To Avoid a Taking: Special Assessments Must Create Special Benefits
To Avoid a Taking: Special assessments must create special benefits
by Ben Orsbon, FAICP, Pierre, South Dakota
This article was originally published in the October / November 2011 issue of Western Planner. It won the 2012 article of the year award.
In 2010, the South Dakota Supreme Court unanimously upheld a circuit court decision declaring a special assessment by the City of Pierre, South Dakota, unconstitutional. The decision answered: What curb and gutter costs should be paid by the public, and what costs should be paid by the assessee?
A picture of the curb and gutter in front of Ben Orsbon’s house after the City of Pierre, South Dakota replaced the curb and gutter and fixed the street. Photo by Ben Orsbon
Introduction
The dispute began when the City sent notices for 151 properties in February 2007, telling owners they would be assessed for replacing curb and gutter destroyed and replaced during street reconstruction and utility work. The project was completed that year. The final cost was $21.50 per front foot. Each property was assessed that amount. State statutes may have led the City to think all special assessments could be levied at full costs. When curb and gutter are initially installed in a new development, special assessments for full cost can be legal and constitutional, but this was different. The City did not determine the level of special benefits to each property based on existing curb conditions or effects on adjacent property. By assessing the full cost, the city was indirectly implying there were no “public benefits” to replacing curb and gutter; they were all private or “special.”
Assessment Lawsuit Begins
The U.S. Constitution’s Fifth Amendment states...“private property cannot be taken for public use, without just compensation.” Some property owners thought the City’s approach was a taking, and the assessment funded substantial “public” benefits. Public benefits should be shared by the City as a whole. Some homeowners discussed their constitutional concerns with city officials and spoke during hearings. Having used this approach since 1986, the City was unswayed. The council voted to assess. Apparently, this was the first time its constitutionality was questioned. There had been a short notice period, and many less affluent residents hadn’t budgeted for the fee. One homeowner with just 45 feet of frontage was assessed $965.
A group of homeowners decided to pursue a legal remedy. For most, avoiding the fee was a secondary concern. The homeowners knew the cost in time spent pursuing the constitutional question would be much higher than if they paid the assessments. They felt protecting constitutional rights, encouraging a rigorous method of calculating benefits, and upholding the issue of fairness, were more important.
A picture of the curb and gutter in front of Ben Orsbon’s house before the City of Pierre, South Dakota replaced the curb and gutter and fixed the street. Photo by Ben Orsbon
Economic Rationale
In theory, public improvements enhance adjacent property and special assessments are levied to capture the value created. Special assessments are legal and constitutional if calculated to approximate the “special” private benefit received. The closer the fee is to the actual “special” benefit conferred to each affected property, the more defensible the assessment. If existing curb and gutter are functioning, replacement should have little impact on existing property values providing no new benefits. Benefits can be both public and “special or private.” It is important to assess for only private benefits during the special assessment process. Broad public benefits must be financed in other ways.
Questions to ask when calculating “special” and public benefits of curb and gutter include:
1. What is the primary function of curb and gutter?
2. How much of the function is public and how much is private, exclusive, or “special” to the assessee?
3. What are the benefits from initial construction of curb and gutter compared to replacing functioning curb and gutter?
4. Is there some new “special” benefit from replacement?
5. How does the level of benefit for replacement compare to the assessment fee for each property?
Going to Court
The homeowners began to work on “interrogatories.” This is a legal document filed with the court showing the experts consulted, the credentials of expert witnesses, the other witnesses to be called, and questions the opposing lawyers want to ask in preparation of their case. Both sides get to ask questions. It is important to respond to all questions while not revealing too much strategy.
Our attorney called three expert witnesses for the assessees: the county assessor, a real-estate appraiser, and a realtor. The gist of their testimony stated replacing curb and gutter has little if any positive effect on the value of adjacent property. To avoid paying an engineer to serve as a witness and realizing the City would call professional engineers to testify, homeowners prepared copies of exhibits using very credible engineering sources to substantiate the author’s testimony on the fundamental purposes of curb and gutter. References described the purposes of curb and gutter as follows:
Drainage control, roadway edge delineation; right-of-way reduction; aesthetics; delineating pedestrian walkways; controlling access; reducing maintenance1 ; protecting pavement edges, sidewalks, and lawns from vehicles2; reducing pavement failure3; and confining low speed traffic within the street.4
“When preparing for court, preparing interrogatories is like picking outfits for exercising, you want to cover everything but not too much. Otherwise, you defeat the purpose. You’ll get too hot, or you won’t show how “hot” you are. ”
Many purposes depicted don’t accrue exclusively to adjacent property—they are public benefits—a critical point. Replacing still functioning curb and gutter does not necessarily increase the value of adjacent property. Old functional curb and gutter still contains and channels the drainage, drivers know where to park, and storm water still flows. One of the most important functions of curb and gutter is to keep water out of the base underneath the pavement, preserving its strength. This is a decidedly public benefit since streets are built for everyone’s use, not just adjacent landowners. At trial, the home-owners stated private landowners might receive a benefit from replacing curb and gutter when the curb and gutter is not functioning and dilapidated.
A picture of the curb and gutter in front of my house became an exhibit. (The photos show the before and after.) My testimony clarified the curb by our house was relatively new and had decades of remaining life. The pavement was improved but pavement replacement was not assessed. Pavement replacement is normally considered a “public” improvement.
Circuit Court Decision
South Dakota statutes govern the methods of assessing curb and gutter. Some sections are contradictory if each section is read separately and taken literally. To apply the statutes constitutionally requires an understanding of how to interpret statutory law and the requirements of a constitutional assessment process. The intent of individual sections must be construed together to make them “harmonious and workable.”5
South Dakota Codified Law (SDCL) 9-45-30 provides for assessments based on the cost per front foot. 6 SDCL 9-45-32 provides for assessments according to the benefits determined by the governing body...from the construction of the improvement...not exceeding the benefit. 7 (Emphasis added.) These very different sections must be applied but not create an absurd or unreasonable result. No matter which section is applied, the statute must support constitutional principles so that the assessment fee does not exceed the “special benefit.”
The U.S. Supreme Court provided the primary guidance regarding special assessments.8 The Court stated the exaction of the cost of a public improvement in substantial excess of the special benefits accruing to a private property owner is a taking under the guise of taxation of private property for public use without compensation. Extent of the excess defines the magnitude of the taking.
Several South Dakota Supreme Court cases also provided guidance. Those cases illustrated that special assessments may be levied only against property receiving a special benefit by virtue of a local improvement. The assessment must be apportioned based on the value of the benefit; and the benefit must be different from the benefit the public enjoys. The benefit must be actual, physical, and material—not merely speculative and conjectural. In South Dakota, statutes relating to special assessments must be strictly construed in favor of the property owner.9 Many states do not provide that level of protection against overreaching municipal decisions.
Two out-of-state cases clarified the amount of the assessment must be linked to the magnitude of the special benefits.” For special assessments to be valid there must be some proportionality between the amount of the special assessment and the benefits. An assessment in an amount materially greater than the benefits conferred is a taking of private property without just compensation.10
In her decision, the circuit judge said “curb and gutter replacement by the city provided no ‘special benefits’...and the assessment...was levied using ‘speculative and conjectural’ methods...in excess of the increase in specific monetary or extrinsic value conferred, for a project that provided significant benefits to the city and the community as a whole.” The circuit court ruled the special assessment was a violation of the U.S. and the South Dakota Constitutions.
State Supreme Court Decision
The City of Pierre appealed the circuit court’s decision to the South Dakota Supreme Court claiming the circuit court erred in the following ways:
1. By misinterpreting SDCL 9-45-30 and SDCL 9-45-32;
2. By lack of deference to the city and insufficient proof of no private benefit; and,
3. By concluding landowners did not receive a special benefit beyond the public benefit.
The South Dakota Municipal League joined the city in its appeal with an amicus brief and oral argument.
Misinterpreting State Statutes
To address the first element of the appeal, the Supreme Court recognized the city applied the front foot method from SDCL 9-45-30. City attorneys stated that this section requires “no showing of special benefits.” Including the special benefit requirement in SDCL 9-45-32 and excluding it in SDCL, 9-45-30 indicated legislative intent not to require a special benefit if a city makes a special assessment under SDCL 9-45-30.
