Town properly used its police powers to build roads and levy special assessments after developer failed obligations

First State Bank v Town of Omro
Wisconsin Court of Appeals, November 11, 2015

Barony subdivision is a 74 lot subdivision that received plat approval in 2004. Only 9 lots were developed over the course of the next 5 years, and in 2009 First State Bank took control of the remaining 65 lots in lieu of foreclosure. At the time of foreclosure, sections of the roads in the subdivision were not paved. In 2013 Omro authorized the roads to be finished and specially assessed all the lots within the subdivision for the cost of completing the roads, which was $219,641.60. The Bank challenged Omro’s authority to levy the special assessments.  The issue on appeal was whether a municipality may use its police powers to build roads and levy special assessments against the land after a developer fails their obligation to build the roads.

The Bank claimed that the assessment was improper because: (1)the development agreement required the developer to pay for the roads; (2) the Ordinance prohibited the road work because 70% of the subdivision was not developed; (3) at the time the special assessments were imposed the subdivision’s roads were privately owned; (4) three lots were not specially benefited because they do not abut Omro’s roads; and (5) the wording of the preliminary and final resolutions did not conform with § 66.0703. The circuit court provided summary judgment to Omro.

The first two arguments asked whether Omro acted outside of their authority granted by the legislature. The Bank argued that the Ordinance says that the money for paving roads “will come directly from the developer, from a special assessment on the development, or another method approved by the Town Board” and that “the development agreement will dictate the method of payment for the paving.” The Bank argues that the developer is the only recourse for payment based on this language in the Ordinance and in the developer agreement. However, the language in these documents does not limit Omro’s power to levy special assessments. Just because the agreed upon payment did not work out does not mean alternatives are not allowed as long as Omro follows the appropriate procedures in state law permitting special assessments.

The Bank argued that because 70% of the subdivision was not developed the special assessment could not be levied.  The court pointed out, however, that there is language in the Ordinance that allows for a different schedule if Town Engineer and the Town Board recommend a different action, which they did.

The last three arguments asked whether Omro failed to follow the requirements of Wis. Stat. §66.0703.  The Bank argued that because the lots were privately owned, the special assessment was not for public improvement.  This argument missed the point that the roads within the subdivision were public property.  State law provides that all roads or streets shown on a final plat are dedicated to the public unless clearly marked as private, which these were not.  Therefore, the assessments were clearly for a public improvement.

Next, the Bank argued that three of the lots do not receive “special benefits” from the project because they do not abut the newly paved roads and should not be specially assessed because of this. The Bank demonstrated a genuine issue of fact. The circuit court erred in granting summary judgment on this issue.

The court affirmed the decision ratifying the special assessment of the lots that benefit from the road project, but reverse the decision that found that the lots that do not abut the roads received special benefits and remanded that issue to the lower court.

Interpretation of ‘gap and extend’ law properly allowed extension of pavement to unpaved intersection

by Gary Taylor

Johnson v. City of Fremont
(Nebraska Supreme Court, April 18, 2014)

[Note:  The court includes a map of the area in question!  I wish the courts would include maps in their published opinions more often.  They make land use cases much easier to understand. I urge you to follow the link to the case to see the map.]

Neb. Rev. Stat. 18-2001 provides

Any city or village may, without petition or creating a street improvement district…pave any portion of a street otherwise paved so as to make one continuous paved street, but the portion to be so improved shall not exceed two blocks, including intersections, or thirteen hundred and twenty-five feet, whichever is the lesser  Such city or village may also pave any unpaved street or alley which intersects a paved street for a distance of not to exceed one block on either side of such paved street.

Known as the gap and extend law, the City of Fremont used the statute to pave one block of Donna Street and assess the costs to abutting landowners, including the plaintiffs in this case, Roland and Karen Johnson. The pavement extended the paved portion of Donna Street one block to the west, but stopped at the intersection of Howard Street, which is unpaved.

The City argued that the action “was the paving of an extension of Donna Street for one block from where it intersects Jean Drive, a paved street,” and was a proper application of the gap and extend law.  The Johnsons argued a narrower interpretation of the statute; specifically that the phrase “so as to make one continuous paved street” in the first sentence limits the statute’s application in all instances to circumstances where the pavement closes an unpaved gap between two paved streets.

