California Court Of Appeal Invalidates Assessment Because County Did Not Meet Its Burden Of Demonstrating The Assessment Satisfied The Special Benefit And Proportionality Requirements

In Beutz v. County of Riverside, (— Cal.Rptr.3d —-, Cal.App. 4 Dist., May 26, 2010), a California Court of Appeal considered whether a county met its constitutional burden to show that an assessment to pay for the ongoing costs of landscaping in four publics parks was proportional to, but did not exceed, the value of the special benefits the parks would confer on the parcels that were assessed. The Court of Appeal held the county failed to meets its constitutional burden under article XIII D of the California Constitution.

Facts

Three parks in the community of Wildomar (“Wildomar”) were closed in 1999 because the park district that funded the day-to-day operations of the parks ran out of funds. After the park district dissolved, the County of Riverside (“County”) took control of the district’s assets and liabilities. County later authorized extending its park and recreation services to County Service Area 152, Zone A, which is entirely within Wildomar and includes the three previously closed parks. County adopted a Master Plan for Zone A in 2004, imposed a new fee on development within Wildomar to fund park facilities, and “authorized the acquisition and rehabilitation of the three closed parks.” A rehabilitation plan included upgrades such as sports fields and courts, bleachers, walking paths, picnic facilities, and other improvements.

County adopted a resolution to form the Wildomar Landscape Maintenance District 2006-1 (“District”) for the purpose of levying “annual assessments on ‘parcels’ within the community of Wildomar, beginning with the fiscal year 2006-2007, in order to fund the costs of maintaining landscaping in the three closed parks as well as a new 10-acre park to be named Wildomar Park East.” The assessment was to pay for materials and services to maintain landscaping.

Albert A. Webb Associates (“Webb”) was designated as County’s engineer and ordered to prepare a report for the proposed district and assessment. Webb’s report, which County approved, indicated there were 6,858 assessable parcels within District, all of which were single-family dwelling units. The report excluded all vacant land, a retirement community, commercial and industrial properties, and publicly owned properties because “none of them would specially benefit from the assessment.” The proposed assessment was $28 per residential dwelling unit for the 2006-2007 fiscal year but the amount was set to increase to no more than $45 beginning the year in which the landscape improvements were completed. In the report, Webb concluded, under the heading “Special Benefits,” “that maintaining the landscaping in the four parks would confer ‘direct and special benefits, which will enhance all properties within the Landscape Maintenance District.’” The report stated under the heading “General Benefits,” that it was “recognized that the general public may benefit from these parks” but this benefit “will be offset by County’s payoff of the debt it incurred” to acquire the parks. The report also indicated that $6,000,000 in County funds will be used to refurbish the parks and County will pay approximately $75,000 per year to fund recreational programs.

County sent out ballots to the owners of the parcels of land that would be subject to the assessment. Over fifty-two percent of the votes were cast in favor of creating District and levying the assessment. County adopted Resolution No. 2006-375, which ordered the formation of District and authorized the levy of the assessment. Steven Beutz, who owns residential property in Wildomar, filed a lawsuit to challenge both the formation of the District and the assessment. The trial court entered judgment in favor of County.

Decision

Proposition 218, adopted by California voters in 1996, added articles XIII C and XIII D to the California Constitution. The following are the only four types of local property taxes allowed by Proposition 218: “(1) an ad valorem property tax; (2) a special tax; (3) an assessment; and (4) a fee or charge.” At issue here is a special assessment, which the California Supreme Court has defined as a “‘compulsory charge placed by the state upon real property within a pre-determined district, made under express legislative authority for defraying in whole or in part the expense of a permanent public improvement therein.’” A special assessment, therefore, “‘is levied against real property particularly and directly benefited by a local improvement in order to pay the costs of that improvement.’” The property that is subject to an assessment receives “a special benefit over and above that received by the general public.” The difference between a special tax and a special assessment is that a special tax “‘need not . . . specially benefit the taxed property’” but “‘a special assessment must confer a special benefit upon the property assessed beyond that conferred generally.’”

Article XIII D requires that “(1) an assessment can be imposed only for a ‘special benefit’ conferred on the real property assessed, and (2) the assessment must be in proportion to, and not greater than, the special benefit conferred on the property assessed.” An agency seeking to impose a special assessment must (1) identify all parcels that “will have a special benefit conferred on them and upon which an assessment will be imposed,” and (2) determine the special benefit derived by each parcel in relationship to the cost of the public improvement or service being provided. Because only special benefits are assessable, the agency must separate the special benefits conferred on a parcel from the general benefits. The agency bears the burden of demonstrating that the assessment meets the special benefit and proportionality requirement.

Beutz asserted that because the assessment on the property in Wildomar was based solely on the costs of rehabilitating and maintaining the landscaping in the four parks “the touchstone of the County’s general/special benefit analysis was the landscape rehabilitation and maintenance portion of the Master Plan, not the Master Plan as a whole.” County asserted that it was required pursuant to article XIII D “to determine the amount of any assessable special benefits by analyzing the general and special benefits of the entire Master Plan, not just the landscaping component of the plan.” The Court of Appeal agreed with County finding that “County properly based the assessment on the larger public improvement project of which the landscaping costs were a part, namely, a master plan to acquire and develop the parks and park facilities, rather than on the landscape portion of the plan.” The property-related service being provided to the parcels of land was the implementation of the entire Master Plan, not just the landscaping of the parks.

However, the court found County did not meet its burden of demonstrating the assessment imposed on the Wildomar properties “was commensurate with or at least did not exceed the special benefit portion of the Master Plan.” All special assessments must be supported by a detailed engineer’s report that estimates the amount of special benefit a landowner will receive as well as the amount of general benefit. A local government may only recoup from assessments the proportionate share of the amount it will cost to provide the special benefit. The court concluded that nowhere in Webb’s report was there an attempt to separate and quantify the special and general benefits that will be realized from the Master Plan’s implementation. Webb’s report “assumes—without supporting evidence or analysis—that the general benefits of the Master Plan will be ‘offset’ by the County’s expenditure of over $6,633,992 to acquire and refurbish the parks and retire park debt, and its anticipated annual expenditures of approximately $75,000 to fund park recreational programs.” Pointing out how much County has or will spend, however, does not show that the general benefits outweigh the special benefits in the District.

The court found that what is missing from Webb’s report “is an analysis of the quantity or extent to which the general public may reasonably be expected to use or benefit from the parks in relation to the quantity or extent to which occupants of Wildomar residential properties, either in the aggregate or individually, may use or benefit from the parks.” The court cannot ascertain from the report “how often or to what extent persons who live inside and outside Wildomar may reasonably be expected to use the parks.” Also missing is an analysis “of how or to what extent all Wildomar residential properties in the aggregate, or specific Wildomar residential properties in particular, will specially benefit from their occupants’ anticipated use of the parks.”

The court found the report’s deficiencies “are of constitutional proportions” and the report did not satisfy County’s burden of demonstrating the assessment met the special benefit and proportionality requirements. The Court of Appeal ordered the trial court to issue a judgment vacating Resolution No. 2006-375 and invalidating the assessment levied in the District.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Constantine C. Baranoff | 916.321.4500

Jon E. Goetz | 805.786.4302

Brett L. Price | 661.864.3800