1.4.7 Assessments

Article XIIID of the California Constitution restricts the ability of public agencies to levy assessments, which are defined to include “any levy or charge upon real property by [any local government] for a special benefit conferred upon the real property.” Article XIIID further defines “assessment” to include special assessments, benefit assessments and maintenance assessments and special tax assessments and requires that “standby charges” be treated as assessments.53 Assessments are levied against benefitted property and are secured by a lien on the property, with the lien, as a matter of law, having a priority higher than deeds of trust or mortgages imposed by private contract. Assessments are “non recourse” in that their payment is not an obligation of the property owner; if the property owner does not pay, the local government may not seek a judgment for payment against the property owner and its remedy is limited to foreclosing on the assessed property.

SUBSTANTIVE CONSTITUTIONAL LIMITATIONS – Assessments must comply with constitutional requirements:

Assessments may be levied only for a special benefit conferred upon the assessed property. A “special benefit” is a particular and distinct benefit over and above general benefits conferred on real property within the assessment area or to the public at large. General enhancement of property value does not constitute a “special benefit.”54
Assessments may not be levied for general benefits conferred on real property in the assessed area or to the public at large, and the local government must separate general benefits from special benefits.
The assessment imposed on any particular parcel may not exceed the reasonable cost of the proportional special benefit conferred on that parcel, determined with reference to the cost of the capital cost or operation and maintenance expense or the cost of the property-related service to be financed with the assessment.
Governmentally owned parcels may not be exempt from assessment unless the parcels receive no special benefit.
Benefit determinations must be supported by a detailed engineer’s report.

CONSTITUTIONAL PROCEDURAL REQUIREMENTS – In addition to satisfying statutory requirements, the process for levying assessments must include notification of the owners of the affected parcels, a public hearing, and balloting the owners of the parcels. If more ballots oppose the assessment than are in favor, with ballots weighted proportionally to the financial obligation of the affected property, then the assessment may not be imposed.

DEBT FINANCING IMPACT – Assessment bonds (bonds on which the debt service is payable from assessments and which are secured by assessment liens) are a major source of financing for public improvements, especially infrastructure improvements necessary for new development. For built out communities, the constitutional requirements for assessments can be challenging to satisfy, but the requirements are less difficult to meet if assessments are imposed while the subject property is held by a limited number of owners (e.g., before the property is developed and homes or lots are sold).

Section 3.3.7.1, Assessment Bonds discusses assessment bonds in detail.