In Silicon Valley Taxpayers Association v. Santa Clara County Open Space Authority, (— Cal.Rptr.3d —, 2008 WL 2717789, Cal., July 14, 2008), the California Supreme Court invalidated a special benefit assessment for open space on the grounds that in justifying the assessments, the local agency failed to separate the general benefits from the special benefits, and in determining the amount of the assessment, failed to assign the amount of the assessment to each parcel in proportion to the special benefits received by each parcel.
The Santa Clara County Open Space Authority (“Authority”) formed an assessment district in 1994, and succeeded in acquiring thousands of acres of open space. The assessment district consisted of 800 square miles, with 314,000 parcels and a population of 1.2 million.
In 2002, the Authority wished to acquire even more open space by imposing further assessments of $20 per year on all parcels in the district. The engineer’s report did not identify any particular open space to be acquired. The report estimated the proportion of all the benefits that could be considered special, calculated the assessment at $20 per year.
After a majority of voters approved the new assessments, the plaintiff, Silicon Valley Taxpayers Association, sued to overturn the assessments. The trial court granted judgment for Authority. The Court of Appeal affirmed.
The California Supreme Court reversed the Court of Appeal. The Supreme Court began by determining the appropriate standard of judicial review of assessments. Before Proposition 218, courts were required to give deference to the assessment findings of public agencies. But by approving Proposition 218, the voters intended for courts to independently review those findings without deference, according to the Court.
Turning to the merits, the Court announced that a general enhancement of property value is not a special benefit for which an assessment may be imposed. The Court explained that an assessment may be levied only against property particularly and directly benefitted by the improvement. There must be a special benefit on the property assessed beyond that conferred on the public generally. A general enhancement of property values did not meet this standard, in the Court’s view.
The Court also held that general benefits are not limited to benefits conferred only on persons and property outside of an assessment district. Further, an assessment methodology may not confer a general benefit on one segment of the general public, thereby attempting to confer a special benefit on the remaining segment of the parcels in the district. Here, California Constitution, article XIIID, § 2(i) prevented the Authority from choosing one segment of the public at large on which to confer general benefit. The public at large means all members of the public, both within and outside of a district. The engineer’s report erroneously assumed that only parcels within the district would receive only special benefits from the Authority’s acquisition of open space, when in actuality parcels within the district also would be generally benefitted.
The Court next held that an assessment may not be imposed if the properties in the district do not receive a distinct benefit not shared by properties in the district in general or by the public at large. Here, the engineer’s report failed to connect the benefits to any particular properties, determining instead that all properties throughout the district will receive the benefits equally. Because there was no showing of distinct benefits to particular properties beyond that of the general public enjoying the open space, the assessments were invalid.
The Court added that Proposition 218 requires that parcels be assessed in proportion to the special benefits received (California Constitution, article XIIID, § 4(a)). Here, the engineer’s report erroneously assumed that all properties in the district would receive an equal special benefit, and therefore were assessed the same $20/parcel amount, irrespective of their proximity to the open space that might or might not be acquired in the future.
The Court concluded that the amount of an assessment may not be established by first determining the amount property owners are likely to be willing to pay, then setting an annual budget for the improvement by multiplying that amount by each parcel in the district. Here, the $20/parcel assessment was based on the Authority’s projected annual budget of $8 million for open space acquisitions, rather than on the projected cost of acquiring the open space. But the purpose of an assessment is to require the parcels that receive a special benefit from a public improvement to pay the cost of that improvement, not to fund the agency’s ongoing budget. An assessment calculation that works backward by starting with the amount property owners are likely to pay, then determining an annual budget based thereon, violates Proposition 218, according to the Court.
When imposing assessments, local agencies should make every effort to: (1) separate-out the general benefits from the special benefits; (2) assign special benefits to each parcel in proportion to the special benefits received, as opposed to assigning a special benefit to an overly broad category of parcels; and (3) calculate the amount of the assessment on the projected cost of the improvements, rather than determining the amounts property owners are willing to vote for, and funding the budget for the improvements based on that amount.