Tuesday, August 19, 2008

When a Tax is not called a Tax in Cooper City...

When a tax is not called a tax in Cooper City...

Municipal budgets are shrinking rapidly and money is getting really tight at all levels of government. While it's no secret to savvy residents and smart Commissioners, some wonder how the city can keep up its spending habits on non-health, safety and welfare issues without eventually becoming bankrupt. In response to this immediate and legitimate challenge, municipalities like Cooper City are going to be soon looking for new, imaginative ways to finance municipal services, including that of extra feel good programs along with necessities such as police protection. One of the options that were addressed by one commissioner is the imposition of a ‘special assessment’ relating to police and ‘crime’ services.

Commissioner Lisa Mallozzi (Dist.2) has asked about the possibility of imposing a law enforcement assessment. The Commissioner is on the Broward League of Cities Sustainability Transportation sub-committee that meets later this month and would apparently like this to become a legislative agenda issue, apparently statewide. Specifically, she asked for a definition of what would constitute a property crime. Apparently, the purpose would be to determine the proportionate amount that those crimes are of the total crimes to be the basis for the development of a law enforcement special assessment. The interim City Manager has asked the City Attorney and the BSO Commander to develop that information. The attorney stated that any property that is impacted by the crime would be improved real property and the crimes would likely be burglary, criminal mischief, etc.

It sounds like the Commissioner is talking to the wrong people; other politicians in government, and not her constituents. My immediate response was that "We already have an assessment in place. It's called TAXES!" This is nothing but a ploy by some municipalities, and now a Cooper City Commissioner, to double tax and to that end we must not follow. It is improper by any means. Any special assessment tax would also require enabling legislation to authorize it by the Florida legislature that finds that such services would yield a special benefit to real property.

A special assessment is a term used in to designate a unique charge that the government can assess against real property parcels for certain public projects. The most universally known special assessments are charges levied against lands when drinking water lines are installed; when sewer lines are installed; or when streets are paved. A special assessment may only be levied against parcels of real estate which have been identified as having received a direct and unique "benefit" from the project.

While this type of assessment holds some merit for certain municipal services, it should be equated with simply imposing an additional and somewhat unnecessary tax. In fact, a law enforcement special assessment has been deemed unlawful because those services provide no special benefit to real property. See this opinion by the State Attorney General.

The test for determining whether a special benefit is bestowed to real property is not whether the services confer a ‘unique benefit’ or are different from the benefit provided to the community as a whole. Rather, the test is whether there is a ‘logical relationship’ between the services provided and any direct benefit to real property. Only certain real property can be specially assessed. The "property" to be assessed must be real estate as opposed to "personalty". Personalty is a taxation term which means personal property.

Special assessment levies are not ad valorem property taxes even though they may be collected on a property tax bill. A special assessment is based strictly upon the concepts of "need" and "benefit." Special assessments must confer a specific and special benefit upon the real property affected by the assessment. A special assessment is like a tax in that it's an enforced payment from the real property owner and may possess other benefits similar to a general tax. However, it is entirely different and governed by entirely different principles. It is imposed under the theory that the portion of the community required to bear it receives some special or outstanding benefit in the enhancement of value to the property against which it is imposed as a result of the improvements made with the proceeds of the special assessment. This equates to the fact that if you do not pay the special 'tax', they can sell your house on the courthouse steps.

I think that if something waddles like a duck and quacks like a duck, it's more than likely a duck. In simple, plain English, if it seems like a tax, it probably is a tax (of some sort, just by another name). However, there is an important distinction between special assessments and taxes. A legally imposed special assessment is not really a tax per se looking at it from a legal sense. While the payment of both taxes and special assessments is actually deemed mandatory like property taxes, there is not a requirement that general taxes provide specific benefits to the property. Instead, they are levied throughout the city for the general benefit of residents, business owners and real property.

