A Persuasive Special Assessment Appeal
By: Wendy S. Cell
In early 2008, Shenehon Company was part of a team of experts which appealed a special assessment on behalf of SJC Properties LLC in Rochester, Minnesota. The plaintiffs relied on legal counsel, appraisers, civil engineers and traffic engineers to contribute detailed information for each aspect of the analysis. Following is a brief description of how the experts successfully demonstrated to the Court that the assessment exceeded the benefit to the property.
Special Assessment Summary
A special assessment is a tax, intended to offset the cost of local improvements such as sewer, water, and streets, which is selectively imposed upon the beneficiaries. The power to impose special assessment is limited in that (1) the property must receive a special benefit from the improvement, (2) the assessment must be uniform upon the same class of property, and (3) the assessment may not exceed the special benefit to the property. Further, the special assessment must be (a) necessary, (b) cost effective, and (c) feasible.
In special assessment cases, the appraiser prepares an analysis to determine any impact on value, or special benefit, to the property from the improvements. This entails valuing the property before the special assessment and then valuing the property after the special assessment. The estimated change in value is then measured against the special assessment to determine whether the change in the property’s value is less than, equal to, or greater than the amount of the assessment.
In SJC Properties LLC, et al v. City of Rochester, a municipal corporation, File Nos. 55-C6-05-1988, et al (Minn. Dist. Ct. July 3, 2008), the Court found that the evidence established that the city’s special assessment exceeded the special benefit on plaintiffs’ properties and set aside the levied special assessment, remanding the matter for reassessment. Moreover, the Court awarded expert costs to plaintiffs. Plaintiffs own undeveloped land in Rochester, MN. Rochester, Olmsted County, and the Minnesota Department of Transportation constructed improvements to convert a portion of Highway 63 from an expressway to a controlled-access freeway. The subject property is located at the corner of one of the new local access interchanges.
Plaintiffs’ appraiser determined that the highest and best use of the property – both before and after the assessment – was commercial and residential development. To calculate the amount of any special benefit, plaintiffs’ appraiser valued the property using three methodologies – the sales comparison approach, the direct cost approach, and the development savings approach. Under the sales comparison approach, Plaintiffs’ appraiser analyzed comparable properties and adjusted them to reflect the differences. In performing this analysis, the appraiser reviewed the infrastructure of each of the comparable properties, including roadway conditions and available utilities. Based on the difference between the before and after values of the property, the sales comparison approach indicates a special benefit of $525,000. The direct cost approach evaluates the costs associated with those transportation improvements that benefit the property. Based on the engineer’s estimate, the total cost benefit is $383,715. The development cost savings approach involves estimating the total development costs before the project and subtracting the development costs after the project. With the assistance of the engineer, the appraiser arrived at a total development savings of $415,000. Plaintiffs’ appraiser concluded the city’s special assessment of $1,700,000 exceeded the $525,000 benefit to the property.
Defendant’s appraiser performed a before and after appraisal using only a single appraisal methodology – the sales comparison approach. He testified that the highest and best use before the assessment was residential development and concluded that the value of the property was $3,100,000. He testified that the highest and best use after the assessment was commercial and residential development. He concluded that the value of the property after the assessment was $10,900,000, thereby concluding the special benefit on the property is $7,800,000, the difference between his before and after values.
Special Benefit Findings
Overall, the Court found the appraisal opinion of plaintiffs’ appraiser to be mostly credible, with the supplementation of an additional sum attributable to the benefit of the new bridge over Willow Creek and some possible soft costs. Regardless of which of the three approaches prepared by plaintiffs’ appraiser is used, the Court found that the city’s special assessment of $1,700,000 exceeded the special benefit to the subject property resulting from the improvements. Further, the Court found that the special assessment was not uniformly assessed.
In this situation, the burden of proof is on the plaintiff and it may be difficult to prevail in Court. The Court acknowledged that this was a very complicated case. One of the primary issues was the determination of the highest and best use before the special assessment. In analyzing this issue, plaintiffs’ appraiser carefully studied the legally permissible factors such as zoning and plat approvals, and relied on the input of collateral experts. In his testimony, plaintiffs’ appraiser relied on analyses from the civil engineer who prepared a site plan and cost estimates for transportation improvements and on the traffic engineer who studied traffic volume, the necessary number of required lanes based on the traffic volume, and the uniformity as it pertained to the use of the improvements by adjacent developed properties. Defendant’s appraiser admitted that he did not consult with any engineers nor did he consider the rezoning of the property, the city’s plat approval, sound barriers, the other local access interchange, or the build-out of residential property. As with any valuation case, the appraiser’s due diligence includes the research of local zoning ordinances and development approvals, a study of market conditions, determining the highest and best use of the property, and the research of comparable sales. Clearly, the plaintiff’s appraiser’s attention to the details successfully persuaded the Court that the special assessment exceeded the benefit to the property.
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