Current Developments in Assessment Districts; Proposition 218 s Impact on Assessments

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1 City Attorneys Department League of California Cities Continuing Education Seminar February 2003 Current Developments in Assessment Districts; Proposition 218 s Impact on Assessments Prepared and Presented by Robin D. Harris For more information contact: Robin D. Harris 355 So. Grand Avenue, 40th Floor, Los Angeles, California rharris@rwglaw.com Telephone Facsimile

2 Table of Contents Current Developments in Assessment Districts; Proposition 218's Impact on Assessments Robin D. Harris Page BACKGROUND...3 SCOPE OF PROPOSITION Assessments Against Real Property...4 No New Authority...5 Exempt Assessments...5 SUBSTANTIVE AND PROCEDURAL REQUIREMENTS FOR NEW AND INCREASED ASSESSMENTS...7 The Engineer s Report...7 Special v. General Benefit...8 Apportionment of Special Benefit...9 Assessment of Public Property...10 Notice Requirements...11 Ballots...13 INCREASED ASSESSMENTS...15 BURDEN OF PROOF...17 REPEAL BY INITIATIVE...17 LIST OF ATTACHMENTS Sample Ballot Procedures - Attachment A Sample Notice of Public Hearing - Attachment B Sample Assessment Ballot - Attachment C 2003 Continuing Education Seminar Page 2

3 Current Developments in Assessment Districts; Proposition 218's Impact on Assessments Robin D. Harris BACKGROUND Assessment financing has been in use for many years. In the early 1900's, special assessments were used extensively to finance public infrastructure for California s rapidly growing cities. However, a series of bond defaults during the Great Depression led to a decline in their use. This changed following the approval in1978 of Proposition 13, a California Constitutional amendment which lowered ad valorem property taxes and placed other restrictions on the ability of local agencies to levy taxes, including the requirement that special taxes be approved by a two-thirds vote of the electorate. Proposition 13's restrictions on taxation, coupled with a decline in federal funding, meant local agencies had to come up with new ways to finance public improvements. Local agencies rediscovered special assessments, which had long been distinguished from special taxes and property taxes in a series of cases dating from the early 1900's. The resurgence in the levy of special assessments prompted a new series of cases in which it was claimed that the growing use of assessments violated constitutional restrictions imposed by Proposition 13. However, the courts continued to uphold assessments against Proposition 13 challenges. Local agencies began to levy assessments to finance improvements which had not traditionally been financed with assessments. This prompted yet more legal challenges. However, the courts continued to uphold assessments, applying the traditional pre-proposition 13 standard of review which required an assessment to be upheld so long as it did not clearly appear on the face of the record that the assessment was not proportional to the benefits to the assessed properties or that no benefits would accrue to the assessed properties. Some legislation was adopted prior to Proposition 218 which was designed to curb the expansive use of assessments. Right after the Depression, a limit was imposed on the amount of debt that could be levied against property in certain situations so as not to overburden the property. More recently, in 1992 SB 1977 amended the Brown Act to require local agencies to provide 45 days mailed notice (instead of published notice or 10 or 14 days mailed notice) and hold two public hearings (instead of one) prior to imposing or increasing an assessment. Further, many assessment statutes have been amended to prevent local agencies from overruling a majority protest. Nonetheless, it remained difficult for property owners to block assessments and the levy of assessments continued to proliferate. According to the California Debt and Investment Advisory 2003 Continuing Education Seminar Page 3

