Is a city water rights fee charged to developers an illegal impact fee in Texas?

TX AG Opinion GA-0482: Is a water rights fee an impact fee under chapter 395?

Plain-English summary

State Senator Eddie Lucio, Jr. asked the Attorney General whether a "water rights fee" charged by the Public Utilities Board of the City of Brownsville is an impermissible impact fee under chapter 395 of the Local Government Code. Chapter 395 limits the impact fees that local governments can charge on real estate development and sets out detailed procedures a subdivision must follow before imposing one.

The Brownsville board, which runs the city's water and sewer system, requires developers to pay several connection charges before it will provide water service. Two of them are at issue: a separate "impact" fee and a "water rights" fee. For the water rights fee, a developer must either convey water rights (measured in acre-feet per acre), pay a per-acre charge instead, or do some combination of the two. The stated purpose of the fee is to acquire water rights and otherwise secure a water supply for the board's present and future needs. The board keeps a separate water rights fund and a separate impact fee fund.

The opinion worked from the statutory definitions. Chapter 395 prohibits only impact fees imposed without following the chapter's rules, and an impact fee is defined as a charge to fund or recoup the costs of "capital improvements or facility expansions." The statute's list of capital improvements is an exclusive list of physical infrastructure: water supply, treatment, and distribution facilities; wastewater facilities; storm water, drainage, and flood control facilities; and roadway facilities. The catch-all "any other fee that functions as described" still requires the fee to be for those infrastructure costs, and a separate provision says an impact fee may be imposed only to pay the costs of constructing capital improvements or facility expansions.

From that, the opinion drew a clean line: a fee to construct a water supply facility is an impact fee, but a fee charged solely to acquire a water supply (water rights) is not. Acquiring water rights is not constructing physical infrastructure. So the Brownsville water rights fee was not an impact fee and was not prohibited by chapter 395. The opinion added an important caveat: it was not deciding that the fee was lawful overall. Whether the money is actually used to buy water rights, and whether the fee is proper on some basis other than chapter 395, were disputed fact questions that the AG would not resolve.

Currency note

This opinion was issued in 2006. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Chapter 395 and the impact-fee rules have been amended since 2006. Anyone evaluating a current development fee should check the present statute and recent decisions rather than relying on this opinion.

Who this opinion affected (as of 2006)

Cities and water utility boards: The opinion told them that a fee charged solely to acquire a water supply is outside chapter 395's definition of an impact fee, so the chapter's procedures and limits did not govern it, even though a fee to build water facilities would be an impact fee.

Developers and builders: The opinion meant that a water rights fee could not be challenged as an unauthorized impact fee under chapter 395 just because it was a precondition to service, although the opinion left open other possible challenges to the fee.

The Brownsville Public Utilities Board specifically: The opinion declined to bless the board's fee in general, noting the dispute over whether the money was actually used for water rights and that other legal questions about the fee were fact-bound and unresolved.

Common questions

What makes a charge an "impact fee" under chapter 395?
It must be a charge against new development to fund or recoup the costs of capital improvements or facility expansions, which the statute defines as physical infrastructure like water supply, treatment, and distribution facilities and roadway facilities.

Why isn't a water rights fee an impact fee?
Because acquiring water rights is not the same as building physical infrastructure. The opinion read the capital-improvement list as an exclusive list of physical facilities, so a fee used solely to procure a water supply does not fit the definition.

Does this mean the Brownsville water rights fee is definitely legal?
No. The opinion held only that the fee is not a prohibited impact fee under chapter 395. It expressly did not decide whether the fee is permissible on some other legal basis, and noted that whether the money is actually used to acquire water rights was disputed.

Would a fee to build a water plant be treated differently?
Yes. The opinion said a fee imposed to construct a water supply facility is an impact fee under chapter 395, in contrast to a fee imposed solely to acquire a water supply.

Background and statutory framework

Chapter 395 limits impact fees on real estate development (Tex. Loc. Gov't Code Ann. §§ 395.001-.082 (Vernon 2005)). A governmental entity may not enact or impose an impact fee unless authorized by the chapter or other law (id. § 395.011(a)), must follow detailed adoption procedures (id. §§ 395.041-.058), and may use an impact fee only to pay the costs of constructing capital improvements or facility expansions (id. § 395.012(a)). Section 395.001(4) defines an impact fee as a charge against new development to fund or recoup the costs of capital improvements or facility expansions necessitated by the development, including various named charges and "any other fee that functions as described." Section 395.001(1) defines capital improvements as an exclusive list of physical facilities, including water supply, treatment, and distribution facilities and roadway facilities (id. § 395.001(1), (1)(A)), and section 395.001(3) defines facility expansion as expanding an existing facility's capacity (id. § 395.001(3)).

