Following is information regarding the use of Special Assessments as a means to finance roads and other municipal services. There is a lot of information, but it is obviously an important topic in Grand Chute.
I do not support the use of special assessments, other than those also known as ‘special charges,’ which are discussed at the end of this document.
What is a special assessment?
There is a lot to understand and say about special assessments.
A special assessment is a levy charged against a property owner by a municipal government. A special assessment creates a lien against a property. It could also be a charge levied by another entity, such as a homeowner’s association. Our concern, of course, is about levies issued by a municipal government. Special assessments charged by municipalities are governed by the Wisconsin Statutes, including Wis. Stat. 66.0701, Wis. Stat. 66.0702, Wis. Stat. 66.0703, and in certain instances, Wis. Stat. 66.0627.
History of Special Assessments in Grand Chute
Special assessments were first used in Grand Chute beginning in 1993. They have been used to fund road improvements and other infrastructure projects. Initially, the amounts were somewhat “reasonable,” ranging from perhaps $3,000 to $7,000. Over time, however, the amounts grew to the point of becoming financially harmful to many property owners, including families, small businesses and even non-profit organizations.
By the year 2018, special assessments made against homeowners oftentimes ranged from $15,000 – $35,000. It was not unusual for small businesses to receive special assessment levies in excess of $50,000, and often in excess of $100,000. The largest special assessment I am aware of that was levied against a small business was $390,000. That special assessment was made against Harley-Davidson. Non-profit organizations also became hard-pressed by special assessments. This includes churches, auxiliary organizations and other non-profit entities operating in Grand Chute. For example, in 2016 American Legion Post 38 was charged a levy of $115,000 when the College Avenue frontage road where the Legion is located was rebuilt. This came after the Legion had already received a special assessment levy of $65,000 10 years earlier for road improvements on N. Bluemound Drive.
Because of the high special assessment levies, groups of affected property owners began to stand up against special assessments in 2018 and 2019. Because the former Town Board refused to listen to the concerns being expressed by affected property owners, the only recourse available to those property owners was to seek relief in the courts. In total, six special assessment lawsuits, involving more than 70 property owners, were filed against the Town in less than a two-year period. The first lawsuit, brought by Liberty Storage on N. Gillett Street was settled out of court. Five other lawsuits were later brought to the court, which in turn directed the Town Board to mediate a settlement with each of the plaintiff groups.
Two of the plaintiff groups owned properties along W. Spencer Street. One group owned properties along Mc Carthy Road. Another group had properties along W. College Avenue and the final group had properties on Elsner Road. Of these roads, College Avenue is an arterial road, Spencer Street is a major collector road, and Mc Carthy Road and Elsner Road are also both collector roads. These road-type designations are very important in determining the ability of a municipality to legally special assess because they reflect how those roads are being used. All serve the public, at large.
Based on the facts involving the five lawsuits, in late 2021 the Grand Chute Town Board found that each of the special assessments levied against the five sets of property owners was non-compliant with Wisconsin Statutes. As a result, a decision was made to eliminate the special assessments that had been levied. Three of the property owner groups also sought a return of at least a portion of their attorney fees, as those fees had been incurred as a result of the improper special assessments. The Town insurance company was willing to reimburse the requested legal costs, so no taxpayer funds were involved.
What is important to know about special assessments?
In Wisconsin, the law provides that the cost of most municipal government services will be funded by the property owners of each individual municipality using property tax revenues collected by the municipality. However, the Wisconsin Statutes also provide municipalities with the ability to levy special (i.e. typically one-time) assessments against certain property owners to cover the cost of a certain municipal project that provides a specific benefit to a property.
The ability of a municipality to levy a special assessment against a property owner, however, is very limited. The special assessment must be meet three stringent tests, as outlined in the Wisconsin Statutes.
The parameters to legally issue a special assessment levy are as follows:
Test 1. There must be a benefit to each property that is assessed. That benefit must be “local” in nature rather than a general benefit to the entire community. As it pertains to the use of special assessments to fund road improvements, the ability to legally do so is extremely limited.
Because almost all public roads are interconnected and available for use by the entire community and the general public, at large, they provide a general benefit to the entire community. (See Wis. Stat. 66.0703(14)). As a result, any associated benefit will not be a local benefit.
Typically, a road that is designed as an arterial road or a collector road cannot legally be specially assessed, as they serve the public, at large. A residential-type road could possibly be specially assessed if it only provides a local benefit. However, if several residential roads are interconnect with one another, even some of those residential roads are serving the public at-large, and cannot legally be specially assessed. Perhaps a cul de sac or dead-end road is the only type of residential road that can be specially assessed. Again, however, it is not certain that those roads can legally be specially assessed. For example, if a cul de sac would serve a property like a major retail store, or other business that serves many customers, or if a property owner employs a large number of people, even that cul de sac would be serving the public at-large, and could not legally be specially assessed.