The Nebraska Supreme Court sided with the City.  Concluding that the terms of the law are clear and unambiguous, the Court found that the statute’s second sentence clearly applied to the City’s extension of Donna Street.  “The first sentence [which included the language ‘so as to make one continuous paved street’] provides the power to fill a gap….The section sentence, empowers a city to make a single-block extension of paving from an intersecting street.  The Legislature used the word ‘also’ to make it clear that the second sentence provided an additional power beyond that granted by the first sentence….The [Johnson’s] interpretation would effectively eliminate the second sentence of section 18-2001.”

Right-of-way method for calculating special assessments did not treat similarly-situated properties similarly

by Kaitlin Heinen

Peller Investments, LLC v. City of Lake Geneva
(Wisconsin Court of Appeals, January 31, 2013)

In the City of Lake Geneva, Edwards Boulevard runs north and south, with its northern-most end intersecting Sheridan Springs Road. Prior to 2010, Edwards Boulevard was not a through street to Sheridan Springs Road; it ended at the northern edge of a Target store property. In 2010, the City undertook a project to extend Edwards Boulevard to Sheridan Springs Road. This project included the construction of other structures such as storm water detention ponds. The Peller Investments, LLC property is located to the north of the Target property and has frontage on Edwards Boulevard as extended. The Peller property was originally 16.63 acres in size, but on May 3, 2010, Peller executed a quit-claim deed to the City for a 3.61-acre portion of the Peller property.  The City had planned to place a storm water detention pond via an easement on the 3.61-acre parcel, as part of the project.

On September 27, 2010, the City’s Common Council adopted a resolution that directed the City’s engineer (from Crispell-Snyder, Inc.) to prepare a report consisting of plans and costs for the improvements, a schedule of assessments, and the properties to be benefited. Kurt Davidsen drafted the assessment report. Under the straight-line method, Davidsen calculated assessments based on the length of each property running parallel to Edwards Boulevard. The report listed the Peller property as a benefited property, assessing it for 916.52 feet running parallel to Edwards Boulevard at a rate of $377.36 per foot for an assessment total of $345,857.99. The City’s Public Works Director, Dan Winkler, and the City Administrator, Dennis Jordan, consulted with Sue Barker, another engineer with Crispell-Snyder. Winkler and Jordan believed that the straight-line method did not adequately reflect the benefits received by the properties. They believed that the Peller property received a “unique special benefit” because it was the only property that became develop-able as a result. So the City asked Crispell-Snyder to draft a second report applying a different assessment method called the right-of-way method, which calculates assessments based on the length of the road right-of-way abutting each property. On October 25, 2010, the City’s Common Council held a public hearing on the assessment. The City adopted a resolution that approved the second report, using the right-of-way method. The second report increased the project cost from $2,629,981.50 to $2,746,359.60. The City issued an assessment on the Peller property for 1,142.01 feet of right-of-way frontage, having measured Peller’s curb frontage on Edwards Boulevard (657.03 feet) plus the boundary line between the Peller property and the 3.61-acre parcel (484.98 feet). The City treated the 3.61-acre parcel as part of the road right-of-way, so while the parcel borders only 379.36 feet of Edwards Boulevard, the City considered the boundary between the Peller property and the parcel to be the road right-of-way.

The City sent a letter on October 28, 2010, notifying Peller that the City had adopted the final resolution. The letter included the assessment schedule, which reflected a special assessment levy of $521, 5333.13 against the Peller property. Peller filed a complaint against the City under Wis. Stat. § 66.0703(12)(a), which authorizes property owners to challenge special assessments in circuit court. Peller argued that the City’s special assessment method was unreasonable because:  (1) the City did not treat uniformly the City’s parcel 4 and Peller’s 3.61-acre parcel because, unlike parcel 4, the City did not assess the road frontage of the 3.61-acre parcel, but treated it as part of the road right-of-way, and (2) it resulted in Peller paying a disproportionate share of the project cost.  Peller also argued that the City unreasonably allocated a portion of the Ryan Companies’ (another benefited property) $600,000 payment to cover part of the assessments for which the City was responsible. However, the City argued that Peller was the only property that became develop-able as a result of the Edwards Boulevard extension, and because of the “unique benefit” it imposed, the right-of-way assessment was reasonable. On January 11, 2012, the circuit court held a hearing and granted Peller’s motion against the City, so the City appealed to the Wisconsin Court of Appeals.

