By Cori Badgley

Under Proposition 218 (Cal. Const. art. XIII D), special assessments shall not “exceed the reasonable cost of the proportional special benefit conferred on a parcel.” The courts have divided this into two general inquiries: 1) is a special benefit conferred by the improvement to be built through the assessment?; and 2) is the assessment proportional? In Town of Tiburon v. Bonander (2009)180 Cal.App.4th 1057, the court answered yes to the first question, but found that the division of costs was not proportional under Proposition 218.

This case involved the imposition of a supplemental special assessment for the purpose of undergrounding utility lines. The saga began when the original special assessment was imposed, and certain landowners sued. That original case is still pending before the court. The Town of Tiburon (“Town”) discovered that the costs of undergrounding utilities were higher than anticipated and a supplemental special assessment was necessary. The voters within the district approved the supplemental assessment, and the Town brought a validation action, requesting that the court declare the assessment valid. Jimmie Bonander and other landowners within the district (“Appellants”) filed an answer to the validation action, thereby opposing it. The trial court found in favor of the Town and declared the supplement assessment valid. Appellants appealed.

The appellate court addressed three questions: 1) Should the record regarding the original assessment be included in the judicial record before the court on the supplemental assessment?; 2) Did the Town properly identify special benefits that would be conferred by undergrounding the utilities?; and 3) Did the supplemental assessment satisfy the proportionality requirement under Proposition 218? In the end, the court invalidated the supplemental assessment because the costs were not divided proportionally based upon the relative benefit the properties received as required by Proposition 218.

The methodology used to determine the supplemental assessment was the exact methodology used to determine the original assessment. The same calculations and benefit apportionment applied. Therefore, the court held that information regarding the original assessment was properly before the court in evaluating the validity of the supplemental assessment.

The court next addressed the special benefits conferred. The Town identified three special benefits conferred on the properties within the district: improved aesthetics, safety and reliability. Appellants argued that these benefits either had no connection to undergrounding the utilities or these were general and not special benefits because they were conferred on everyone within the district. The court disagreed. The court found that each benefit was “tied to individual properties based on proximity to existing overhead utility lines.” The court also emphasized that the mere fact that the majority of properties within the district received a special benefit did “not compel the conclusion the benefit is not tied to particular properties.” Therefore, the Town properly identified special benefits that would be conferred on the properties within the district.

The Town evaluated each property within the district and assigned points under each special benefit category. If the property would only be benefitted aesthetically, it would receive one point. The points would then determine the assessment amount. In addition to the special benefit points, there was one other factor that determined the assessment amount. The Town divided the district into three “benefit zones” based on the construction costs for undergrounding utilities in each of the zones. For example, a property in the Hacienda Drive Area that received three benefit points would pay $20,331.24, whereas a property in the West Hawthorne Drive Area that received three benefit points would pay $7,740. Appellants argued that this methodology violated the proportionality requirement of Proposition 218. The appellate court agreed.

The court stated: “The benefit zones have nothing to do with differential benefits among the three zones but instead are better characterized as ‘cost zones’…” When evaluating proportionality, an assessment should reflect “costs allocated according to relative benefit received.” It cannot be based strictly on the construction costs associated with undergrounding the utilities on a particular property. The Town had to take the total construction costs across the entire district and apportion them based on the number of benefits assigned. One property that received three benefit points should pay the same as another property receiving the same three benefit points.

The court did point out that, as in Dahms v. Downtown Pomona Property & Business Improvement District (2009) 174 Cal.App.4th 708, the Town could have assigned benefit points based on “building size, street frontage, and lot size.”  However, in this case, the Town chose aesthetics, safety and reliability as the three special benefits and did not factor in the size of the lots.

The court also found that the Town excluded certain properties that also received the special benefits, and this was not factored in when the Town divided the costs among the properties. If properties outside the district are also benefitted, this amount cannot be imposed on properties within the district. This violates Proposition 218’s requirement of not exceeding the reasonable cost of the proportional special benefit. Therefore, the Town violated the proportionality requirement by dividing the district into “cost zones” and excluding certain properties that would receive a benefit.

This case clarifies that the construction costs must be viewed as a whole and divided equally by the relative benefit conferred on the properties. This case also illustrates the importance of identifying special benefits. The Town could have avoided this outcome had it determined the amount of special benefits conferred based on lot size or some other relevant factor.

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.