4 Commission, a State commission formed in 1981 to monitor the issuance of public debt, assessment bonds issued between 1990 and 1995 averaged approximately $568 million per year. Such was the climate surrounding assessment financing in 1996 when the California voters approved Proposition 218, The Right to Vote on Taxes Act. Proposition 218 added Article XIIID to the California Constitution, which imposed new procedural and substantive requirements on the levy of assessments, including requirements relating to notice, protest and hearing. The stated purpose of Proposition 218 is to protect taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent. Proposition 218, uncodified Section 2. Proposition 218 contains a number of ambiguous provisions. Legislation adopted in 1997, 2000 and 2002 has addressed certain issues. In addition, a couple of post-proposition 218 cases have been decided which shed light on certain issues, and a couple of pending cases may help resolve additional issues. Further litigation and legislation are likely. This paper discusses the procedural and substantive requirements of Proposition 218 for imposing or increasing assessments in light of the guidance we have been provided thus far. SCOPE OF PROPOSITION 218 Assessments Against Real Property Case law has long defined a special assessment as a compulsory charge against real property directly benefitted by a local improvement, which is levied under express statutory authority or local charter to pay for the cost of such improvement. The rationale behind special assessments is that the assessed property receives a special benefit over and above that received by the general public which should not be required to pay for special benefits for the few. Proposition 218 defines the term assessment to mean any levy or charge upon real property by an agency for a special benefit conferred upon the real property. Government Code Section provides that for purposes of Article XIIID, an assessment means any levy or charge by an agency upon real property that is based upon the special benefit conferred upon the real property by a public improvement or service, that is imposed to pay the capital cost of the public improvement, the maintenance and operation expenses of the public improvement or the cost of the service being provided. Proposition 218 did not impliedly repeal those statutes which authorize assessments that are not levied against real property. Such assessments are still permitted and do not need to comply with Proposition 218. In Howard Jarvis Taxpayers Association v. City of San Diego, 72 Cal. App. 4th 230 (1999), the court determined that Proposition 218 does not apply to assessments levied pursuant to the Parking and Business Improvement Area Law of 1989 to finance property-related improvements (such as parking facilities and trash receptacles) and activities (such as furnishing of music in public places) intended to promote the economic revitalization of business districts. These assessments are imposed on businesses which benefit from these programs whether or not 2003 Continuing Education Seminar Page 4

5 the businesses own property, and are often collected as a surcharge on business license taxes (or as a surcharge on transient occupancy taxes in the case of assessments against hotels). The court rejected the plaintiff s argument that because the 1989 Act assessment was not based on property, it was in conflict with Proposition 218's definition of assessment and therefore not allowed. According to the court, even a liberal construction of Proposition 218 could not overcome the plain language of Proposition 218 limiting its scope to assessments based on real property. No New Authority California has more than 30 statutory acts governing assessments. These acts allow for financing a wide variety of improvements and services, such as street construction and park maintenance. All of the acts basically follow the same procedural framework. The governing board adopts a resolution of intention to form the district and levy assessments within the district. An engineer then prepares a report describing the improvements and the proposed assessments. A noticed public hearing is held on the report and, in the absence of a majority protest, the governing board may adopt a resolution levying the assessments. Proposition 218 does not provide new authorization to local agencies to levy assessments. California Const. Art. XIIID, Section 1(a). General law cities must continue to comply with existing assessment statutes except for those notice, protest and hearing provisions which are superseded by Proposition 218 and the Proposition 218 Omnibus Implementation Act. Likewise, charter cities must still comply with Article 16, Section 19 of the California Constitution when adopting local assessment procedural ordinances. Until recently, the notice, protest and hearing requirements set forth in Proposition 218 and the Proposition 218 Implementation Act overlayed the various procedural requirements of the assessment statutes and charter provisions. At times it was difficult to determine how to comply with both sets of requirements. For example, the Benefit Assessment Act of 1982 required an election if enough property owners protested the assessment. Since the 1982 Act election could not occur until after the close of the public hearing, it was possible to argue that a city would have to conduct a Proposition 218 balloting procedure prior to the public hearing, followed by an election after the public hearing. SB 1334, which was passed in 2000, amended various assessment statutes to eliminate their notice, protest and hearing provisions and to incorporate the requirements of the Proposition 218 Implementation Act in their place. This has eliminated the problem with the Benefit Assessment Act mentioned above. However, only time will tell how successful SB 1334 will be. Exempt Assessments Beginning July 1, 1997, Proposition 218 required that all existing, new or increased assessments must comply with Proposition 218, except that four categories of assessments that existed on or before November 6, 1996 were exempted from the procedures and approval process set forth in Article XIIID Continuing Education Seminar Page 5