The court stated that when a municipality imposes special assessments by exercise of its police powers, it is required that the property be benefited and the assessment be made upon a reasonable basis. The Edwards Boulevard extension project benefited all properties in the assessment district. So the Wisconsin Court of Appeals then examined the reasonableness of the assessment. There is no single methodology for apportioning assessments, and the law presumes that the municipality proceeded reasonably in making the assessment. Challengers to the assessment must show evidence that the assessment was unreasonable. Since “reasonable basis” is not defined by law, the facts of each situation must determine the reasonableness of the assessment. Past cases have established that “an assessment is unfair when property owners in comparable positions face a marked disparity in cost for the receipt of equal benefits when an alternate, more equitable, method of assessment is feasible.” Wisconsin appellate courts have also established a two-part test to determine reasonableness: 1) the assessment must be uniform, fairly and equitably apportioned among property owners in comparable situations, and 2) the assessment must not affect a unique property disproportionate to the benefit  conferred.

Peller challenged whether the right-of-way method treated comparable properties uniformly. Peller argued that the City treated parcel 4 as an assess-able lot, but did not treat the similarly-situated 3.61-acre parcel as an assess-able lot. Instead, the City assessed the 3.61-acre parcel as part of the road right-of-way, thus increasing the Peller property frontage. The Court of Appeals agreed. Uniformity is required among comparable properties, and although the right-of-way method is uniform in its calculations, the application of the method by the City resulted in disparate treatment of similarly-situated properties. Parcel 4 and the 3.61-acre parcel were characterized differently, even though both abutted Edwards Boulevard and contained storm water detention ponds, which was therefore unreasonable. Since Peller showed evidence that the assessment was unreasonable, the City then must show otherwise. The City argued that under the right-of-way method, all properties were treated the same. However, this does not explain the disparate treatment of parcel 4 and the 3.61-acre parcel. The City stated that the pond on the 3.61-acre parcel abutted private property whereas the pond on parcel 4 did not, so there was no reason to make the parcel 4 pond part of the right-of-way. Because the City does not explain why this difference should matter, the court concluded that the City did not show that the assessment was reasonable. Because the assessment failed the first prong pf the two-part test, the court did not need to examine the second prong.

The Wisconsin Court of Appeals affirmed the circuit court’s judgment in regards to the City not treating comparable properties uniformly and that the special assessment against Peller was unreasonable. The total cost of the project was $2,746,359.60, which involved a total of 5,741.05 feet in the special assessment district.  Dividing the $2,746,359.60 project cost by 5,741.05 feet provides an assessment rate of $478.37 per foot.  The Peller property had 657.03 feet of assess-able frontage, so the proper levy against the Peller property was determined by the court to be $314,303.44.

Fargo’s method for determining special assessments was appropriate

by Kaitlin Heinen

D & P Terminal v. City of Fargo
(North Dakota Supreme Court, July 18, 2012)

D&P Terminal (D&P) and others appealed to the North Dakota Supreme Court after the district court upheld the decision of the Board of City Commissioners of Fargo to approve special assessments against their properties along 12th Ave. N, where the North Dakota Department of Transportation and City of Fargo planned reconstruction. The district court held that the Board did not violate D&P’s due process rights, nor had the Board been shown to be arbitrary, capricious, or unreasonable in its decision.

North Dakota Supreme Court addressed the standard of review applied to special assessments decisions: the Courts cannot try special assessment cases anew; the Court begins with the presumption that the assessments are valid; and the burden lies with the challenging party to demonstrate that the assessments are invalid. As a result, the Court must affirm the decision of the local governing body unless it acted arbitrarily, capriciously, or unreasonably, or if there is not enough evidence to support its decision. Arbitrary, capricious, or unreasonable conduct consists of incorrect interpretation and application of the controlling law at the time of the decision.

