Minnesota Appeals Court rules against impact fees for road construction

by Eric Christianson

Harstad v. City of Woodbury
(Minnesota Court of Appeals, September 18, 2017)

The City of Woodbury, Minnesota is a growing suburb of Saint Paul. To reduce the public burden of road construction to new subdivisions, the city passed an ordinance in 2016 which provides that the city may not approve a proposed subdivision if it is deemed “premature.” The city may deem a subdivision “premature” if streets “to serve the proposed subdivision” are not “available,” which is defined as streets “existing or readily extended and funded” as “consistent with the phasing in the comprehensive plan.”

However the city provides that a new development without existing road infrastructure may be deemed mature if the developer is willing to “pays its own way” and “all associated costs” for “public infrastructure” will “be the sole responsibility of the developing property owner.” To determine these associated costs, the city has allocated undeveloped land into three phases, each of which has an estimated associated cost per acre associated for “increased traffic and trips that are generated” by expected development in that area. This fee is referred to as a “major roadway assessment” or MRA and is used as the starting point for a negotiated agreement with developers.

Martin Harstad, of Harstad Hills Inc., submitted an application to to develop 77 acres of phase – two land into a 183 – home residential community called “Bailey Park on July 23, 2015. The city informed Harstad about certain deficiencies in the application. Harstad remedied the majority of them and was then informed by the city that the remaining deficiencies where relatively unimportant. This is significant because once the city receives a complete application under Minnesota law, if it does not deny that application with cause, it is automatically approved. After receiving the cost estimate from the city for the major roadway assessment, Harstad challenged the ability of the city to collect this fee in court. He also made a takings claim, arguing that the city had deprived him of use of his property without compensation. Finally he claimed that his application had already been approved as the statutory period that the city had to deny the claim had elapsed.

The district court found for the city on the latter two claims. The permit was not entirely complete, therefor the statutory period had never begun. The court also found that Harstads takings claims were immature as the permit had never been fully submitted nor had the fee been collected. The court did however find that the city had no power to collect fees to pay for road infrastructure.

The City of Woodbury appealed this decision to the Minnesota Court of Appeals.

The Minnesota Court of Appeals focused its analysis on the question of the power of Woodbury to collect a “major roadway assessment.” The City of Woodbury is a statutory city; thus, it “has no inherent powers beyond those expressly conferred by statute or implied as necessary in aid of those powers which have been expressly conferred.”

The city argues it has express authority to impose the MRA under the plain language of Minn. Stat. § 462.358, subd. 2a . Section 462.358, subdivision 1a, provides that “a municipality may by ordinance” regulate the subdivision of land to , among other things, facilitate “adequate provision for transportation.” Minn. Stat. § 462.35 8, subd. 1a . Subdivision 2a states , in relevant part:

The standards and requirements in the regulations [authorized by subdivision 1a] may address without limitation : the size, location, grading, and improvement of lots, structures, public areas, streets, [and] roads . . . . The regulations may prohibit the issuance of permits or approvals for any tracts, lots, or parcels for which required subdivision approval has not been obtained.

The regulations may permit the municipality to condition its approval on the construction and installation of sewers, streets , electric, gas, drainage, and water facilities, and similar utilities and improvements or, in lieu thereof, on the receipt by the municipality of a cash deposit.

The city maintains that subdivision 2a’s “open-ended language” unambiguously authorizes it to condition subdivision approval on a developer’s agreement to pay an MRA that funds necessary road improvements “without limitation on location.”

The Court disagrees. This section only authorizes city planning not the collection of a fee to cover road construction costs. The Court pointed out the legislature has explicitly authorized municipalities to assess water and sewer connection charges against developers to fund public water and sewer improvements made necessary by development. The legislature has never made similar provisions for roadways.

The court agreed with the district court finding that although the city had communicated with Harstad that the remaining deficiencies in his application were minimal, the fact that they were never corrected meant that the statutory period in which the city had to approve or deny the application never began.

Finally the court affirmed the district courts denial of Harstad’s taking claim. The permit has not yet been denied nor has the major roadway assessment been collected, so no taking could have occurred.

The City of Woodbury has appealed to the Minnesota Supreme Court which accepted to hear the case. A date for oral argument has not been set.

Court finds little special benefit to justify special assessment for road project

by Gary Taylor

Belling, et al v. City of Urbandale
(Iowa Court of Appeals, July 13, 2011)

Plaintiffs own residential acreages of various sizes along 156th Street in Urbandale. The area has experienced development over the past ten years, including the addition of a nearby elementary school. In response to the growth in the area, the City initiated a project to replace a section of 156th Street and to build new sidewalks.  The roadway project consisted of replacing the existing two-lane, twenty-four-foot wide sealcoated asphalt road with a four-lane divided parkway made up of a twenty-eight-foot wide green median between two twenty-six-foot wide sections of road. The sidewalk project added a four-foot wide sidewalk on the east side of the street and an eight-foot wide multi-use path on the west.

