In a 3-0 decision, the court reversed an earlier ruling that had given cities this right, saying that Arizona cities lack the authority to collect impact fees from developers for schools.

"This issue of a development fee is an issue for the Legislature," says Charles Herf, an attorney for the Home Builders Association of Central Arizona. "The municipalities in Arizona have no authority whatsoever to impose development fees that impact the construction of schools."

Apache Junction, a suburb about 25 miles east of Phoenix, was the first to impose the fees, and it was the first place the fee was challenged. The city imposed a $1,300 fee for each single-family home built there. The city has been collecting the fees since the city ordinance was enacted in December 1997 and has approximately $2 million in an escrow account. This money will have to be returned to developers.