6 An important exemption was the exemption for existing assessments levied exclusively to finance, among other designated improvements, the capital costs or maintenance and operation expenses for sidewalks and streets. California Const. Art. XIIID, Section 5(a). This exemption was important because at the time Proposition 218 was passed numerous cities were levying assessments under the Landscaping and Lighting Act of 1972 to finance the maintenance of median and parkway landscaping and the operation of street lights. Many cities took the position that these assessments were grandfathered under the sidewalks and streets exemption. Because of the requirement that these grandfathered assessments be used exclusively for exempt purposes, many cities eliminated park maintenance (not an exempt purpose) from their 1972 Act assessment districts prior to July 1, Initially, there were many uncertainties surrounding this exemption. For example, it was feared that the exemption might only encompass the procedural, and not the substantive requirements of Article XIIID. However, the Proposition 218 Implementation Act clarified that the procedures and approval process means all of the requirements of Article XIIID, including substantive requirements such as the requirement to separate general benefit from special benefit. Moreover, it is not clear how one could comply with the substantive requirements of Proposition 218 without creating a new assessment to which the procedures of Proposition 218 would apply, thus making the exemptions of Proposition 218 meaningless. Also, since the exemption only applies to assessments which existed at the time Proposition 218 was adopted in November 1996 and maintenance assessments are levied annually, it was initially feared that the exemption would be lost if each annual assessment was deemed a new assessment. However, the Proposition 218 Implementation Act now specifies that the requirements of Proposition 218 will not apply to exempt assessments until the local agency increases the assessment. This prospect may be facing many cities and counties due to the State s current fiscal woes and the increased energy rates (a major component of street lighting assessments) that resulted from California s recent energy crisis. Finally, the scope of the sidewalks and streets exemption was uncertain. While assessments for the capital costs and the maintenance and operation expenses of sidewalks and streets are specifically exempted, street lights and landscaping are not specifically mentioned. A recent case, however, has resolved this issue with respect to street lights. In Howard Jarvis Taxpayers Association et al. v. City of Riverside, 73 Cal. App. 4th 679 (1999), the court held that street lighting assessments levied pursuant to the 1972 Act come within the exemption of Article XIIID, Section 5(a). The court reasoned that Proposition 218 defines maintenance and operation expenses as including the cost of electrical current necessary to properly operate and maintain a permanent public improvement and that electrical current is necessary to operate street lights which, in turn, are necessary to operate streets and sidewalks because street lights make the sidewalks and streets safer. The court examined the apparent purpose of Proposition 218 to stop the rampant abuse of special assessments to finance general governmental services and reasoned that the exemption was intended to carve out traditionally appropriate, nonabusive special assessments. The court found that street light assessments 2003 Continuing Education Seminar Page 6

7 qualified as traditional, nonabusive assessments since street lights have traditionally been financed through special assessments as far back as A court has not ruled on whether assessments levied to finance the maintenance of landscaping medians and parkways will also qualify for the exemption. However, if the reasoning of the Riverside case is followed, there is very strong likelihood that such assessments will also be grandfathered because they constitute physical parts of the right- of- way in which the street is located and often contribute to road and sidewalk safety, by, for example, providing for drainage and treatment of runoff so that the roadways may comply with requirements under the Clean Water s Act NPDES program. SUBSTANTIVE AND PROCEDURAL REQUIREMENTS FOR NEW AND INCREASED ASSESSMENTS Once the improvements and/or activities to be financed are identified, the appropriate assessment statute must be selected. Next, attention must be devoted to complying with the procedural and substantive requirements of Proposition 218 as well as the selected assessment act. The Engineer s Report All assessments which are subject to the requirements of Proposition 218 must be supported by a detailed engineer s report prepared by a professional engineer registered pursuant to the Professional Engineers Act. California Const. Art. XIIID, Section 4(b). In addition to satisfying all of the requirements of the applicable assessment statute, the engineer s report must meet all of the following requirements of Article XIIID, Section 4: All parcels must be identified which will receive a special benefit and which will be assessed. The proportionate special benefit derived by each parcel must be determined in relationship to the entire capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the property related service being provided. No assessment may be imposed which exceeds the reasonable cost of the proportional special benefit to the parcel. Only special benefits are assessable, and the local agency must separate the general benefits from the special benefits conferred on a parcel. Parcels that are owned or used by any agency, the State of California, or the United States must not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit Continuing Education Seminar Page 7