The opinion described an impact fee as a fee or exaction on real property development (Salt Lake County v. Bd. of Educ., 808 P.2d 1056, 1058 (Utah 1991), a Utah Supreme Court decision cited for the general concept; see also Ronald H. Rosenberg, The Changing Culture of American Land Use Regulation: Paying for Growth With Impact Fees, 59 SMU L. Rev. 177, 188-205 (2006)). Reading the definitions together, the opinion concluded that a fee for physical infrastructure is an impact fee but a fee imposed solely to acquire a water supply is not. It declined to address whether the fee is proper on a non-chapter-395 basis or whether the money is actually used for water rights, because those are fact questions (Tex. Att'y Gen. Op. No. GA-0186 (2004) at 6).

Citations

Statutes:

• Tex. Loc. Gov't Code Ann. §§ 395.001-.082, 395.001(1), 395.001(1)(A), 395.001(3), 395.001(4), 395.011(a), 395.012(a), 395.041-.058 (Vernon 2005)

Cases:

• Salt Lake County v. Bd. of Educ., 808 P.2d 1056, 1058 (Utah 1991)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0482
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2006/ga0482.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

November 7, 2006

The Honorable Eddie Lucio, Jr.
Chair, Committee on International Relations and Trade
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. GA-0482

Re: Whether a water rights fee imposed by the Public Utilities Board of the City of Brownsville is an impermissible impact fee under chapter 395 of the Local Government Code (RQ-0468-GA)

Dear Senator Lucio:

Chapter 395 of the Local Government Code limits the kinds of charges and assessments known as "impact fees" that political subdivisions may exact on real estate development. See generally Tex. Loc. Gov't Code Ann. §§ 395.001-.082 (Vernon 2005). You ask whether a water rights fee imposed by the City of Brownsville is an impermissible impact fee prohibited by the chapter.

The City of Brownsville charter establishes the Public Utilities Board (the board) as a "separate and distinct agency of the City" with authority to control, manage, and operate the city's water and sewage system. We are informed that the board's rules and regulations require a developer to pay certain connection charges to receive city water service. These charges include "water rights" fees and "impact" fees. City Brief, supra note 3, at 9; Association Brief, supra note 3, at 2-4. Concerning the water rights fee, the board's rules and regulations require a developer requesting water service for a development to either convey water rights measured in acre feet per acre, pay a per-acre water rights charge in lieu of transferring water rights, or possibly perform a prorated combination of the two. See City Brief, supra note 3, at 9-10; Association Brief, supra note 3, at 4. The purpose of the fee is to acquire water rights and otherwise provide for a water supply to meet the board's current and future obligations. See City Brief, supra note 3, at 11-12; Association Brief, supra note 3, at 4. Nevertheless, the board requires payment of both the water rights fee and the separate impact fee before it will provide water service and maintains both a water rights fund and a separate impact fee fund. See City Brief, supra note 3, at 9-12, 15; Association Brief, supra note 3, at 3-4.

Under chapter 395, "a governmental entity or political subdivision may not enact or impose an impact fee" that is not specifically authorized by the chapter or other state law. Tex. Loc. Gov't Code Ann. § 395.011(a) (Vernon 2005). To impose an impact fee, a political subdivision must comply with detailed procedures and other requirements. See generally id. §§ 395.041-.058 (procedures for adoption of an impact fee). An impact fee may be used "only to pay the costs of constructing capital improvements or facility expansions." Id. § 395.012(a).

Your question is whether a "'water rights fee' imposed by [the board] amounts to an impermissible 'impact fee' under Chapter 395 of the Local Government Code." Request Letter, supra note 1, at 1. An impact fee is a fee or exaction on real property development. See Salt Lake County v. Bd. of Educ., 808 P.2d 1056, 1058 (Utah 1991); see generally Ronald H. Rosenberg, The Changing Culture of American Land Use Regulation: Paying for Growth With Impact Fees, 59 SMU L. Rev. 177, 188-205 (2006). Chapter 395 does not broadly prohibit property development exaction; rather, it prohibits a political subdivision from levying impact fees without complying with chapter 395. See Tex. Loc. Gov't Code Ann. § 395.011(a) (Vernon 2005). Because chapter 395 applies only to impact fees, whether the chapter prohibits a particular property development exaction depends, as a threshold matter, on whether the exaction is an impact fee under the chapter.

