Another Tool for Financing Public Improvements

At the risk of blowing our own horn, the Court of Appeals last month reaffirmed the use of reimbursement districts as a mechanism for financing local improvements.  In Kieling v. City of Sherwood, the Sherwood School District built two new schools and, as part of the project, constructed a new road, water, storm water and sanitary sewer facilities.  The District then applied to the city to create a reimbursement district in order to recover some of the costs of the improvements.  The reimbursement district included those adjacent properties that would benefit from the improvement.  The ordinance that approved the reimbursement district included a methodology for calculating and allocating a reimbursement fee to each benefitted property, to be paid when it developed.  Significantly, the fee becomes due only when the property develops and only if it develops within ten years. One of the adjacent properties consisted of 24 acres and was assigned a transportation fee of $440,000.00.  The owner of the property objected to the transportation fee before the City Council and, when the Council approved the reimbursement district over his objections, appealed the decision to the circuit court where he argued that the fee constituted a “taking” of the property under the state and federal constitutions.  The circuit court rejected his arguments and affirmed the City’s decision, which the owner then appealed to the Court of Appeals.

As an initial matter, the appellate court found that it is the objecting property owner’s burden to demonstrate that the City’s decision was flawed –not the other way around. “As the party challenging the city's determination, plaintiffs must demonstrate that the city's resolution is unsupported, and not vice versa.” Most significant, the court reaffirmed its earlier holding in Baker v. City of Woodburn that a reimbursement district is fundamentally different from a local improvement district because the local authority in a reimbursement district does not have the ability to place a lien on the property.  The reimbursement fee never becomes a claim against the title to the property.  “[The City notes] that the cited cases all deal with assessments, and, as this court pointed out in Baker, a reimbursement fee is not the same as an assessment, and the difference is not ‘a mere technical distinction.’ A reimbursement ordinance ‘does not authorize the imposition of an assessment that becomes a lien on the property.’ According to [the City], a reimbursement fee is analogous to a tax, and there is no legal principle that requires rough equivalence between a tax and the value of the thing taxed.”

Finally, on the takings claim, the court noted that the $440,000.00 fee equals $18,400 per acre, and there was nothing in the record that remotely suggested this amount constituted a taking under either the state or federal constitution.  The property owner simply failed to carry his burden.

In sum, a properly structured and administered reimbursement district continues to offer developers and local governments a way to finance the construction of local improvements.  The developer takes a risk that the benefitting properties will not develop within the ten-year period, but with that risk comes the potential reward that the developer may recover a substantial portion of external costs that would otherwise be lost.

Here’s a link to the decision: