California Supreme Court Decides Silicon Valley Taxpayers Case on Using Benefit Assessments for Open Space Financing

On Monday, July 14, 2008, the California Supreme Court decided a case with significant implications for local agencies hoping to use benefit assessments for open space preservation (see 44 Cal. 4th 431 (2008)).

Standard of Review. The Court determined that courts should perform a more exacting, less deferential review of challenges to benefit assessments. See Slip Opinion at page 18 (finding “courts should exercise their independent judgment in reviewing whether assessments that local agencies impose violate article XIIIC” and disapproving cases that earlier cases may have suggested otherwise).

Definition of Special Benefit Justifying Use of Assessments. The Court noted that “a special benefit must affect the assessed property in a way that is particular and distinct from its effect on other parcels and that real property in general and the public at large do not share.” See Slip Opinion at page 23. The engineer’s report had listed seven “special benefits” that would have been conferred on all residents and property owners in the district, including 1) enhanced recreational activities and expanded access to recreational areas, 2) protection of views, scenery and other resources, 3) increased economic activity, 4) expanded employment opportunity, 5) reduced costs of law enforcement, health care, fire prevention, and natural disaster response, 6) enhanced quality of life and desirability of the area and 7) improved water quality, pollution reduction and flood protection.

In general, the Court determined that these benefits were too broadly enjoyed by everyone in the district. As a result, the Court found that the engineer’s report did not show that the Open Space Authority had satisfied the requirement that a parcel subject to an assessment receives a direct advantage from the improvements financed with the assessment proceeds (as opposed to indirect, overall public benefits of the improvement). See Slip Opinion at pages 23-24, note 8.) For example, general enhancement of property values, according to the court, is by definition not a special benefit. See Slip Opinion at pages 26-27.

Assessment Proportionality. The Court also addresses the requirement that the assessment paid on each property must be “proportional” to the special benefit the property receives, finding the assessment engineer’s report’s approach did not show that the assessment in this case satisfied this requirement. See Slip Opinion at pages 30-31.

Bottom Line. Local agencies would be well advised to consult with legal counsel on the implications of this case when evaluating the use of benefit assessments to finance open space.