8 Special v. General Benefit Under all assessment acts, the justification for levying assessments is that the assessed properties will receive a special benefit from the proposed improvements over and above that received by the general public. However, assessments typically finance public improvements and public improvements, by their nature, typically have a dual aspect they confer a general benefit on the public as well as a peculiar local benefit to the assessed properties. Under prior law, assessments did not need to be in the exact amount of the special benefit and the presence of general benefit would not invalidate an assessment unless the assessment only conferred a general benefit. Further, so long as the improvement conferred some special benefit, an assessment could be levied to pay for the entire cost of the improvement. Now, a local agency must contribute that proportion of the costs of an improvement which are attributable to general benefit. For example, if special benefits represent 70 percent of total benefits, the local agency may levy assessments to finance only 70 percent of the cost of the improvements while looking to another source of funds to cover the remaining 30 percent of costs. The requirement to separate special benefits from general benefits represents a major change from prior law. Unfortunately, the only guidance offered by Proposition 218 is the inclusion of a definition of special benefit to mean a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large and a statement that general enhancement of property value does not constitute special benefit. No published case has yet to address this issue. My own experience in assisting local agencies to levy assessments, as well as my conversations with various assessment engineers that I work with, has revealed that the determination of general benefit must be dealt with on a case by case basis and that a uniform standard for determining and quantifying general benefits has not emerged. With respect to street light assessments, for example, local agencies have approved assessments where the percentage of the cost of maintenance attributable to general benefit has ranged from a very small amount to as much as 40%. A variety of different factors upon which the general benefit of the maintenance and operation of street lights is based have been identified. A typical methodology might distinguish local streets, which are used primarily for direct access to property (with no benefits from public street lights, safety lights or traffic signals allocated to general benefit), from arterial streets which serve properties throughout the local agency and the public at large (with benefits related to the facilitation of the flow of traffic allocated to general benefit). Common sense generally dictates that the higher the percentage of general benefit identified, the more likely an assessment will be able to withstand a legal challenge on the grounds that general benefits were not properly identified. However, there are situations where it may be appropriate to find little or no general benefit. Obviously, single-owner districts where the financed improvements are a condition of approval for development of the owner s property provide the most flexibility Continuing Education Seminar Page 8

9 *Practice Tip* In legal challenges to assessments, the evidence is limited to what was considered by the governing board of the local agency prior to its determination to levy the assessment. It is vital, therefore, that the engineer s report substantiate the basis for the governing board s determinations with respect to general benefit. This means that the engineer s report must contain a detailed discussion of the basis for determining general benefit, and must include as much quantitative data as possible while avoiding relying on unsupported conclusions. Apportionment of Special Benefit Proposition 218 requires that individual assessments be set so that property owners only pay their proportional share of the total cost of an improvement. Again, Proposition 218 does not provide any guidance on this point and no published case has yet addressed this issue. When Proposition 218 first passed, it was feared that local agencies must apportion assessments on a parcel-by-parcel basis. Obviously, this would be extremely time consuming, expensive and fraught with difficulties. As it turns out, assessment engineers still use the traditional pre- Proposition 218 method of apportioning assessments based on assessment rate categories such as land use, frontage, size and proximity. For example, a typical method of apportioning street light assessments among parcels takes into account each parcel s proximity to lighted streets (with parcels fronting unlit streets having a lower assessment), each parcel s land use (with commercial uses having a higher assessment based on their higher level of trip generation and street use) and sometimes the type of light used (with parcels located on major streets that have high intensity lights having a higher assessment to reflect the increased security and marketing benefits that derive from having a well lit street frontage). Where the size is a factor, various parcel size categories will be established (such as less than one-half acre; between one-half and one acre; and greater than one acre). A lawsuit has recently been filed by the Silicon Valley Taxpayers Association and the Howard Jarvis Taxpayers Association against the Santa Clara County Open Space Authority challenging an assessment levied to finance the acquisition of open space. When decided, this case will likely provide some guidance to local agencies on the apportionment of special benefit. The plaintiffs have alleged that the Authority abused its discretion in finding that all nonexempt parcels within the assessment district are specially benefitted, that all parcels within a given zoning or use classification are specially benefitted, that parcels designated for priority acquisition by the Authority will be specially benefitted and that the special assessments on parcels were in proportion to benefits received. *Practice Tip* As is the case with the determination of general benefits, in any litigation challenging the apportionment of an assessment, it is vital that the engineer s report contain a detailed description of the apportionment methodology. Further, it is imperative that the local agency s data base be accurate and up to date. For example, with respect to street light assessments, the 2003 Continuing Education Seminar Page 9