The Commission is governed by N.D.C.C. §40-23-07 to determine the amount assessed to each property in an improvement district.  The Board adopted Fargo’s Infrastructure Funding Policy to make assessments uniform across varying improvements projects. This Policy uses “caps,” that is, maximums, of the amount of listed items assessed based on front footage or square footage of the property. The suggested benefit amount is usually less than the actual cost of improvements, which is then sent to the Commission as a recommendation for its final decision in the final assessments. D&P argued that the use of a “formula” – like the use of front footage or square footage to determine the benefits to property – is barred by the North Dakota Supreme Court’s previous decision in Robertson. The North Dakota Supreme Court rejected D&P’s arguments that the front footage or square footage used in this policy constitutes a “formula.” The Court previously rejected similar arguments in Hector, so the Commission did not fail to properly determine the benefits to each of their properties based on this precedent. The Supreme Court reiterated its rationale, first expressed in Hector:

A municipality has broad discretion to choose the method used to decide what benefits a property receives from an improvement and to apportion the costs to individual properties. A municipality may adopt any method to apportion benefits that is fair and legal and secures an assessment that is in proportion to the benefits as nearly as possible when no rule of apportionment prescribed by statute or charter exists. The process of quantifying benefits accruing to each lot inevitably rests on the judgment and discretion of the special assessment commission. There simply is no precise formula for quantifying benefits. Assessments may be apportioned according to frontage, area, value of, or estimated benefits to, the property assessed, or according to districts or zones, or on any other reasonable basis that is fair, just, and equitable. However, the method used to apportion the assessment cannot be arbitrary and must have some relation to the benefits. [citations omitted]

D&P’s arguments based on Robertson were lacking because they failed to acknowledge the Court’s multiple decisions after Robertson that have previously upheld the use of “formulas,” including front footage, area, and even value to determine benefits to assessed property. In addition, §2801 of the 1905 Revised Codes, which was the primary statute in question in Robertson, required the Commission to personally inspect each lot in the improvement district. That has since been amended by the legislature (1999 N.D. Sess. Laws ch. 366), which has effectively eliminated this requirement of personal inspections, which would be “wholly impractical and unmanageable” today, as compared to the year 1914 when Robertson was decided. The Court concluded then that Robertson is no longer precedent, having been decided nearly 100 years ago. The evolved case law on special assessments in North Dakota since Robertson has changed enough to include a much more limited standard of review such as the use of front footage or square footage to determine the benefits to assessed property.

The North Dakota Supreme Court affirmed, concluding that the Commission did not use an inappropriate method to determine the benefits to D&P Terminal, Inc. and Potter Enterprises’ properties included in the improvement district. “Formulas” in use by special assessment Commission are permissible.

US Supreme Court finds rational basis for Indianapolis special assessment action

by Gary Taylor

Armour, et al. v. City of Indianapolis
(US Supreme Court, June 4, 2012)

For decades, Indianapolis (City) funded sewer projects using Indiana’s Barrett Law, which permitted cities to apportion a public improvement project’s costs equally among all abutting lots. Under that system, a city would create an initial assessment, dividing the total estimated cost by the number of lots and making any necessary adjustments. Upon a project’s completion, the city would issue a final lot-by-lot assessment. Lot owners could elect to pay the assessment in a lump sum or over time in installments. After the City completed a particular sewer project, it sent affected homeowners formal notice of their payment obligations. Of the 180 affected homeowners, 38 elected to pay the lump sum. The following year, the City switched from the Barrett Law method of financing and adopted the Septic Tank Elimination Program (STEP),which financed projects in part through bonds, thereby lowering individual owner’s sewer-connection costs. In implementing STEP, the City’s Board of Public Works enacted a resolution forgiving all assessment amounts still owed pursuant to Barrett Law financing. The 38 homeowners who elected to pay their assessments in a lump sum on the prior year’s project received no refund, while homeowners who had elected to pay in installments were under no obligation to make further payments. The 38 homeowners who paid the lump sum asked the City for a refund, but the City denied the request. Thirty-one of these homeowners brought suit in Indiana state court claiming that the City’s refusal violated the Equal Protection Clause of the US Constitution. The trial court granted summary judgment in favor of the homeowners, and the State Court of Appeals affirmed. The Indiana Supreme Court reversed, holding that the City’s distinction between those who had already paid and those who had not was rationally related to its legitimate interests in reducing administrative costs, providing financial hardship relief to homeowners, transitioning from the Barrett Law system to STEP, and preserving its limited resources.  The homeowners appealed to the US Supreme Court.

The Supreme Court held that the City had a rational basis for its distinction and thus did not violate the Equal Protection Clause. The City’s distinction does not violate the Equal Protection Clause as long as “there is any reasonably conceivable state of facts that could provide a rational basis for the classification,” and the “burden is on the one attacking [the classification] to negative every conceivable basis which might support it.” The distinction between the homeowners who already paid their assessments and those who did not does not involve a fundamental right or suspect classification. Its subject matter is local, economic, social, and commercial. It is a tax classification, and there was no claim that the City has discriminated against out-of-state commerce or new residents.

