already been established, and no such water service had ever been established to the property in question.  The City argued that it could choose to serve lands outside its service area, but had no legal duty to do so in light of the fact that the Water Availability letter had expired.  The trial court agreed with the City, denying TDB’s motion for summary judgment and granting the City’s cross-motion.  TDB appealed.

The Court of Appeals affirmed.  The Court noted that the cases TDB cited in support of its argument related to whether a municipality had an obligation to provide water service within its corporate limits on a nondiscriminatory basis, but that was not the situation here, as the property was unincorporated.  A municipality may choose to offer water service outside its boundaries, and once it does so it may not discontinue that water service for as long as the municipality controls the utility, A.R.S. § 9-516(C).  However, in the absence of a statutory or contractual obligation, the municipality has no duty to provide water service.

The Court also interpreted the statutory requirement for the non-discriminatory provision of water to an “area of land actually being served water” in A.R.S. § 45-402(31)(a).  The Court noted that the result would be different if water was provided to some lot owners within the property and not others, but because the City had never undertaken to provide water to any portion of the property in question, it had no statutory obligation to do so.  The statute does not require municipalities to serve all areas outside of their boundaries if they serve any areas.  A municipality can pick and choose which unincorporated areas to serve but must serve all lot owners within those areas if it chooses to provide service at all.  The Court noted that this holding was consistent with a case earlier this year, Yuma Valley Land Co. v. City of Yuma, 227 Ariz. 228, ¶ 7, 256 P.3d 625, 626 (2011), which held that the City of Yuma had no obligation to provide utility service to a parcel of land it had not previously served, even though Yuma had built service lines adjacent to the unincorporated property.

Judge Vásquez authored the opinion; Judges Kelly and Espinosa concurred.