## Facts

- Arizona’s Groundwater Management Act required municipalities in active management areas to reduce reliance on groundwater and ensure an “assured water supply” before approving new development.
- Scottsdale adopted a long-term water resources plan projecting growth-driven demand and identifying potential new supplies, including acquiring renewable surface water rights and developing advanced wastewater treatment and aquifer recharge facilities.
- In 1987, Scottsdale enacted Ordinance No. 1940 imposing a “water resources development fee” on new real estate development, varying by meter size.
- The fee was intended to make new development pay its proportionate share of the capital costs needed to secure long-term water supplies required for future service.
- The Home Builders Association of Central Arizona and several developers paid the fee under protest and challenged it under A.R.S. § 9-463.05, arguing the planned projects were too speculative to provide the statutorily required “beneficial use” to the paying developments.

## Issues

1. Whether the water resources development fee complied with A.R.S. § 9-463.05, including the requirements of beneficial use to development and proportionality to development’s burden.
2. Whether the fee constituted an unconstitutional taking under the Fifth Amendment, including whether Dolan’s “rough proportionality” standard applies to a generally applicable, legislatively adopted development fee.

## Decision

- The Arizona Supreme Court upheld the fee and affirmed the court of appeals.
- The court held the ordinance complied with A.R.S. § 9-463.05 because the fee was tied to providing water service capacity needed for new development and was proportionate to development-driven demand.
- The court rejected the argument that “beneficial use” requires an immediate, on-site improvement; system-wide facilities that directly or indirectly enable service can satisfy the statute.
- The court applied a presumption of validity to the city’s legislative determinations and found the challengers failed to show the fee was arbitrary, clearly erroneous, or wholly unwarranted.
- The court held the fee was not a taking; it bore an essential nexus to a legitimate public purpose (assured water supply) and was reasonably related to the impacts of new development, and Dolan’s heightened scrutiny for individualized exactions did not control this generally applicable fee.

## Legal Principles

- Municipal development fees authorized by A.R.S. § 9-463.05 may fund system-wide capital facilities if the fee is proportionate to new development’s burden and results in a beneficial use to the development, including indirect or collective benefits that enable required public services.
- Legislative adoption of generally applicable development fees is entitled to a presumption of validity; challengers bear the burden to prove the fee is arbitrary, clearly erroneous, or wholly unwarranted.
- Nollan and Dolan primarily address discretionary, individualized permit exactions; generally applicable legislative fees are not subjected to the same level of scrutiny, though they must remain connected to legitimate governmental purposes and reasonably related to development impacts.
- A fee structured to allocate to new development only its proportionate share of expansion costs, and not to fund unrelated projects or remedy preexisting deficiencies, is more likely to satisfy statutory and constitutional limits.

## Conclusion

Scottsdale’s water resources development fee was a valid, generally applicable impact fee because it reasonably allocated to new development the costs of securing long-term water resources required for service, satisfied the statutory beneficial-use and proportionality requirements, and did not constitute an unconstitutional taking.


Home Builders Ass'n of Cent. Ariz. v. City of Scottsdale, 930 P.2d 993 (Ariz. 1997)