The only construction cost included in the roadway assessment was the cost of paving a thirty-one foot wide street. The assessment did not include other construction costs, such as grading, subgrade preparation, storm sewers, water mains, sanitary sewers, or street lights. The special assessment for the new road was spread among the property owners by the use of the modified Flint Formula, which “focuses on the frontage size and depth of the abutting property, and assigns benefit points for each tract.?  The total costs of the project were $5,991,715.77. The city assessed $1,337,726.81, approximately twenty-two percent of this cost, to the abutting landowners who were plaintiffs in the suit.

Plaintiffs brought an action against the City, contending the assessments exceeded the special benefits they received from the project. The plaintiffs testified at trial that they received very little benefit from the project. Each plaintiff also testified about numerous negative impacts of the project, including increased noise, trash, traffic, and maintenance (primarily snow removal and mowing); decreased safety, privacy, and accessibility, and potential liability. The plaintiffs testified this project produced a great public benefit for the surrounding neighborhoods and nearby school but provided very little special benefit to their properties.

The plaintiffs’ expert witness, a former engineer for the City of Des Moines, testified the City’s use of a modified version of the Flint formula in spreading assessments – referred to as the Urbandale Curve – was improper due to the irregular topographical features, size, and shape of the properties involved. He criticized the strictly mathematical approach of the formula for failing to properly account for special and general benefits. He stated bare land does not benefit unless it can be subdivided in some way, and that owners of large lots, like the plaintiffs, received no more or less special benefit than people who lived on smaller lots and incurred smaller assessments.

The City presented evidence that the Flint formula has for decades been the preferred method of spreading assessments among property owners in Iowa.  The Urbandale Community Development Director testified as to the benefits of the paving, including increased property value for the plaintiffs in “at least the amount of the assessment.” The Urbandale City Engineer testified the City used a modified version of the Flint formula, which was an accepted engineering practice. Another engineer who reviewed the assessments in this case found nothing improper in actions taken by the City.

The district court concluded the assessments were excessive and reduced them, finding the plaintiffs had proved the assessments exceeded the special benefit to their properties. The court reduced the roadway assessments by seventy-five percent and the sidewalk assessments by fifty percent. The district court also provided, “Each assessment shall be further reduced by 10% if paid in a lump sum within 90 days of the exhaustion of all appeals.” The City appealed.

Iowa Code 384.61 provides: ”The total cost of a public improvement . . . must be assessed against all lots within the assessment district in accordance with the special benefits conferred upon the property, and not in excess of such benefits.”  The Court of Appeals looked to previous cases which have established the factors to be used in differentiating between special benefits conferred uniquely on abutting landowners, and general benefits accruing to the community at large.  Those factors include:

the present and future use of the abutting property, the increase in the market value occasioned by the improvement, the size and shape of the property, the proximity of the property to the improvement, the amount of property fronting the improvement, the needs of the property owners served by the improvement, and the primary purpose behind the improvement.

The Court looked at these factors in order, finding that (1) each of the properties was at its best use; (2) the record contains no evidence that the improvement resulted in an increased market value for any of the properties; (3) the parcels at issue varied in size and shape, but all parcels were along 156th Street and were fairly large in size; (4) the land was on an asphalt sealcoated road before the paving project, and thus the project had little effect to reduce noise, dust, and maintenance costs, but did improve the aesthetic value, fire and police access, and ease in snow and ice removal; and (5) the primary purpose of the improvement was clearly to afford a general benefit to the public because the new road was considered an arterial road and was designed to handle heavy traffic from the community as a whole. The Court concluded that even after the city discounted the cost of the project in assessing the abutting landowners the assessments still exceeded the special benefits conferred on the properties.

The Court reviewed the use of the Urbandale Curve method of assessing properties and found it consistent with caselaw.  Noting first that any method of assessing special benefits will necessarily draw arbitrary lines between special and general benefits, the Court went on to state that the city must “examine each affected parcel and its particular features to determine whether the assessment exceeded the special benefits conferred on the land….A practical overview of all the surrounding circumstances must be considered.”  The Court concluded that failure to do so resulted in excessive assessments on some properties. For example the owner of a single family residence should not have been assessed the same amount a nearby townhome/condominium development. “Certainly, the project conferred more benefits on an entire townhome/condominium development than it did on a single-family residence.”  The Court further observed that the potential special benefits identified by the City in effect confer very little, if any, benefit on bare land. The Court concluded it was appropriate for the district court to reduce each roadway assessment by seventy-five percent.  Following the same line of reasoning the Court also affirmed the portion of the district court’s judgment that reduced the sidewalk assessments by fifty percent.

