Curb appeal: municipal special assessments after Hubbard v. City of Pierre.

• Author: Davis, Eric T.
• Position: South Dakota

South Dakota municipalities rely on their statutory authority to fund improvements like streets, curb and gutter, sewer and water infrastructure, and sidewalks though special assessments. These assessments charge the cost of part or all of some improvements to the property owners within the municipality who are benefitted by them. When the South Dakota Supreme Court affirmed a recent circuit court ruling that the City of Pierre's special assessment for replacement curb and gutter was an unconstitutional taking of private property, it upended municipalities' longstanding special assessment procedures. Hubbard left municipalities unsure how to levy special assessments within the parameters of the law. As a result, the South Dakota Municipal League successfully proposed, and the Legislature passed, a complete rewrite of special assessment laws during the 2012 legislative session. This new legislation alone, however, will not remedy municipalities 'frustrations. The solution instead lies in a close examination of the facts and procedure of Hubbard and of the constitutional principles governing special assessments. Hubbard leaves several important questions unaddressed, but it does not hold that municipalities are statutorily or constitutionally incapable of levying sound special assessments for improvements, including replacement curb and gutter.

1. INTRODUCTION

   Almost seventy percent (1) of South Dakota residents live within one of the state's 310 incorporated municipalities. (2) These municipalities serve their residents by administering the local affairs of the community (3) and by providing improvements and services. (4) "People want good schools, parks, bands, libraries, golf courses, swimming pools, water and sewer systems, electrical service, police protection, carefully tended streets and all of the other services that the city renders to its people." (5) But all of these services and improvements cost money,, and "they all cost much more money today than they did a few years ago." (6) Instead of requiring municipalities to fund all improvements through general taxation or user fees, the South Dakota Legislature authorizes municipalities to recover the costs of some improvements from nearby property owners through a process known as special assessment. (7) As political subdivisions of the state, municipalities possess only those powers, including the power to levy and collect special assessments, conferred on them by the legislature. (8) But, unlike many other areas of municipal law, constitutional principles and not merely statutory restrictions govern special assessments. (9) These constitutional principles and municipalities' statutory authority to levy special assessments are not consistently in sync; therefore, municipalities' practice of turning to South Dakota law for authority (as they must) (10) does not alone guarantee that their special assessments will pass constitutional muster. (11)

   Hubbard v. City of Pierre (12) is South Dakota's most recent precedent in a sparse history of special assessment cases, in which the South Dakota Supreme Court affirmed a circuit court ruling that a special assessment by the City of Pierre was unconstitutional. (13) This note supports the results of the case as presented both at trial and on appeal but argues that minor deviations in procedure by the City of Pierre could have saved at least part of its special assessment. (14) Because a primer on municipal government and special assessments is essential to fully understanding the facts and procedure in Hubbard, this note will first briefly survey the structure of municipal government and finance. (15) Next, this note will explain the nature of special assessments, their statutory authority, constitutional principles, and historical setting. (16) Finally, this note will examine Hubbard and House Bill 1156, recently enacted in response to Hubbard, and analyze what they mean (and do not mean) for the future of municipal special assessments in South Dakota. (17)

   1. MUNICIPAL GOVERNMENT AND FINANCE

      The United States was founded on the theory of local self-government--that the residents of a place are better equipped than the state or a central authority to regulate local matters. (18) The South Dakota Constitution authorizes the legislature to "organize and classify units of local government" (19) including counties, townships, and municipalities. (20) A municipality "is an artificial personality or governmental organ--a body politic and corporate--created to regulate and administer" the local concerns of a place in matters peculiar to it. (21) The purpose of a municipality is, first, to serve its residents in regulating and administering the local and internal affairs of the community for the interest, advantage, and convenience of the community and second, to serve its residents in common state matters as an agent of the state. (22) To fulfill these purposes, a municipality has the power to pass local laws for the health, safety, and welfare of its residents. (23) This police power, however, is limited in that a municipality's local laws "cannot be inconsistent with nor contravene the laws of the state." (24) As political subdivisions of state government (25) and creatures of the Constitution and statutes, (26) municipalities possess only those powers, great or small, that these laws bestow upon them, "together with only those incidental or implied powers as are necessary to enable [them] to perform designated and authorized functions." (27)

      Regardless of how a municipality manifests its purpose to serve its residents in regulating and administering its local affairs, no municipality can maintain itself without the ability to raise revenue. (28) A municipality "must have power to raise money to enable it to perform its public functions, since otherwise it would be a body without life, incapable of acting, and serving no useful purpose." (29) States possess an inherent power to tax as an attribute of their sovereignty. (30) Municipalities, however, have no such inherent power (31) "and none of the attributes of sovereignty." 32 State constitutions and statutes must authorize municipalities to impose taxes on persons or property within the municipality to pay its debts and liabilities. (33) The South Dakota Constitution authorizes the legislature to vest municipalities with the authority to assess and collect taxes to support government. (34) These general municipal tax revenues are budgeted, (35) appropriated, (36) and expended to construct improvements and support general government functions like police and fire protection, libraries, garbage collection, water and sewer service, and the construction and maintenance of roads. (37)

      Generally, the term improvements or public improvements, as it applies to municipalities in the legal context, means "improvements upon the property of the municipality which serve to further the operation of the municipal government and the interests and welfare of the public." (38) By their nature, these public improvements are either local or general. (39) Local improvements confer a special benefit on adjacent or nearby real property. (40) General improvements, on the other hand, "are those of general use or benefit" to the entire community. (41) Depending on whether the improvement is local or general, municipalities pay for them from different sources of revenue. (42) Municipalities fund general improvements through general taxation (like sales tax and property tax), because the benefit of the improvement is diffused throughout the municipality to all residents. (43) If the benefit of an improvement is related to the use of a specific facility or service, then a municipality will charge user fees or service charges to help offset the cost of that improvement. (44) However, when a local improvement confers special benefits to identifiable real property, a municipality can charge all or part of the cost of constructing that improvement against the property benefitted by it. (45) This procedure is called special assessment. (46)

   2. SPECIAL ASSESSMENTS

      The South Dakota Constitution authorizes the legislature to vest municipalities with the power to make local improvements "by special taxation of contiguous property or otherwise[,]" (47) and the legislature has authorized municipalities to levy and collect special assessments since 1890. (48) Currently, state statute provides every municipality the authority to levy special assessments against properties that are adjacent to or benefitted by a local improvement. (49)

      Special assessments and general taxation are distinguishable. (50) Although levied under the power of taxation, (51) special assessments are not taxes in the way citizens normally understand taxes. (52) A tax is levied on all property without any reference to how the taxpayer will be specially benefitted. (53) A special assessment, however, is revenue generated to pay for a municipal improvement that is collected only from those particular residents who will be specially benefitted by the improvement. (54) Part of the reason special assessments are attractive is that residents do not perceive them as taxes but rather as fees for a government service. (55) When levied properly, those assessed property owners receive a tangible benefit, can actually see how the municipality has used the assessment revenue, and "do not perceive their money as going to a wasteful and possibly corrupt 'black hole' of bureaucracy." (56)

      When a municipality decides to specially assess for the cost of an improvement, South Dakota law establishes two methods for apportioning the cost of that improvement to the assessed property owners. (57) The first method, the front-foot method, is to apportion all or part of the cost of the improvement by dividing the total cost of the improvement by the number of linear feet of adjacent private property and assessing that quotient uniformly against...