First District Court of Appeal Clarifies Calculation of Special Benefits and Proportionality for Assessments Subject to Proposition 218
On December 31, 2009, the First Appellate District Court of Appeal issued its opinion in Town of Tiburon v. Bonander (Tiburon), __ Cal. App. 4th__ (2009), invalidating a supplemental special assessment approved by the Town of Tiburon for the placement of underground utilities and providing fresh guidance for assessment engineers. (Case No. A119918.) The court found that although the project would provide special benefits to specific properties, the Town did not satisfy Proposition 218's requirement that each lot's assessment be proportionate to the special benefits received. In short, the Town should not have used site-specific cost considerations to apportion the assessment, because assessments must be based on benefits, not costs. Moreover, certain parcels were improperly excluded from the assessment even though they received some measure of special benefits.
Proposition 218, the Right to Vote on Taxes Act, was passed by California voters as an initiative in 1996, adding articles XIII C and XIII D to the California Constitution. Proposition 218 applies to services or improvements funded by special assessments, stating that an assessment may only be imposed if supported by an engineer's report and approved by a vote of the owners of the affected parcels. Moreover, the service or improvement must confer a “special” (or distinct) benefit to the assessed properties, and the assessment on any given parcel must be in proportion to the special benefit conferred on that parcel. In a legal challenge, the agency imposing the assessment has the burden of showing that the amount is proportional to, and not greater than, the benefits to be conferred on a particular property.
The Tiburon Decision
In the Tiburon case, the Town of Tiburon (Town) formed a utility assessment district in its Del Mar Valley neighborhood, for the purpose of undergrounding overhead utility lines. The Town's engineer split the assessment district into three “zones of benefit” for purposes of calculating a supplemental special assessment, taking into account that one zone was connected to a different power grid and another was on a street where larger lots made the utility work for each parcel more costly. Next, the engineer assigned each parcel “benefit points” based on the aesthetic benefits from the undergrounding project, the increased safety, and the increase in service reliability. The engineer then calculated the expected construction costs in each benefit zone, and apportioned those costs (which varied across the zones) to the properties in each zone in proportion to the number of benefit points assigned to each property. After the assessment was approved by voters, the Town ordered the assessment to be imposed and filed a “validation action” in Marin County Superior Court, seeking a court order that would shield the assessment from any future legal action. Several landowners opposed the validation action, and filed an appeal after the Marin Superior Court issued the validation order.
On appeal, the court addressed whether the assessment violated the “special benefit” and “proportionality” requirements of Proposition 218. Under Proposition 218, general benefits are not assessable, only special benefits are. The court concluded that the Town met its burden to show that the properties within the assessment district received a “particular and distinct benefit not shared by the district in general or the public at large.” Relying on the California Supreme Court's Silicon Valley Taxpayers' Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, it found that the benefit points for aesthetics, safety, and reliability were calculated based on each property's proximity to overhead utility lines, and were thus related to property-specific special benefits. The court also discussed language in Proposition 218 that the “[g]eneral enhancement of property value does not constitute ‘special benefit,'” emphasizing that while almost all assessments will have the effect of enhancing property value, that effect is not a general benefit if it can be attributed to a direct advantage from the improvement. Since any enhancement in property value from the Town's assessment was derived from special benefits to each property, the court found that this was a “specific rather than a general enhancement in property value.” The court also held that even though all the properties within the assessment district received similar benefits, that did not convert the special benefits into general benefits. An assessment district may be drawn narrowly to include all properties that receive special benefits.
However, the court, in exercising its independent judgment, found that the assessment methodology did not satisfy Proposition 218's proportionality requirement. First, the assessment zones were improperly based on different costs, instead of on differences in special benefits across the zones. For example, one zone's larger lot sizes made the estimated construction costs higher per parcel than in the other zones. The court found this approach improper, emphasizing that under Proposition 218, the “proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement,” not in relationship to a zone's specific portion of the capital costs. Even though excluding cost considerations will sometimes require smaller parcels to in effect subsidize the construction of improvements on larger properties, the court found its decision reasonable because the benefits to any particular property result from the construction of the public improvement as a whole.
The court also found a lack of proportionality because some properties were improperly excluded from the assessment district. The utility lines that bordered these excluded lots would not be undergrounded, but according to the engineer's methodology, the properties would nonetheless receive at least some special benefits for service reliability and safety. And because the properties within the assessment district would fund the full cost of the project, their payments would fund special benefits to excluded properties and thus necessarily “exceed the proportional special benefit conferred on each parcel,” violating Proposition 218.
The Tiburon case may pose obstacles for a broad range of public districts, including water and flood control agencies. First, it may be difficult for some local districts to assess all properties that receive special benefits from their improvements. An agency of limited jurisdiction, for example, might need to have its boundaries adjusted in order to assess all such properties. Second, as the court itself suggests, excluding zone-specific costs from the assessment may make the assessment seem inequitable, which could make landowners less likely to approve it.