Administrative concerns can ordinarily justify a tax-related distinction, and the City’s decision to stop collecting outstanding Barrett Law debts finds rational support in the City’s administrative concerns. After the City switched to the STEP system, any decision to continue Barrett Law debt collection could have proved complex and expensive. It would have meant maintaining an administrative system for years to come to collect debts arising out of 20-plus different construction projects built over the course of a decade, involving monthly payments as low as $25 per household, with the possible need to maintain credibility by tracking down defaulting debtors and bringing legal action. The rationality of the City’s distinction draws further support from the nature of the line-drawing choices that confronted it. To have added refunds to forgiveness would have meant adding further administrative costs, namely the cost of processing refunds. And limiting refunds only to the homeowners in the subject project would have led to complaints of unfairness, while expanding refunds to the apparently thousands of other Barrett Law project homeowners would have involved an even greater administrative burden. Finally, the rationality of the distinction draws support from the fact that the line that the City drew—distinguishing past payments from future obligations—is well known to the law.

The homeowners further argued that administrative considerations alone should not justify a tax distinction lest a city justify an unfair system through insubstantial administrative considerations. Here it was rational for the City to draw a line that avoided the administrative burden of both collecting and paying out small sums for years to come. Petitioners have not shown that the administrative concerns are too insubstantial to justify the classification.

Public college an owner of land for purposes of initiating special assessment petition

by Victoria Heldt

City of Brainerd v. Brainerd Investment Partnership
(Minnesota Court of Appeals, April 2, 2012)

In this case, the Court consolidated two related appeals into one opinion.  Both appeals involved the City of Brainerd’s attempt to widen a road and to pay for the project with a special assessment tax.  College Drive (a two-lane road) had become a heavily traveled route for regional traffic, so the City sought to reconstruct a portion of it into a four-lane road.  Under chapter 429 of Minnesota statute, there are two methods through which a resolution such as this could be passed.  If at least 35% of the property owners adjacent to the road submit a petition in favor of the project, it would require a simple majority vote of the city council to be passed.  If no such petition is filed, the project would require a four-fifths majority vote of the city council to be passed.

Central Lakes College (CLC) owns more than 35% of the property adjacent to the road; however, since it is an “instrumentality of the State of Minnesota,” it cannot be required to pay any special assessments levied on the property.  Jeff Hulsether (Brainerd’s City Engineer) sent a letter to Kari Christiansen (CLC Vice President of Administrative Services) inquiring if CLC would be willing to pay a portion of the special assessments.  In December 2009, CLC sent a letter stating that it “intended” to pay the special assessments pending budgetary issues.  After reviewing a feasibility report in September 2010, CLC sent a memo to the City confirming that it would pay the assessments.  Subsequently, CLC filed with the city council a petition in favor of the project.  The city council approved the road project by a 4-3 vote.

Brainerd Investment and the Andas appealed, arguing that CLC should not be considered an “owner” of property adjacent to the road project because CLC cannot be subject to special assessments, and that under chapter 249 of Minnesota Statutes, property that is not subject to special assessment cannot be included in the 35% ownership test.  As a result, it was argued, the project needed a four-fifths affirmative vote of the council, not a simple majority vote, to pass.

In January 2011, the City commenced an eminent-domain proceeding in order to get temporary construction easements and permanent utility easements for the property.  Anda challenged the proceeding on the grounds that the City’s failure to comply with Minnesota statute 429 regarding the 35% rule precluded it from taking the property.  Subsequently, the City and the CLC created an official agreement stating CLC will pay the special assessment.  The district court ruled in favor of the City in both cases.

The Court identified two issues at hand.  The first was whether the CLC, as an instrumentality of the State of Minnesota, is considered an owner under statute and can therefore be included when using the 35% ownership test.  The second issue was whether a condemnation petition can be authorized if the assessment process is defective under chapter 429.