10 local agency must have an accurate inventory of its street lights and, depending on the methodology, may need to document the lumen yield per lamp. Assessment of Public Property Prior to the passage of Proposition 218, the property of public entities such as schools, counties and cities typically was not assessed under the assessment statutes, some of which allowed the assessment of public property, but none of which required the assessment of public property. The rationale behind not assessing public property was that to do so would simply transfer public funds from one local agency to another. Proposition 218 provides that public parcels shall not be exempt from assessment unless the local agency can demonstrate by clear and convincing evidence that the publicly owned parcels in fact receive no special benefit. This may mean that public property must actually be assessed unless there is sufficient evidence that the pubic public property will not receive a special benefit from the financed improvement. Alternatively, it may mean that the costs otherwise attributable to the public parcel cannot be passed on to privately-owned parcels in the form of higher assessments. In my experience, local agencies typically assess public properties. The assessment of public parcels may have a fairly substantial impact on the amount of revenues that a local agency can raise through assessments. First, there is the increase in the cost of providing the improvement or service on account of the assessments levied against the parcels owned by the assessing local agency (and by other agencies under its control, such as redevelopment agencies). The amount of the assessments is in addition to the amount which is attributable to general benefit and which must be paid for by the local agency. Second, Proposition 218 does not contain any enforcement mechanism for collecting assessments from other public entities. In fact, the Landscaping and Lighting Act of 1972 provides that the local agency conducting the assessment proceedings will be liable for all assessments levied against public property to extent not paid for by the assessed public entities. Private property owners are not responsible for making up any shortfall in revenues due to the nonpayment of assessments by public entities. Assessment engineers who administer assessment districts have reported that some public entities routinely pay their assessments while other public entities generally do not pay the assessments levied against their property by other local agencies. A local agency may not foreclose upon public property being used for a public purpose to enforce the payment of an assessment. A local agency could bring a lawsuit to compel a public agency to pay its assessment, but I am not aware of any local agencies doing this. In practice, local agencies take into account the possibility of nonpayment by public entities and budget accordingly. While the requirement to assess its own property will increase a local agency s cost of providing a public improvement or service, the local agency gets to cast an assessment ballot for its property. In some instances, the local agency s yes vote is enough, or nearly enough, to carry 2003 Continuing Education Seminar Page 10

11 the district. Interestingly, the fact that other public agencies cannot easily be compelled to pay their assessments does not prevent them from casting a ballot for their property. Notice Requirements Proposition 218 requires that prior to levying a new or increased assessment, a local agency must mail a notice of a public hearing, together with an assessment ballot, to the record owner of each identified parcel at least 45 days prior to the hearing. California Const. Art. XIIID, Section 4(c). Under Article XIIID, each notice must include all of the following: The proposed assessment for the parcel covered by the notice. A difference of opinion exists as to whether providing a formula pursuant to which a property owner can calculate his or her assessment satisfies this requirement. The total assessment for all of the parcels. The duration of the payments. In the case of ongoing annual assessments with no sunset, such as maintenance assessments levied pursuant to the Landscaping and Lighting Act of 1972, care should be taken to adequately disclose that the assessments may be levied indefinitely in subsequent years at the same or lower level without further complying with Proposition 218. The reason for the assessment. In describing the reason for the assessment, care should be taken to not cross the line into impermissibly advocating the passage of the assessment in a mailing to be sent at public expense. For example, a notice should avoid making a statement such as Without the approval of this assessment, the level of maintenance will be significantly reduced. Another statement to avoid is A no vote means that the maintenance of the street lights will be significantly reduced. Both of these statements could be viewed as an attempt to influence the property owners to vote yes. An alternative to the above statements would include a statement or statements which advises property owners that if they did not approve the assessment, the assessment revenues would not be available to fund the maintenance of the street lights and the governing board would need to determine what budget cuts would be necessary and a significant reduction in the level of lighting maintenance could result. Further guidance on this topic can be had from the League of California Cities Securing Voter Approval of Local Revenue Measures (1999). The basis upon which the amount of the proposed assessment was calculated (the assessment methodology). The time, date and place of the public hearing. A summary of the procedures for the completion, return and tabulation of ballots Continuing Education Seminar Page 11

