                                     ATTORNEY              GENERAL OF TEXAS
                                                    GREG     ABBOTT




                                                     November 7,2006



The Honorable Eddie Lucia, Jr.                                Opinion No. GA-0482
Chair, Committee on International
   Relations and Trade                                        Re: Whether a water rights fee imposed by the
Texas State Senate                                            Public Utilities Board of the City of Brownsville
Post Office Box 12068                                         is an impermissible impact fee under chapter 395
Austin, Texas 7871 l-2068                                     of the Local Government Code (RQ-046%GA)

Dear Senator Lucia:

         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 CODEANN. 5s 395.001-,082 (Vernon 2005). You ask whether a water
wrights 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 224. 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


         ‘See Letter from Honorable Eddie Lucia 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:liwww.oag.state.tx.us) [here&&r  Request Letter].

          %e       BROWNSVILLE, TEX., CITY CHARTER, art VI,       $ 1(+(b),   mailable   af http://citysecretary.cob.us/
city_charter.asp    (last visited Oct. 30, 2006).

         “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 ofTexas, at 9 (May
4,2006) (hereinafter City Brief); Briefon behalf ofthe Lower Valley Builders and Developers Association, from Arthur
Val Perkins, to Nancy S. Fuller, Chair, Opinion Canmittee, Office of the Attorney General of Texas, at 3-4 (May 4,
2006) (hereina&     Association Brief) [briefs on file with the Opinion Committee].
The Honorable Eddie Lucia, Jr. - Page 2              (GA-0482)




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. 5 395.01 l(a) (Vernon 2005). To impose an impact fee, a political subdivision must
comply with detailed procedures and other requirements. ‘See generally id. 5s 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. ofEduc.,      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 apolitical subdivision from levying impact fees without complying with
chapter 395. See TEX. Lot. GOV’T CODEANN. § 395.01 l(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. 5 395.001(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 ofthe 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
The Honorable Eddie Lucia, Jr. - Page 3               (GA-0482)




                        (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 (l), (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. 5 395.001(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, andfloodcontrolfacilities.”    Id. § 395,001(1)(A). And a facility expansionis anexpansion
of an existing facility’s capacity that serves the same function as new capital improvement.           Id.
5 395.001(3). While the statute does not define the word “facility,” the exclusive list of facilities that
constitute a capital improvement in section 395.001(l) includes only physical infrastructure. See
id. 5 395.001(l). 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. 5 395.001(l), (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. 5 395.001(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. 5 395.012(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. 5 395.001(l), (3)-(4); id. 5 395.012(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-01 86 (2004) at 6 (stating that this office does not resolve questions of fact),
The Honorable Eddie Lucia, Jr. - Page 4




                                     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,




                                            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
