What is a special assessment district?
A special assessment process is one way a township can assist taxpayers for improvements within the township. Michigan Public Act 188 of 1954, as amended, establishes and authorizes townships to utilize special assessment procedures to fund the costs of certain types of public improvements:
“An Act to provide for the making of certain improvements by townships; to provide for paying for the improvements by the issuance of bonds, to provide for the levying of taxes, to provide for the assessing the whole or a part of the cost of improvements against property benefited; and to provide for the issuance of bonds in anticipation of the collection of special assessments and for the obligation of the township on the bonds.” Public Improvements, Act 188 of 1954, as amended, MCL 41.721-738, Special Assessment Defined A special assessment is a charge against property for a public improvement that confers a special benefit to that property different from the benefit enjoyed by the general public [Fluckey vs. City of Plymouth, 358 Mich 447, 100 N.W.2d 486 (1960)].
There are various types of public improvements authorized by Public Act 188 of 1954, as amended (MCL 41.721). such as:
• The construction, improvement, and maintenance of storm or sanitary systems, water systems, public roads, public parks, or private roads, sidewalk. bicycle paths, lighting systems.
• The collection and disposal of garbage and rubbish
• The eradication or control of aquatic weeds and plants
• The construction, improvement, and maintenance of a lake, pond, river, stream, lagoon, or other body of water or of an improvement to the body of water. This includes, but is not limited to, dredging.
Special Assessment District (SAD)
A SAD is a defined grouping of properties especially benefited by an improvement. While statute allows for a township to initiate a SAD, it is typically done by petition of the property owners in a designated area who wish to make an authorized improvement. The township then acts in an administrative capacity by establishing the district, gathering cost estimates and plans for the improvement, identifying financing or funding for the cost of the improvement, and levying and collecting the special assessment to pay off the associated debt.
All costs the township may incur from the time of initial application through the duration of the special assessment and/or for as long as there remain any outstanding bonds issued to fund the improvement should be included in the final cost estimate. Related costs would include those services related to administration, engineering, construction, and consultation services.
• Administration: expenses incurred by the township for time & materials dedicated to the administration of the SAD
• Engineering: Design, inspection and contingency fund
• Construction: Materials, labor and contingency fund
• Consultation: Fees for financial, accounting, bond and legal services
Allocation of Costs
There is no specific formula within statute as to how the assessment is proportioned among the benefited properties. There are several different methods commonly used to allocate or spread the costs for the improvement against those properties within the SAD, including but not limited to front foot, land area, site/lot, lot depth, value or a combination of these methods. The method used varies according to the nature of the improvement, and the type and characteristics of the properties contained within the SAD.
While front foot may be the simplest method to allocated costs, it may not necessarily be the most appropriate. The primary goal when selecting a method is for the special assessment against each parcel to be related to the benefit received by the parcel. Major differences in special assessment amounts on each parcel in a district where the land uses are similar may be an indication that a different method should be used.
Paying the Special Assessment
Special assessments can be paid in full without interest at the time the assessment is first levied or may be paid in annual installments for a specified number of years using a declining balance method. Each annual payment is less than the previous year’s payment. The principal is repaid in equal installments in each payment, but the amount paid toward interest is reduced with each payment. Special assessment installments are levied on an annual basis, depending on the nature and duration of the district, with the winter ad valor em property taxes, issued on December 1st. The township board will determine the amount of interest to be charged for the special assessment according to state statute.
Special Assessment Hearings and Objections
There are two public hearings in the special assessment process. At the first public hearing, the township board will hear objections to the petition, to the improvement, and to the special assessment district. The second public hearing is to review and hear any objections to the special assessment roll. Advance notice of the public hearings will be published in the newspaper and mailed to the property owners to be assessed. Objections can be made in one of two ways. The first is by written letter delivered to the Township Clerk before or at the time of the public hearings described above. The second way is to attend the public hearings and state the objections in person. It must be noted that if a property owner wishes to challenge the petitions, improvement, district and/or special assessment, they must have made an official protest at the appropriate public hearing outlined above.
Property exempt from taxation is frequently not exempt from special assessments. For example, property used for a charitable purpose may be tax-exempt, but property owners may still have to pay special assessments. This varies depending on the statute, so be sure to consult your township attorney whenever you are working on a special assessment. A special benefit might not be directly related to parcel size or frontage, so consider other methods of apportioning costs. Where sewer or water lines are being constructed, the benefit in a single-family residential area may be set at a uniform amount for each parcel, on the theory that each parcel can connect one dwelling unit to the line and therefore, has the same benefit. This is particularly appropriate where a system of rates is established so that if the property is divided in the future, and additional homes are built, each additional connection to the system is billed and pays an additional charge. Many civil engineers and township attorneys have experience in allocating costs in special assessments, and township boards should work with them on fashioning an equitable system of special assessments and rates to cover project costs. Recently, lake improvements involving weed control and other issues have become common. With lots that have deeded lake access but no lake frontage, it may be appropriate to include them in the special assessment district, since they benefit from the lake improvement project, but to specially assess them at a lower rate, as their benefit may be less than that received by lakefront property.
Assessments Can be Revised
If project costs exceed estimates, the law permits a township board to reassess the additional expenses, after notices and another public hearing. It is much easier to reduce estimates than increase them, so it is a good idea to estimate costs on the high side before the first public hearing. If the revenue collected from a special assessment exceeds project costs, the township may retain surpluses of less than 5 percent of the original roll. If there is more than a 5 percent surplus after all project costs are paid, property owners must be given a refund. Before making a refund, the project and all project costs should be carefully reviewed. Keep in mind that there may be future expenses related to the project, so, in some situations, a fund balance should be retained to cover those costs. Many townships advance funds for special assessment projects, and sometimes overlook the fact that they are entitled to be reimbursed for all the money paid in advance. It is crucial that careful records be kept of all expenditures, and that they be reimbursed with a maximum of 5 percent annual interest. Whenever a special assessment is being imposed, the township clerk should create a separate file with copies of every document relating to the special assessment, allowing easier review of project history in the event of any future questions.
Handling Billing and Payments
Except for police and fire special assessments, special assessments can be billed separately from the township’s tax bill, although, for convenience, most townships choose to bill special assessments with property taxes. Billing and collecting special assessments are statutory duties of the township treasurer. Some special assessments are imposed one year at a time, for the next year’s expenses. This is generally done for recurring expenses, such as police and fire protection, street lighting, weed control in lakes, recycling, and other ongoing services. Each year, a new special assessment roll is prepared and reviewed by the township board at a public hearing. The special assessment is then billed on the December tax bill.
In ongoing SAD projects such as weed districts, lake associations often take the lead in finding the services needed for their lake. The lake association will either sign a contract directly with the service provider or sign a contract with the service provider and the township. If the lake association signs directly with a service provider, the lake association pays the service provider out of their own funds and then seek reimbursement from the SAD. If the contract is brought to the township for approval and signature (and the the board approve it), payments may be made from the SAD account (held by the township) directly to the service provider. In both cases, payments follow the township board meetings and documentation of all transactions and treatments is required.
Aquatic Special Assessment Districts article by Attorney Clifford H. Bloom, click here.