In regards to the first argument, appellants cited three attorney general opinions in which the state has been determined not to be an owner under special assessment statutes.  Furthermore, the appellants noted that when the legislature amended chapter 429 in the 1950’s, it relied heavily on the language in one of those opinions.  The Court dismissed the use of the attorney general opinions to support appellants’ arguments, stating that the opinions conflict with the plain language of chapter 429.  The statue allows “owners” of the adjacent properties to petition.  The common definition of an owner is “one who has the right to possess, use, and convey something.”  The CLC clearly fits that description, and should be included as an “owner.”  Appellants further argued that public policy supports their argument because the state has the ability to petition private property owners for additional support.  Appellants further noted that the state (or the CLC) could decline to pay the assessment.  The Court responded that according to the record, the CLC has every intention of helping pay for the project.  It concluded that the district court did not err when it deemed CLC’s petition valid.  Since CLC’s petition was indeed valid, the Court did not consider the condemnation issue.  The district court’s decision was affirmed.

Bill modifying special assessment practices introduced

We have had several cases recently addressing the proper considerations for calculating special assessments (case summaries can be found here and here and here).  HF 2178 if passed, will change/clarify the calculation of special assessments by cities, counties and sanitary districts in a number of ways.  The major elements of the bill include:

Prior to the adoption of a preliminary resolution related to a public improvement, a city must adopt an ordinance setting forth the method to be used in determining the amount of “individual benefit,” “district benefit,” and “community benefit” projected to result from the public improvement and a description of the manner in which the cost of the public improvement will be allocated to each category of benefit. 

The bill requires that 30 days’ notice be published prior to adoption of the preliminary resolution related to a public improvement, and requires the preliminary resolution to contain a detailed description of the method laid out in the ordinance, an estimate of the amount of individual benefit,  district benefit, and community benefit that will be conferred as a result of the public improvement, and the proportion of the total cost of the public improvement which the council proposes to assess against property within the special assessment district.

The bill adds definitions for “community benefit”, “district benefit”, and “individual benefit”, and adds storm water management intakes, sewers, and facilities and traffic-control devices, fixtures, connections, and facilities to the definition of “street improvement.”

All of the following public improvements are presumed to confer an individual benefit on a lot within a district:

a. A public improvement that benefits, serves, or that is intended for use by only one lot, unless such public improvement is replacing an existing public improvement of acceptable or working quality and is required as a result of  work on or repair of another public improvement that does not benefit, serve, or that is not intended for use by only that lot. 

b. A sidewalk upon a lot that is single-family residential property located along the frontage of the lot not to exceed four feet in width at a standard thickness.

c. A sidewalk on a lot that is commercial property or multifamily residential property located along the street frontage of the lot not to exceed six feet in width at a standard thickness.

d. Underground gas, water, heating, sanitary sewer, storm sewer, and electrical connections and accessories located in a public street right-of-way and that serve only the lot.

All of the following public improvements are presumed to confer a community benefit:

a. A public improvement or part of a public improvement that is intended for use by or intended to serve lots outside the district.

b. A sidewalk or recreational trail, or part thereof, that is part of a community-wide public recreational trail system.

c. The portion of a sidewalk that exceeds the portion of the sidewalk presumed to be an individual benefit

d. The planning, legal, administrative, and inspection costs, including city employee salary costs, associated with a public improvement that is paid for in part by special assessments.

The bill amends the definition of “district” to mean “the lots or parts of lots within boundaries of a geographic area established by the council for the purpose of the assessment of all or part of the cost of a public improvement that is intended in whole or in part to provide an individual benefit to such lots or parts of lots.”

The bill specifies that the total cost of a public improvement, except for certain paving near railroad tracks or improvements to be otherwise paid, may be assessed against all lots within the assessment district to the extent of the individual benefits conferred upon the property, and states that the portion of the total cost of a public improvement that is not assessed to individual lots as the result of individual benefits is attributable to the community benefit and shall be paid by the city. The bill allows a property owner to divide property that is subject to a special assessment into two or more lots for the purpose of separating improved portions of the land from those portions of the land which are unimproved or used for agricultural purposes. 