The City’s legal counsel argued this in its brief, but during questioning before the Justices they acknowledged that under both sections a property must receive a special benefit for a special assessment to be constitutional.
Otherwise, they would be stating the state statutes did not require a “special benefit,” which would be inconsistent with all the existing case law.
Deference to the City’s Decision
Addressing the second element of the appeal, the court focused on the evidence analyzed by the circuit court.
The State Supreme Court stated, “The circuit court specifically found that the Petitioners had overcome the presumption of validity of the city’s assessment by presenting ‘weighty evidence’ that the property received no special benefit by ‘strong, direct, clear and positive proof.’”
The Court wrote any assessment in excess of the special benefit is constitutionally impermissible and consequently arbitrary, unreasonable, and beyond its authority. 11
Special Benefit and Public Benefit
The Supreme Court noted the circuit court found that replacement curb and gutter did not provide a measurable benefit to abutting property; and there was no evidence that a mistake by the circuit court had been committed. Neither the City nor the assessees requested the circuit court to examine individual property assessments in relation to accrued benefits. The focus was on the assessment as a whole.
The Supreme Court wrote, “The City’s quantification of the benefits....was ambiguous and conclusory in that the City assumed the benefit equaled the cost.”
The Supreme Court limited their unanimous decision stating “...this opinion should not be read broadly to mean that as a matter of law special assessments cannot be used for replacement curb and gutter. Whether special assessments are constitutional depends heavily on the nature and character of the project and the facts of the individual case.”12
Advice and Lessons Learned
Before pursuing a special assessment, ask this question: After the assessment will the improvement or service perform as it did before replacement or is there some new “special” benefit accruing to the assessee? If this question cannot be answered affirmatively, reconsider.
In determining benefits to each assessee, err on the side of proportionality, balancing special benefits with the fee. Use a rigorous, defensible method to do the balancing. The closer the fee is to the benefit conferred to each property, the more defensible the assessment.
About the author (At the time of this writing)
Ben Orsbon, FAICP, has over 30 years of experience in transportation and state and local planning. He serves as a special assistant to the Secretary for Policy and Legislation, in the South Dakota Department of Transportation. He is on the Board of Directors and a founder of Western Planning Resources Inc. He enjoys singing, downhill skiing, backpacking, and most things outdoors.
Endnotes
1. “A Policy on Geometric Design of Highways and Streets,” American Association of State Highway and Transportation Officials, 2004, p. 319.
2. “Residential Streets,” American Society of Civil Engineers, National Association of Home Builders, and the Urban Land Institute, 1990, p. 62.
3. “Why Curb and Gutter,” American Public Works Association, p. 2.
4. Richard Albright, “Concrete Curb and Gutter Manual,” A Guide from the National Ready Mix Concrete Association and the American Concrete Pavement Association, NRMCA Publication Number 161, pp. 1-2.
5. State v. Washington, 537 NW2d 380, 263 (SD 1995).
6. South Dakota Codified Law §9-45-30.
7. South Dakota Codified Law §9-45-32.
8. Village of Norwood v. Baker, 172 US 269, 19 SCt 187, 43 Led 443 (1898).
9. City of Brookings v. Associated Developers, Inc., 280 NW2d 97 (SD 1979); Haggart v. Alton, 137 NW 372, 375 (SD 1912); Hawley v. City of Hot Springs, 276 NW2d 704 (SD 1979); Ruel v. Rapid City, 167 NW2 541 (SD 1969).
10. Kadzban v. City of Grandville, 502 NW 2d 299 (Mich.1993); Houston v. Blackbird, 394 SW2d 159 (Tex.1965).
11. Wade and Lisa Hubbard, et.al., v. City of Pierre, SD, SD Supreme Court opinion, June 30, 2010.
12. Link to the Wade and Lisa Hubbard, et.al., v. City of Pierre, SD,SD Supreme Court opinion.<http://ujs.sd.gov/Uploads/opinions/25312.pdf>