Test 2. The second test that restricts the use of special assessments is that the benefit to a property must be “special or unique” to an individual property; a benefit that no other parcel receives. In order to be considered special or unique, the benefit must provide an “uncommon advantage” to the property that is not shared by any other parcel. Further, to qualify as an uncommon advantage, a benefit must differ “in kind” (i.e. type) rather than “in degree” (i.e. amount) from those benefits enjoyed by the general public. (See Wis. Stat. 66.0703(14)).
Test 2 is almost impossible to meet when a road improvement project is involved because many affected properties receive a similar benefit – an improved road. A road will not be specially designed for each property. It will not provide an “uncommon advantage” to each property.
Test 3. This test stipulates that the amount levied as a special assessment must be “reasonable.” A reasonable basis must be used to determine the amount of a special assessment. The test of reasonableness requires the degree, effect and consequences of the benefit to be examined. Further, while it is not necessary for the amount of a special assessment to exactly match a benefit that is conferred in some cases, there is a presumption that a special assessment is made on the basis of benefits actually accrued. Mere uniformity of treatment does not establish reasonableness; (See Wis. Stat. 66.0703(14)).
For example, a municipality may establish the basis for levying a road improvement special assessment as being the “amount of front footage of each property abutting the road.” However, this basis may not pass the test of being reasonable, because mere uniformity of treatment among all the affected properties does not establish reasonableness.
Authority to Specially Assess
As provided in the Wisconsin statutes, authority for a municipality to levy a special assessment in Wisconsin may be made under Wisconsin Taxing Powers or under Wisconsin Police Powers. Surprisingly, special assessments have generally not been made under Wisconsin Taxing Powers since the 1970’s. Since that time municipalities have generally been using Wisconsin Police Powers to specially assess because the police powers authority offers more flexibility to the municipality when making a special assessment. When using taxing powers authority, the amount of a special assessment cannot exceed the value of the benefits received by a property owner. Using police powers authority, an assessment may exceed the value of the benefits received, as long as the assessed amount is determined to be “reasonable” by the governing body of the municipality making the special assessment. (See Wis. Stat. 66.0703 (1)(b)).
In general, police powers involve the ability of a state government to exercise control over its citizens and resources to improve healthcare, general security, public safety and social welfare. State governments are able to delegate police powers to county and municipal governmental units. While the use of police powers is most notably used by governmental units to protect citizens from dangerous situations and conditions, the use of police powers to make special assessments increased substantially as shared revenue payments made by the state to counties and municipalities were being drastically reduced by the State of Wisconsin.
In 1911 when Wisconsin initiated a state income tax, municipalities helped support the efforts of state officials in doing so because the state had promised that 90% of the state income tax proceeds that were collected would be returned to county and local governmental units in the form of state “shared revenue.” However, over time, and most notably in the past 50 years, state shared revenue payments to county and local governments have been reduced to the point that, at present, less than 10% of state income tax proceeds are being returned to counties and municipalities.
As state shared revenue payments declined, county and municipal governments began seeking new sources of operating revenues. Officials were hesitant to ask voters to approve property tax increases to fund county and municipal government operations. In looking for additional funding sources, county and municipal officials began to increasingly use police powers as a basis for public works projects. The rationale of those officials was that public works projects either involved protecting public safety or providing for social welfare. Some courts have supported those notions in order to help county and municipal governments cope with the substantial shared revenue losses they were experiencing.
While intuitive reasoning suggests that municipalities would naturally use their taxing powers to specially assess for a road improvement project, a second distinct advantage for municipalities to use police powers authority to special assess properties is that “the amount of a special assessment made using police powers authority is not limited to just the amount of a benefit conferred upon a property, as it is under the taxing powers authority.”
Should Special Assessments be Used to Fund Road Improvement Projects?
The answer to the question of whether special assessments should be used to fund road improvement projects is ‘no.’ As already discussed in this document, road improvement projects only qualify for special assessment funding support if there is a local benefit rather than a benefit to the public, at large. Because we all use the roads, relatively few road improvement projects involve roads for which there is only a local benefit, rather than a benefit to the general public. Therefore, it would not constitute good public policy to only specially assess those relative few roads where a benefit is determined to be local rather than general, if any such roads exist in our Town. If special assessments were made on only certain roads and not others, some residents would be stuck unfairly paying twice for road improvements – annually through their property taxes, and then also through a special assessment. The treatment of residents would return to not being fair, equal or consistent.
While the Town Board, with the help of an ad hoc citizens road funding group, has recently researched two road funding alternatives, including the use of a wheel tax and a TARF (Transportation Assessment Replacement Fund), the proper means by which to fund road improvement projects, at this time, is only through our local property tax levy.