The bill designates certain public improvements that are presumed to confer an individual benefit and designates certain public improvements that are presumed to confer a community benefit. Under the bill, the planning, legal, administrative, and inspection costs, including city employee salary costs, associated with a public improvement that is paid for in part by special assessments may not be assessed to individual lots within a district and shall instead be paid by the city as a community benefit. 
The bill requires each city undertaking a street improvement paid for in whole or in part by a special assessment to complete a vehicle traffic analysis and forecast for the location of the proposed street improvement.  The traffic study must estimate future traffic generated by the lots in the district, and traffic generated by sources other than the lots within the district, based on the type of street being analyzed, completion of the public improvement, full development of the district, and future planned land use within the district. The individual benefit accruing to each lot within the district as the result of the street improvement shall not exceed the percentage of the total benefit from the street improvement that is proportionate to the lot’s forecasted amount of traffic generated

Local ordinance permitted to define “available public sanitary sewer system” more broadly than state statute

by Victoria Heldt and Gary Taylor

Roger Newell and Arelene Newell v. Village of Otter Lake, County of Lapeer
(Michigan Court of Appeals, November 15, 2011)

The Newells own property in the Village of Otter Lake on which sits a structure with a working septic system.  In 2004, the Village created a special assessment for its public sanitary sewage system.  The Newells were assessed $10,475; however, they were of the opinion that the assessment should not be applied to them so they filed a complaint with the Michigan Tax Tribunal.  During the time between when the Newells filed their complaint and the time of their hearing, the Village enacted an ordinance that changed the definition of an “available public sanitary sewer system.”  Under the new definition any public sewer system that “crosses, adjoins, or abuts a parcel upon which a structure is located” is considered an “available public sewer system” regardless of how many feet the system was from the structure it services or could potentially service.  This ordinance differed from the previously governing state statute (MCL 333.12751 (c)), which “available public sanitary sewer system as  “a public sanitary sewer system located in a right of way, easement, highway, street, or public way which crosses, adjoins, or abuts upon the property and passing not more than 200 feet at the nearest point from a structure in which sanitary sewage originates.”

At the Tax Tribunal trial, the Newells argued that the assessment was unjust because they received no benefit from the sewer system (they did not connect to it, nor did they need to connect to it).  The tribunal upheld the assessment and the Newells paid it.   Since they did not connect to the system, however, they refused to pay the operation and maintenance fees that were due each quarter thereafter.  When they were notified of their delinquency on the operation and maintenance fees, the Newells filed a claim in circuit court arguing that the ordinance was preempted by the previously governing state statute, that the fee violated the Headlee Amendment, and that the assessment violated the right to equal protection under the Michigan Constitution.  The court ruled in favor of the Village, finding that the preemption claim could have been resolved in the tax tribunal hearing so the court was prohibited from ruling on it.  Additionally it found that, although a municipality is not allowed to enact ordinances that conflict with state statutes, it is free to make ordinances that expand on them.

On appeal, the Newells again made a preemption claim arguing that the state statute preempted the Village’s ordinance.  They were of the opinion that they were not required to connect to the public sewer system (per the state statute MCL 333.12751 (c)) because their structure was located more than 200 feet from it.  The Court disagreed, finding that the Village’s ordinance was not in conflict with the state statute but merely expanded on it, which is allowable.  Thus, the Village’s ordinance was not preempted by the state statue.  The Court further noted that, in matters of public health such as a sewer system, municipalities act as an agent of the state in the regulation of such systems.

Citing People v. Llewellyn, the Newells additionally argued that this area of regulation was one in which state law has exclusive jurisdiction.  This argument rested on the fact that MCL 333.12751 was not included in the list of sections that the statute specified as being expandable by municipalities.  The Court rejected this argument, finding that the statute clearly anticipated changes by local governments.  It further found that the fact that the section was not listed did not equal a declaration that the state’s statutes were the exclusive governing power in that area.

The Newells also argued that the fee violated the Headlee Act, which prohibits municipalities from enacting a tax that was not authorized by state law, and from increasing an already authorized tax without a majority vote.  The Court found that since the fee is “serving a regulatory and not a revenue-raising purpose,” it is not considered a tax.  Consequently, the Headlee Act does not apply to it.  The Court affirmed the lower court’s decision in favor of the Village.

City cannot be sued for failure to enforce subdivision ordinance requiring developer provide improvements

by Gary Taylor

Nelson, et al., v. City of Hampton
(Iowa Supreme Court, August 26, 2011)

A rather complicated twenty year history associated with the platting and development of a residential neighborhood on the northwest edge of Hampton boils down to this:  Three separate subdivisions, each connected by streets dedicated within each subdivision, were planned.  As the project proceeded plans changed, and at a point in 2000 the city and developer reached an agreement that, among other things, obligated the city to surface a 300-foot portion of dirt road that connected one subdivision to the existing street network -which passed both within and outside the boundaries of the subdivision plat – and assess the cost to adjacent landowners.  When the city moved forward with the resurfacing project they prepared an assessment plat and schedule that assessed the adjacent landowners amounts ranging from about $4,000 to 9,000.  The landowners contested the assessments in district court, making three claims: (1) the assessments were void because they were contrary to a city ordinance that requires subdividers to “make and install” the grading and improvement of streets within the final plat of a subdivision by “surfacing or causing to be surfaced the roadways” per ordinance standards; and in the alternative, that (2) the assessments exceeded the special benefits conferred upon the adjacent properties in violation of Iowa law.  The district court rejected both claim, and this appeal to the Iowa Supreme Court ensued.