Section 395.001 defines what constitutes an impact fee for chapter 395 purposes:

"Impact fee" means a charge or assessment imposed by a political subdivision against new development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to the new development. The term includes amortized charges, lump-sum charges, capital recovery fees, contributions in aid of construction, and any other fee that functions as described by this definition.

Id. § 395.001(4) (further listing exclusions from the term's meaning, none of which are pertinent here). The section also defines "capital improvements" and "facility expansions":

(1) "Capital improvement" means any of the following facilities that have a life expectancy of three or more years and are owned and operated by or on behalf of a political subdivision:

(A) water supply, treatment, and distribution facilities; wastewater collection and treatment facilities; and storm water, drainage, and flood control facilities; whether or not they are located within the service area; and

(B) roadway facilities.

. . .

(3) "Facility expansion" means the expansion of the capacity of an existing facility that serves the same function as an otherwise necessary new capital improvement, in order that the existing facility may serve new development. The term does not include the repair, maintenance, modernization, or expansion of an existing facility to better serve existing development.

Id. § 395.001(1), (3). From these definitions, an exaction is an impact fee under chapter 395 if it is a charge or assessment to fund or recoup the costs of capital improvements or facility expansions, or if it is a fee that functions as such a charge or assessment. See id. § 395.001(4). A capital improvement is one of the facilities listed in the statute, roadway facilities and "water supply, treatment, and distribution facilities; wastewater collection and treatment facilities; and storm water, drainage, and flood control facilities." Id. § 395.001(1)(A). And a facility expansion is an expansion of an existing facility's capacity that serves the same function as new capital improvement. Id. § 395.001(3). While the statute does not define the word "facility," the exclusive list of facilities that constitute a capital improvement in section 395.001(1) includes only physical infrastructure. See id. § 395.001(1). A "water rights" fee that is not used for the costs of physical infrastructure is accordingly not a fee for the costs of capital improvement or facility expansion as those terms are defined. See id. § 395.001(1), (3).

In addition to fees for capital improvement and facility expansion, the definition of an impact fee expressly includes certain charges, fees, and contributions, and "any other fee that functions as described by this definition." See id. § 395.001(4). To function "as described by this definition," a fee must be imposed to fund or recoup "the costs of capital improvements or facility expansions necessitated by and attributable to the new development." Id. The phrase "any other fee" cannot be construed to include fees other than those for physical infrastructure costs because chapter 395 also provides that "[a]n impact fee may be imposed only to pay the costs of constructing capital improvements or facility expansions." See id. § 395.012(a). A fee to construct a water supply facility is an impact fee under chapter 395, but a fee imposed solely for acquiring an adequate water supply is not. See id. § 395.001(1), (3)-(4); id. § 395.012(a). Because a "water rights fee" to procure a water supply is not an impact fee, it does not constitute an impermissible impact fee prohibited by chapter 395.

That is not to say, however, that the assessment and collection of the water rights fee is permissible. Questions have been raised, and the facts are disputed, whether the fee is actually used to acquire water rights or merely accumulates in a water rights fund. Moreover, the propriety of the fee on a basis other than chapter 395 is not entirely clear from the limited information provided us. But because that question has not been presented to us, and because the answer to that question appears to call for factual determinations, it is inappropriate for us to opine on it. See Tex. Att'y Gen. Op. No. GA-0186 (2004) at 6 (stating that this office does not resolve questions of fact).

SUMMARY

A water rights fee imposed solely for the costs of procuring a water supply and not for facility construction costs is not an impermissible impact fee prohibited by chapter 395 of the Local Government Code.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee

Footnotes

1. See Letter from Honorable Eddie Lucio, Jr., Chair, Committee on International Relations and Trade, Texas State Senate, to Honorable Greg Abbott, Attorney General of Texas, at 1 (Mar. 17, 2006) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter].

2. See Brownsville, Tex., City Charter, art. VI, § 1(a)-(b) (last visited Oct. 30, 2006).

3. See Brief on behalf of the City of Brownsville, Texas and its Public Utility Board, from Richard D. O'Neil, Davidson & Troilo, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 9 (May 4, 2006) (hereinafter City Brief); Brief on behalf of the Lower Valley Builders and Developers Association, from Arthur Val Perkins, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 3-4 (May 4, 2006) (hereinafter Association Brief) [briefs on file with the Opinion Committee].