By Cori Badgley
In 2008, the California Supreme Court held that the proper standard of review in deciding whether assessments imposed by local agencies violate Article XIII D of the California Constitution is de novo. (Silicon Valley Taxpayers’ Association, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431 (“SVTA”); see California Supreme Court Rules Open Space Assessment is Invalid Special Tax Under Proposition 218.) The Court also held that the local agency has the burden of proof. (Id.) In light of the holding in SVTA, the Court of Appeal, Second Appellate District reevaluated its decision to uphold the creation of a special assessment district by the City of Pomona. Although the court applied the de novo standard of review instead of substantial evidence, the court still found that the assessments imposed by the City of Pomona through the creation of the Downtown Pomona Property and Business Improvement District (“PBID”) did not violate Article XIII D of the California Constitution.
In Dahms v. Downtown Pomona Property 2009 Cal.App.LEXIS 721, the City of Pomona created the PBID and levied assessments in order to provide security, streetscape maintenance and marketing, promotion, and special events for the properties within the boundaries of the district. The PBID was approved by the affected property owners, and Dahms filed suit on the grounds that the PBID violated Article XIII D of the California Constitution.
The appellate court originally heard and ruled on the case in 2008, but the court applied the substantial evidence standard of review, which is improper according to the Supreme Court in SVTA. Upon review, the Supreme Court instructed the appellate court to rehear the case in light of its ruling in SVTA.
The first issue addressed by the appellate court was whether the public hearing on the assessment was premature because the hearing took place on the 45th day after the notices were mailed. Article XIII D, section 4 requires that a hearing be held “not less than 45 days after mailing the notice.” The court held that holding the hearing on the 45th day complied with the constitutional requirement. Pursuant to the Code of Civil Procedure, section 12, “the day of the mailing is excluded from computation … but the day of the hearing is included.” Therefore, the City’s hearing did not violate the California Constitution.
The remaining issues all encompassed whether the assessments exceeded the reasonable cost of the proportional special benefit conferred. Dahms first asserted that the term “proportional” meant that the assessment must be no more and no less than the proportional special benefit conferred. The PBID provided discounted assessment rates to certain nonprofit entities and commercial properties, and Dahms claimed that the discount violated Article XIII D because the discount made the assessment less than the proportional special benefit. The court disagreed.
According to the court, the phrase “proportional to, but no greater than, the benefits conferred on the property” simply reiterates the requirement that the assessment imposed cannot “exceed the reasonable cost of the proportional special benefit conferred on the parcel.” (Cal. Const., art. XIII D, subds. (a), (f).) Therefore, discounts are not prohibited. The court did point out that the discounts could lead to violations of Article XIII D if the portion not assessed on the discounted properties was spread among the other properties, so as to exceed the reasonable cost of the proportional special benefit conferred on the other properties.
The court then evaluated whether the assessments exceeded the reasonable cost on other properties within the district. The court found that the use of three factors (street frontage, building size and lot size) to calculate the assessment for each property provided a reasonable formula for calculating the proportional special benefit for each property. The formula ensures that the assessment does not exceed the reasonable cost of the proportional special benefit conferred.
Lastly, Dahms argued that the City failed to separate the general benefits from the special benefits. Under Article XIII D, only special benefits are assessable. The court found that all the services provided by the PBID qualified as special benefits because “they are all services over and above those already provided by the City within the boundaries of the PBID.” The court also found that Article XIII D only requires that the assessment not exceed the reasonable cost of the proportional special benefit conferred. The constitution does not require that if the special benefit services incidentally result in general benefits, the value of the general benefits must be subtracted from the assessment. In other words, the court stated that if the reasonable cost of the proportional special benefit amounted to $100,000 and the general benefit conferred amounted to $70,000, the local agency’s assessment of $100,000 is valid, regardless of the dollar amount associated with the general benefit.
The golden rule when it comes to assessments is that the assessment cannot exceed the reasonable cost of the proportional special benefit conferred on the property. The local agency may discount the assessment amount, as long as the agency does not transfer this cost to other properties. In this case, the court found that the agency complied with the constitution.
Cori M. Badgley is an associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.