In a Landmark Case Interpreting Proposition 218, the California Supreme Court Expands the Judiciary’s Role in Reviewing the Adequacy of Local Benefit Assessments

July 2008

On July 14, 2008, the California Supreme Court issued an opinion in Silicon Valley Taxpayers Association v. Santa Clara County Open Space Authority, ___ Cal. 4th ___ (2008) (Silicon Valley Taxpayers), holding that courts should not presume that a local agency has done an adequate job of calculating its benefit assessments. Because the standard for benefit assessments is fixed by the California Constitution (Proposition 218) and not a mere statute, courts must exercise independent judgment when determining whether assessments pass legal muster. The case also provides guidance for distinguishing special and general benefits, and for ensuring assessments are proportional to the benefits provided by the public works or property-related services they fund.

Background
In 1992, the California Legislature adopted a special act establishing the Santa Clara Open Space Authority (OSA) to acquire and preserve open space in Santa Clara County. In 2000 to raise funds for the acquisition of additional land, OSA decided to adopt a new assessment on local landowners within an 800-square-mile area of benefit. (A common funding source for local agencies, assessments are a charge upon lands within a defined area to pay for the benefits the property receives from a special improvement or a property-related service.) OSA’s engineer’s report concluded that it would be appropriate to fund open space acquisitions by levying a $20 per-parcel charge on all single-family homes (or equivalent) because OSA planned to acquire lands spaced equidistantly throughout the entire benefit area. OSA conducted a ballot proceeding on the proposed assessment, and the landowners approved it by a margin of 50.9 to 49.1. Thereafter, a lawsuit was filed alleging that OSA did not comply with Proposition 218, which requires all local assessments to be proportional to the special benefits received by the assessed parcels. (Cal. Const., Art. XIII D, § 4.)

The Decision
Before Proposition 218 was approved by the voters in 1996, the California Supreme Court repeatedly determined that courts have limited authority to review the adequacy of a local agency’s special assessments. Knox v. City of Orland, 4 Cal. 4th 132 (1992); Dawson v. Town of Los Altos Hills, 16 Cal. 3d 676, 684-685 (1976). Special assessment districts are formed pursuant to a legislative process grounded in the taxing power, and the “separation of powers” principle requires the judicial branch to respect legislative decision-making. As a result, the scope of judicial review of such actions is “quite narrow.” Proposition 218, however, states that in a legal challenge “the burden shall be on the agency to demonstrate that the property or properties in question receive a special benefit over and above the benefits conferred on the public at large and that the amount of any contested assessment is proportional to, and no greater than, the benefits conferred on the property or properties in question.” Nonetheless, based on earlier cases, appellate courts continued to hold that courts must defer to the local agency’s assessment decisions, reviewing the record only to ensure the agency relied on substantial evidence. Not About Water Comm’n v. Board of Supervisors, 95 Cal. App. 4th 982 (2002).

In Silicon Valley Taxpayers, the California Supreme Court overturned the long-established doctrine of deferring to local agency’s assessment determinations. The Court explained that the drafters of Proposition 218 had intended to eliminate the deferential standard so it would be easier for landowners to win assessment challenges. The Court explained that because Proposition 218 is part of the California Constitution, it is on an equal footing with the separation of powers doctrine and thus expanded the role of the courts in reviewing local agency assessments. The Court rejected OSA’s argument that assessments warrant deference if they are approved by the landowners, stating that “voter consent cannot convert an unconstitutional legislative assessment into a constitutional one.” From now on, courts must review assessments under the “independent judgment” standard of review.

Applying the independent judgment standard, the Court then reviewed OSA’s assessment and held it to be invalid on two grounds. The first error was in the special benefit determination. Under Proposition 218, if a project or program provides both general benefits and special benefits, the local agency must separate the two and assess only for special benefits. Other funding must be secured to pay for any general benefits. OSA’s assessment failed because the benefits identified in the engineer’s report—e.g., enhancement of property values, protection of scenery—applied to all payers equally, and the report did not attempt to tie these benefits to specific parcels or areas. OSA also erred in concluding that general benefits accrued only outside the benefit area.

OSA’s second error was in levying a uniform $20 charge on single-family homes regardless of their proximity to the proposed open space areas. The engineer’s report contained no detailed analysis of how particular properties or areas would benefit based on proximity. Instead, OSA merely set the goal of acquiring open space throughout the benefit area and assumed the benefits would ultimately be equal. Moreover, OSA had apparently set the $20 charge by polling landowners to determine their willingness to pay, and then derived an $8 million annual budget accordingly. The California Supreme Court held that an assessment cannot simply be set at a level that will cover the agency’s ongoing budget; the agency must determine the proportionate costs and benefits associated with the public improvement or service, and then calculate the assessment accordingly.

The Silicon Valley Taxpayers decision will make life harder for assessing agencies. To justify their assessments, agencies must be sure to prepare a highly detailed analysis of how their public works and property-related services will benefit specific properties, make sure each analytical step is supported by area- and benefit-specific calculations, and carefully separate out any general benefits . Agencies whose sole source of funding is the special assessment may be especially hard-pressed to secure money to pay for the general benefits of their projects. As a potential source of confusion, the case appears to recognize that local agencies need not evaluate the benefits to each individual parcel, but may analyze how “specific properties, blocks, school districts, or even cities would benefit.” In addition, the case seems to recognize that some projects and services do not provide general benefits.