Agreement contrary to ordinance. The Supreme Court first noted that the legislature has given cities statutory authority to both assess property owners the costs of public improvements based on the benefits they receive from those improvements (Iowa Code Chapter 384) and to charge developers with installing public improvements through the plat approval process (Iowa Code Chapter 354).  Given that both alternatives exist for getting streets constructed, the Court viewed the core question to be whether the city was under a mandatory obligation to enforce the ordinance directive requiring subdividers to “make and install” improvements.  To decide this the Court examined whether the ordinance directive was mandatory or directory, and to decide this the Court will look at whether failure to mandate performance under the ordinance would undermine the purpose of the ordinance itself.  The purpose of the ordinance, as set out in the city code, is to “establish minimum standards for the design, development and improvement of subdivisions” and to make adequate provisions “for public services.” The court concluded that the provision requiring subdividers to install improvements was not mandatory because the end result (a paved road) could be accomplished just as satisfactorily by the city through the assessment process.  In either case, the cost is ultimately borne by the landowners in the subdivision.  In this particular case the agreement allowed for the recoupment of street costs from landowners outside the subdivision who nonetheless benefit from the street.  This result is also consistent with a long line of cases that have sanctioned cities’ decisions to waive plat approval standards when strict adherence to the standards would thwart the objectives of the ordinance.

Special benefits conferred.  The Court further found the amount of the special assessments to be reasonable.  It noted that the law “not only presumes the assessments are correct, but also that they do not exceed the special benefit derived.”  Despite the landowners’ assertions that they would not use the street and it provided them with no additional access, the Court found special benefit in the increase in property values that resulted, and in the transformation of a dirt road into a paved road (despite the landowners’ personal satisfaction with a dirt road).

The district court ruling was affirmed.

Special assessment for construction of regional trail held invalid

By Melanie Thwing

Hildeband v. Town of Menasha

(May 11, 2011, Wisconsin Court of Appeals)

David and Susan Hildebrand own 6.216 undeveloped acres in the Town of Menasha, WI. The property is zoned commercial but the owners had no current plan for development.  The north side of this property does not have a sidewalk but does abut four-lane arterial street.  In 2007 the town assessed the owners $33,205 for the installation of  the 958-foot section of a 10-foot wide asphalt regional recreation trail.  The section would have connected to the regional trails in several municipalities.

About the same time the Town also applied for grant funding through the Department of Natural Resources.  Under Wis. Admin. Code. § NR 50.06 these projects are given priority based on general public use. The Town specified in the application that the trail would “be used extensively by people outside [its] governmental jurisdiction.”  The project was also continuously referred to as a “recreational trail” not a sidewalk. As the community development director for the Town pointed out unlike sidewalks, the town is not required to maintain the trails if they choose not to.

The Hildebrands challenged the assessment in circuit court, arguing that Wis. Stat. § 66.0703 only permits assessments for “special benefits [conferred] upon the property.”  Witnesses for the Town testified that a special benefit occurred because the trail now provided direct and safe access to the property for nonmotorists and enhanced the property value. The circuit court, however, sided with the Hildebrands

The town appealed to the Wisconsin Court of Appeals.  According to the Court of Appeals a general benefit is one that benefits the entire community whereas a special benefit is an improvement that primarily benefits a particular locality and gives special benefits to those properties. By looking at the purpose of the trail the circuit court found that the primary benefit is general in nature.  The court found the trail was more like a park than a sidewalk because it provides recreational benefits to the region, and the landowners are not required to clear snow from the trail (unlike a sidewalk).  The court also noted that the Hildebrands’ property also had another trail running along the south side, and that therefore any special benefit to the property that comes with access to the trail had already been satisfied.  Because of this, there is no appreciable amount of special benefit given to the Hildebrand property by extending the trail.





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