12 Local agencies may wish to consider adopting detailed procedures for the completion, return and tabulation of ballots to answer such questions as how lost, damaged or destroyed ballots are to be dealt with; how property owners may submit a revised ballot, if they wish; and how multiple ballots from multiple owners of a single property are to be treated. Such procedures could be mailed out to property owners with the notice or the notice could indicate that the procedures are available upon request. A statement that a majority protest will result in the abandonment of the proposed assessment. A sample procedures is attached as Attachment A and a sample notice is attached as Attachment B. -Record Owners With respect to private property owners, Government Code Section defines a record owner as the owner of a parcel whose name and address appears on the last equalized secured property tax assessment roll. Proposition 218 did not define what was meant by this term. Unfortunately, Section does not include a provision allowing the clerk of a local agency to forego use of the assessment roll in those instances where the roll has not caught up with a change in ownership but the clerk is aware of the change. This can be particularly problematic when a proposed assessment district encompasses a new subdivision where the homes have begun to be sold off to individual owners. In such a situation, a local agency may chose to send a notice and ballot to both the record owner and the actual owner, but then must face the problem of how to count the ballots if they should vote differently. If this approach is taken, it is advisable to address this issue in the ballot procedures described above. -Tenants Proposition 218 provides that property ownership shall be deemed to include tenancies of real property where tenants are directly liable to pay the assessment. Early on, the State Legislative Analyst and some Proposition 218 supporters suggested that a tenant must be treated like a property owner if the tenant s lease obligated the tenant to pay the assessment. However, the Proposition 218 ballot materials do not reflect this. In any event, it is not practical to require local agencies to review and interpret leases. Most public law lawyers do not believe that Proposition 218 requires this in that the assessment notice provisions of Article XIIID, Section 4(c) refer to record owners and not to property ownership. In my experience, local agencies do not routinely send notices or assessment ballots to tenants. However, some local agencies adopt ballot procedures which allow tenants to present evidence to the local agency of their obligation to pay the assessment Continuing Education Seminar Page 12

13 Ballots -Mailing and Receiving Ballots Pursuant to Article XIIID, Section 4(d), each notice mailed to a record owner must contain a ballot which is designated an assessment ballot and which complies with all of the following: The ballot must contain the local agency s address for the receipt of the ballot. The ballot must contain a place where the person returning the ballot may indicate his or her name, a reasonable identification of the parcel, and his or her support of or opposition to the proposed assessment. The ballot must be in a form that conceals its contents once it is sealed by the person submitting the ballot. This last requirement is a result of SB 1477 which amended Government Code Section 53753, effective January 1, Previously neither Proposition 218 nor Government Code Section specified whether assessment ballots were public or secret and local agencies treated the ballots in various ways. The local agency may provide a return envelope, but is not required to do so. If return envelopes are provided and they are opened by the local agency prior to the tabulation of ballots, the enclosed assessment ballots must remain sealed as by an inner, sealed envelope. Each completed ballot must be mailed or delivered to the address indicated on the assessment ballot for the receipt of ballots or delivered to the clerk of the local agency prior to the conclusion of the public testimony on the assessment. California Const. Art. XIIID, Section 4(e); Government Code Section 53753(c). Ballots previously submitted may be changed or withdrawn prior to the conclusion of the public testimony on the assessments. Government Code Section 53753(c). A sample ballot is attached as Attachment C. -Tabulation of Ballots As a result of the passage of 2000's SB 1477, ballots must remain sealed until the tabulation of ballots commences. There is some uncertainty as to whether ballots must be tabulated during the public hearing. Article XIIID, Section 4(e) provides that ballots must be tabulated at the public hearing. Government Code Section provides that ballots may be withdrawn or changed prior to the conclusion of the public testimony on the assessment. Section also provides that ballots are to be tabulated at the conclusion of the hearing. To address these ambiguities, many local agencies adopt procedures which provide for assessment ballots to be tabulated during the public hearing following the close of the public testimony portion of the hearing. The public hearing can be continued to allow tabulation and then resumed, perhaps on another day, to review the results of the tabulation. What appears essential is that tabulation occur in public view Continuing Education Seminar Page 13