The City of North Lauderdale attempted to impose a special assessment on owners of property for the purpose of providing an "integrated fire-rescue program." The city created an ordinance that would fund the cost of an integrated fire, rescue and emergency medical service program through a special assessment tax levied on all property owners in the city. A group of commercial property owners sued the city in opposition to the tax and the case of City of North Lauderdale v. SMM Properties, Inc., wound up in the Florida Supreme Court.

The property owners agreed that a portion of the special assessment that provided services imposed a special benefit on their properties and did not oppose it. However, they sued on a portion of the special assessment which was deemed as improper because their properties were not deriving any special benefit from the services. They argued that the assessment provided a service to all citizens in the city.

It appeared that the city had a good case regarding the commission’s support of the special assessment. Another Florida case, Lake County v. Water Oak Management Corp., 695 So. 2d 667 (Fla. 1997), delineated a two-pronged test to be used in reviewing the validity of any special assessments. The first prong was whether or not the services at issue provided a special benefit to the assessed property. The second prong was whether or not the assessment for the services was a properly apportioned tax. In the City of North Lauderdale case, there was not an issue as to the apportionment of the assessment. The only issue to be reviewed by the court was the determination of whether the services provided a ‘special benefit’ to the property.

In the Lake County case, the court upheld a special assessment imposed for fire protection services that was correctly opined by the 5th District Court of Appeal in Case No. 94-2729. The City of North Lauderdale said that Lake County's fire-rescue program was similar to its own as both programs were funding more than just fire protection and suppression services.

The property owners argued that Lake County's program was limited and did not confer a special benefit. The opponents further argued that the assessment was paying for a function provided by employees as part of their normal duties, the property owners in Lake County were really only paying for the normal services, and the special assessment in Lake County did not assess property owners for services outside the employee’s regular job duties. The court looked at the differences between the Lake County program and the North Lauderdale program. Having made a determination, the court then went on to ruling whether the assessment met the first prong of the test by providing a special benefit to the assessed property.

The city went on record to say that their services would enhance the use of property in the city. This, in turn, would enhance the value of the property, and this enhanced value could be anticipated to be reflected in the real estate tax charge for value of the property.

The court disagreed, finding that the service was not a special benefit to the property. The court noted that services benefit people, not property. The court ruled that the city's opinion that the assessment conferred a special benefit on property was frivolous and had the indication of a tax because it was proposed to support many of the general sovereign functions of a general tax.

The court said that the city made comments its ordinance that there was a 'special benefit' to the assessed properties but stated that there was nothing in the record to support these assumptions by the city. There was no evidence of any special benefits that would be provided to the property from the provisions of such services, no studies conducted by the city documenting any specific benefits, and no testimony or expert witnesses were offered to indicate how the portion of the assessment providing for special services would specifically benefit the real property.

The court ruled that the services portion of the special assessment by the City of North Lauderdale was a general tax because it failed to provide any unique or special benefit to real properties. There were no indicia how the services would directly enhance the value of the real properties of which the assessment was imposed upon.

Although some services, particularly those of police or fire services, may provide a sense of security to individuals, neither the service nor the sense of security is provided to the real property. Consequently, the court concluded that the services in question did not provide any special benefit to the property, and therefore that portion of the program could not be funded by a special assessment.

Of the utmost importance to any property owner who feels aggrieved by a special assessment levy is a legal concept known as the "presumption of validity". This means that the courts must regard the actions of local government with deference and presume that the government did everything correctly. At a minimum, any challenge to any special assessment must prove that the government did not act lawfully. That challenge is vey difficult, time consuming, costly and significant. For all of these reasons, it is critical for any person or property owner, particularly a business facing a special assessment, to fully participate in any and all public hearings and monitor the special assessment process from its earliest stages to completion.

Tighter budgets will require greater creativity in funding at all levels of government both county and local. However, when considering the use of special assessments as an additional revenue source under the guise of some alleged 'special benefit', particularly at the local level, keep the following in mind...it’s still just another tax.

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