City did not err in using Flint formula as foundation for special assessment

by Gary Taylor

Phillip Gray, et al. v. City of Indianola
(Iowa Supreme Court, May 6, 2011)

Plaintiffs own residential acreages along West Euclid Avenue in the city of Indianola. West Euclid was a gravel road until the school board decided to build an elementary school along the avenue and the city council decided to pave it. The paving project included expanding and paving the avenue, reconfiguring ditches, and installing sidewalks on both sides. The city council’s decision to pave was based on the location of the school, and none of the plaintiffs had requested that the road be paved.

The city levied a total of $360,448.81 in special assessments for the pavement of the road and $41,080.32 for the installation of the sidewalk. The assessment district included all the properties abutting West Euclid and back to a depth of 300 feet. Plaintiffs’ individual assessments ranged from $11,697 to nearly $21,000.

Iowa Code 384.61 provides that “the total cost of a public improvement, except for paving that portion of a street lying between railroad tracks and one foot outside the tracks, or which is to be otherwise paid, must be assessed against all lots in the assessment district in accordance with the special benefits conferred upon the property, and not in excess of such benefits.” [emphasis added].

Plaintiffs sued the city of Indianola, contending the assessment was excessive and that they received little, if any, special benefit from paving the road. They cited factors such as the rural atmosphere of the neighborhood of which the gravel road was a feature, increased traffic prompted by the pavement of the road, and the location of the school in the neighborhood. They opined that the expected benefits of paving a gravel road, such as reduced noise and dust, were offset by the detriment resulting from the increased traffic due to the school. The owners also testified they did not believe the sidewalk benefitted their properties at all but actually constituted a detriment because they would now be required to maintain the sidewalks, and would be exposed to potential liability from for personal injuries to pedestrians.

The owners presented the expert testimony of a former city engineer that the method utilized by the city to spread the cost of the paving project – known as the “Flint formula” which is a purely mathematical formula based on frontage feet and distance from the improvements – resulted in excessive assessments because it failed to take into account unique features of each parcel, and whether special benefits were actually conferred by the project. 

The city presented evidence that the assessments were not based entirely on the Flint formula.  The city engineer testified to deductions made for the road and sidewalk sections at intersections, the width of the street (assessments were made based on a hypothetical 25’ street instead of the actual 31’ width) and the overall thickness of the pavement, and the city manager explained deductions made at the direction of the city council including reductions to the assessment of larger lots.

The district court found the assessments to be in excess of special benefits conferred, ordered all road assessments to be reduced to an amount not exceeding $8,453.78, and ordered all sidewalk assessments to be reduced by half.  The city appealed to the Iowa Supreme Court. 

The Supreme Court observed that:

Few property owners are happy about sharing through special assessments the cost of public improvements, particularly ones that they did not ask for. It is natural for the average property owner to resent the burden thus laid upon him, and he easily persuades himself that the thing for which he is asked to pay is a detriment, rather than a benefit, to his land, and ordinarily it is not difficult for him to find plenty of sympathizing neighbors who will unite in supporting his contention.

The court determined that the city’s use of the Flint formula for assessing roadway improvements was not inappropriate because “at several points in the assessment process the city reduced the assessment …to balance the general benefits conferred upon the public with the special benefits conferred upon the abutting properties.”  The court noted that the city council’s adjustments were consistent with previous caselaw citing several factors relevant to determining special benefits, including “the present and future use of the abutting property, the increase in the market value occasioned by the improvement, the size and shape of the property, the proximity of the property to the improvement, the amount of property fronting the improvement, the needs of the property owners served by the improvement, and the primary purpose behind the improvement.”   The court further found the benefits to having a gravel road paved were numerous, “including fugitive dust control, reduced roadway noise, lower vehicle maintenance costs, aesthetic enhancements, improved drainage, decreased potential for trash accumulation due to the elimination of ditches, increased safety, easier maintenance of the property abutting the road, and decreased response time for emergency services…” and that many of plaintiffs’ complaints were in fact a result of locating the school nearby and not paving the road.  Conceding that determining special benefits “cannot be done with mathematical precision” the court concluded that the plaintiffs failed to overcome the presumption that the assessments were correct. 

The court affirmed the district court’s reduction of the sidewalk assessment, finding that the record established that the public benefit derived from the sidewalk improvements – including student and general pedestrian safety – was significant.

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