14 Ballots must be tabulated by an impartial person designated by the local agency who does not have a vested interest in the outcome of the proposed assessment, which may include the clerk of the local agency. Government Code Section 53753(c). Some disgruntled property owners believe that assessment engineers have a vested interest in the outcome of the vote. Others believe that any employee or consultant of the assessing local agency must be biased and the initial version of 2000's SB 1477 would have required the County Clerk to tabulate city assessment ballots. So long as assessment engineers are not paid for their services on a contingency basis, it would appear lawful for assessment engineers to tabulate ballots. Ballots may be tabulated using technological methods including bar-coded ballots. Government Code Section 53753(c). Pursuant to SB 1477, during and after tabulation, assessment ballots must be treated as disclosable public records and be made equally available for inspection by the proponents and opponents of the proposed assessment. If more than one of the record owners of a parcel submits an assessment ballot, the amount of the proposed assessment for the subject parcel must be allocated to each ballot submitted in proportion to the respective record ownership interest or, if the ownership interests are not shown on the record, as established to the satisfaction of the local agency by documentation provided by those record owners. Government Code Section 53753(e)(1). Determining the Existence of a Majority Protest The assessment statutes previously included various provisions governing voter approval and property owner protest. Under some acts the requirement for an election was triggered if a certain percentage of the property owners protested. Most acts required the local agency to abandon the assessment if the owners of a majority of the affected property protested. Under Proposition 218, an assessment or an assessment increase must be abandoned in the event of a majority protest. A majority protest exists if the assessment ballots submitted, and not withdrawn, in opposition to the proposed assessment exceed the assessment ballots submitted, and not withdrawn, in support of the proposed assessment. Each ballot is weighted in accordance with the proposed assessment against the parcel covered by the assessment. For example, if Property Owner X s proposed assessment was double that of Property Owner Y, then the value of Property Owner X s ballot would be double that of Property Owner Y s ballot. Proposition 218 makes it easier for property owners to block an assessment. Under the previous majority protest schemes, the owners of a majority of all affected properties were required to submit a written protest, i.e., silence equaled consent. This means that a local agency could levy an assessment where some property owners opposed the assessment as long as the majority of property owners did not feel so strongly about the assessment that they filed a written protest. Now, those property owners who are sufficiently interested to return their ballots will control the outcome Continuing Education Seminar Page 14

15 Because of the majority protest provisions of Proposition 218, local agencies may desire to do more to educate property owners about a proposed assessment. Informational meetings or town hall meetings in addition to the required public hearing may be advisable. Fact sheets, question and answer sheets, a news letter, or a cover letter to accompany the mailed notice are all permissible. As discussed above, however, the local agency should exercise care so as to not advocate for the passage of the assessment. The lawsuit mentioned above which was recently filed by the Silicon Valley Taxpayers Association and the Howard Jarvis Taxpayers Association against the Santa Clara County Open Space Authority, when decided, will likely provide some guidance to local agencies with respect to the Proposition 218 notice and balloting process. In their complaint, the plaintiffs alleged that the ballots, when sealed in accordance with the printed instructions, did not conceal the contents of the ballot. They also alleged that the ballots did not specify the duration of the payments as required by Government Code Section Further, they alleged that including multiple parcels on one ballot violated Government Code Section Finally, the plaintiffs alleged that had the Authority not determined to count only those votes that were registered on the Authority s official bar-coded ballots, the no votes would have outweighed the yes votes. In Bad Tax v. Mountains Recreation and Conservation Authority currently in litigation in the superior court, a citizens group challenged the manner in which assessment ballots were mailed. This case, once decided, may provide additional guidance with respect to the balloting process, as well as giving guidance regarding the calculation of special benefits associated with park improvements. *Practice Tip* Assessment statutes generally do not require property owners to initiate assessment district proceedings by a petition of the property owners. The practical purpose of a petition is to demonstrate to the local agency that a significant percentage of the property owners support the proposed assessment district before the local agency begins to incur the costs associated with forming a district. Receipt of a petition does not guarantee district formation, however, because property owners do not waive their right to cast a no ballot by signing a petition. Local agencies may want to consider the adoption of a policy which requires property owners to submit a petition before the governing board will consider initiating assessment district proceedings. In such case, the required signature percentage should be set high enough to take into account those property owners who may vote no even though they signed the petition. Opinion polling to determine public sentiment may be a viable alternative to requiring petitions. INCREASED ASSESSMENTS Proposition 218's notice, protest and hearing requirements apply to increased assessments as well as to new assessments. Government Code Section 53750(h)(1) defines increased when applied to an assessment to mean a decision by the local agency which does either of the following: 2003 Continuing Education Seminar Page 15