The good news for residents is that for the past three years, using property tax revenues, the Town Board has operated without the need to specially assess for road improvements, and we have not found it necessary to make a request to residents to increase our property tax levy limit! That situation may change in the future as inflation continues to increase the cost of performing road improvement work, but if/when the need to request a property tax levy increase presents itself, it is the duty of the Town Board to present and fully explain that need to our residents.
The Board would then need to formally ask residents for direction, in the form of a binding referendum, concerning the financial need presented to them. If residents would approve the referendum, it then becomes the Town Board’s job to carry out the needed work. If residents would not believe a tax levy increase request to be warranted, it would then become the job of the Town Board to work within the parameters provided by residents to make the best use of existing financial resources and limitations. Our local government belongs to our residents, and the Town Board exists solely to implement the will of our residents.
Should Special Assessments be Used to Fund Water and Sanitary Sewer Infrastructure?
While it is permissible for the Town Board to specially assess residents for water and sanitary sewer installations, I believe there is a much better option. A special assessment is a form of unilateral (or one way) action wherein a municipality tells affected residents “Here is what has been decided for you by the Board, and here is your special assessment levy to pay for the work.” That approach does not involve showing respect for our residents or other property owners.
A better approach is to make use of a standard contract form that both the Town and an affected property owner would voluntarily sign. As such, it would be a bilateral agreement. Because the majority of the agreement would have standard provisions, there would be uniformity throughout the Town on major items. This standardization and consistency is needed. However, there will be an opportunity for property owners to make certain requests. The Town would have the opportunity to accept or reject any desired request. If both the Town and the property owner agree on the final wording of the agreement, the transaction can be completed. This approach is very similar to how our Town presently works with developers where a bilateral Developers Agreement is utilized, and is founded on having respect for residents.
The Wisconsin Public Service Commission (WPSC) which has jurisdiction over how municipal water installations can be paid for, has enough payment option flexibility to allow for this respectful approach to be used.
Some individuals will contest this respectful approach by arguing that administering a bilateral standard agreement form would be too cumbersome and expensive for our Town staff to manage. In reality, however, the process and workload appears to be very similar to the practice used to record and oversee special assessment property liens. Each property and each lien already requires the keeping of individual property records for each special assessment lien. Therefore, implementing the use of a standard, bilateral agreement form would not create a more burdensome workload for staff.
Along with Chairman Jason Van Eperen, I have co-authored a document outlining the “Guiding Principles” of a revised water and sanitary sewer ordinance for our Town. This revision is needed primarily to eliminate the many inconsistencies that exist within our current water and sewer ordinance. The guiding principles of the revised ordinance focus on respecting property owner rights, while also protecting the interests of our residents, as a whole. Currently the document is in draft form for the Town Board to discuss at a workshop on this topic. A list of the guiding principles for the proposed water and sanitary sewer ordinance can be found at: www.IngsForGoodGovernment.com/Town News/ Proposed Water and Sewer Guiding Principles.
Another consideration regarding the idea of specially assessing for the installation of water and sanitary sewer infrastructure goes back to the concept of a local benefit. Just as there is an interconnected system of roads throughout our Town, there is also generally an interconnected system of water and sanitary sewer mainlines that traverse the Town. Therefore, while it appears that there may be a greater direct benefit to a property associated with the installation of municipal services than there is for a road, a municipality must make certain that any water and sanitary sewer installation for which a special assessment is levied is also in compliance with Test 1 – that the benefit conferred on a property must be local in nature in order to specially assess. This requirement further supports the superiority of using a standardized, bilateral agreement for water and sanitary system installations, rather than using special assessments.
How Should a Municipality Utilize Special Assessments?
In general, special assessments should not be used to fund municipal public works projects. By its nature and name, a public works project exists for the benefit of the public, at large. Given this fact, it is the general public that benefits from most, if not all, public works projects.
According to how Wisconsin Statutes are written, it appears that the best use of a special assessment levy is to protect the public from a dangerous situation.
For example, a large dead tree may be located on a property, where if it would fall, might hurt someone or do damage to property. If the property owner is either unable or unwilling to remove the dangerous tree, the municipality must act in order to protect people and property. In such a situation, a municipality should remove the tree. Given that this work would benefit the property, the municipality is legally able to specially assess the property for the work performed. A better term than a special assessment in such instances is a “special charge.”
A second example may be a situation in which a property where a former gas station was located is discovered to have petroleum tanks that are leaking contaminants into the ground that would affect neighboring properties and the aquafer. If the property owner is unable or unwilling to correct the problem, the municipality should step in to protect the public by doing so. The municipality should then levy a special charge upon the property in order to recoup the cost of performing the work.