16 increases any applicable rate used to calculate the assessment; or revises the methodology by which the assessment is calculated if that revision results in an increased amount being levied on any parcel. An assessment is not deemed to be increased if the higher payments are attributable to events other than an increased rate or revised methodology, such as a change in the density, intensity or nature of the land use. Government Code Section (h)(2) provides that a tax, fee or charge but not an assessment is not deemed to be increased by an agency action that does either or both of the following: adjusts the amount of a tax or fee or charge in accordance with a schedule of adjustments, including a clearly defined formula for inflation adjustment that was adopted by the agency prior to November 6, 1996; or implements or collects a previously approved tax, fee or charge so long as the rate is not increased beyond the level previously approved by the agency, and the methodology previously approved by the agency is not revised so as to result in an increase in the amount being levied on any person or parcel. The omission of assessments from the provisions of subdivision (h)(2) at the insistence of taxpayer advocates may mean that when a local agency imposes an assessment in accordance with a schedule of adjustments approved prior to November 6, 1996, the assessment has been increased. In 82 Op. Cal. Att y Gen. 35 (1998), the Attorney General adopted this interpretation with respect to an assessment levied pursuant to the Standby Charge Procedures Act. Legislation introduced in February 2000 which would have amended Government Code Section to apply to assessments as well as fees, charges and taxes did not pass. As discussed above, many local agencies which levy street lighting assessments pursuant to the Landscaping and Lighting Act of 1972 did not bring their assessments into compliance with Proposition 218 because they relied on the exemption for existing street assessments. Many of those same local agencies are now finding it is necessary to increase the assessments due to recent increases in energy costs. Public law attorneys and assessment engineers routinely recommend that local agencies not attempt to increase the grandfathered assessments. This advice arises out of a concern that to do so could result in the exemption being lost with respect to the original amount of the assessment. Further, the substantive requirements of Proposition 218 that would apply to the increased portion of the assessment, but not the original portion, would present many practical difficulties. For example, public properties would be assessed only for the increased amount, and not the original costs Continuing Education Seminar Page 16

17 Instead, it is recommended that a local agency undertake assessment proceedings to create an overlay district. BURDEN OF PROOF Prior to the passage of Proposition 218, a long line of cases established that local agencies, and not the courts, shall determine whether an improvement benefits particular property and how much it benefits the property. The courts would not second guess the local agency s determinations unless it clearly appeared on the face of the record or from facts which could be judicially noticed that the assessment was not proportional to the benefits to the assessed properties or that no benefits would accrue to the properties. Pursuant to Article XIIID, Section 4(f), in any legal action contesting the validity of an assessment, the burden will be on the local agency to demonstrate that the property in question receives 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 in question. The Appellate Court in Not About Water Committee v. Board of Supervisors 95 Cal.App.4th 982 (2002), held that as a result of this provision a court will overturn an assessment if it can plainly see from the face of the record, or from facts judicially known, that the agency has failed to make this demonstration. However, although an agency bears the burden of proving the existence of a special benefit, the legislative character of assessment proceedings continue to impose restraints on judicial review of such proceedings. Judicial review is still for the purpose of determining whether there was an abuse of discretion. The provision of Article XIIID, Section 4(f) shifting the burden of proof to the assessing local agency means it is imperative that the engineer s report clearly sets forth the assessment methodology and contains reasoned explanations supporting the methodology. REPEAL BY INITIATIVE Proposition 218 gives voters the power to reduce or repeal any existing local tax, assessment, fee or charge through the initiative process. Further, neither the Legislature nor any local government charter may impose a signature requirement higher than that applicable to statewide statutory initiatives. California Const. Art. XIIIC, Section 3. Assessments which existed prior to the passage of Proposition 218 in November 1996 and whose proceeds are pledged to repay bonds appear to be immune from the initiative provisions of Proposition 218. This is less clear with respect to post-proposition 218 assessments levied to repay bonds. However, most bond counsel have concluded that the initiative power does not extend to post-proposition 218 assessments which secure the repayment of bonds. The sponsors of Proposition 218 indicate that it was not their intent that the initiative power could be used to repeal assessments that have been pledged to repay bonds Continuing Education Seminar Page 17