What are Benefit Assessment Districts?
Benefit Assessment Districts are a "property tax" mechanism used by local governmental agencies in California (counties, cities, and special districts) to fund public improvements and services. Assessment Districts are established for a specific geographical area that receives a special benefit from specific public improvements and services. In other words, the charge only applies to properties receiving a benefit instead of being applied against all properties within a governmental jurisdiction, as is the case with regular property taxes.
What is Special Benefit?
Article XIII D of the California Constitution (commonly referred to as Proposition 218) defines special benefit as "a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute 'special benefit.'"
There are a few helpful aspects worth considering:
- A public improvement or service confers benefit. For example, street lighting is the improvement, not the special benefit. However, street lighting confers a "safety" benefit to properties nearby and to non-residents driving through.
- In this case, the safety benefit conferred to properties nearby is special benefit, but the safety conferred on pass-through drivers is general benefit.
- The local agency is required to separate and quantify special and general benefit so that properties nearby the street lighting (in this example) are charged for just the special benefit portion. The general benefit portion must be paid from other sources and can't be charged against the properties within the Assessment District.
- Note, an improvement like street lighting can have multiple benefits identified, separated, and quantified. Also, there are many other improvements and services that can be funded by an Assessment District. We have used a single benefit and improvement to simplify our illustration of this concept.
Why are Benefit Assessment Districts Formed?
Assessment Districts ensure that constituents across town are not paying for improvements and services specific to neighborhoods miles away and vice versa. It serves as a fair and direct mode of taxation, recognizing the variations in the type and levels of public improvements and services provided to each neighborhood. It also provides a way for constituents to have a direct say to improve their neighborhoods by participating in the governance process and establishing their own neighborhood-specific Assessment District.
Revenues collected through an Assessment District are strictly limited for the improvements and services for which the Assessment District was formed. Furthermore, a district can't be formed without the participation of the property owners through a ballot procedure. Meaning, a governmental agency can't establish a District and "tax" a neighborhood on its own.
In many ways, Benefit Assessment Districts can be said to be comparable to a Homeowner's Association in the way that it funds facilities and work specific to a neighborhood from a direct and additional charge not paid by other neighborhoods in town. The main differences are that the charge appears on the property tax bill and the work is managed by the local governmental agency. Note, work can be performed by public employees of the agency and/or outsourced to private contractors. Assessment Districts can also have citizen advisory committees to help the agency annually establish levels of service, desired improvements and service, the budget and corresponding rates.
Benefit Assessment Districts have been around for a long time. California started using them in the early 1900s to pay for projects specific to small geographical areas. Since then, the California legislature has enacted many Acts to facilitate the funding of many types of public improvements and services, but all required to result in a charge that is proportional to the special benefit received by each property.
Where did the idea come from? According to a California State Legislature Senate Governance & Finance Committee (2011) publication,
The landmark study, Windfalls for Wipeouts by Hagman and Misczynski, traced benefit assessments to a local 13th Century ordinance in England that used assessments to pay for repairs to seawalls. Residents paid for the seawall repair in proportion to the amount of land protected by the seawall. In 1691, the tradition of levying benefit assessments reached America: New York City assessments paid for paving streets and building a drainage system. (p. 5)
The Process of Forming an Assessment District
The process required to establish Benefit Assessment Districts vary slightly based on the specific and applicable legislative Act and applicability of the Act is dependent on the specific public improvements and services being funded but in general, the process includes:
- Formal initiation of the formation process by the legislative body (Board of Supervisors, City Council, Board of Directors) based on a petition from the property owners and/or local officials. We generally expect to see the following Resolutions enacted:
- Resolution initiating proceedings to form the assessment district and ordering of the preparation of the assessment engineer's report. The report separates and quantifies special and general benefit and provides a method of assessment with a proportional rate schedule.
- Resolution of intent to form the assessment district, approving the report in draft form, ordering the mailing of notices and ballots to owners of property subject to the assessment, and setting the location, date, and time of the public hearing and tabulation of ballots.
- Resolution confirming the assessments, if tabulation of ballots supports it, and the ordering of charges to be placed on the property tax bills.
- Preparation of an assessment engineer's report. The most critical piece of information for a constituent participating in the process. The report separates and quantifies special and general benefit and provides a method of assessment with a proportional rate schedule showing the assessment charge against each property.
- Notices and ballots are mailed to owners property within the boundaries of the assessment district subject to the assessment charge. Only properties receiving a special benefit will be charged the assessment.
- A public hearing is held to allow all interested parties to speak to the legislative body about the proposed assessment district, the ballots are tabulated and results announced. An assessment district is approved by the property owners if the total assessment amount represented by ballots received against the assessment does not exceed the total assessment amount represented by ballots received in favor of the assessment. In other words, ballots are weighted by the assessment amount assigned to each property. The greater the assigned amount of the assessment the greater the say in the results of the tabulation (only returned completed ballots are considered).
- Assuming successful approval, assessments are charged on the secured property tax bills for the term prescribed in the assessment engineer's report and resolutions described above. Some assessments have a term and others can go in perpetuity. Most assessments provide for an annual inflation factor to keep up with the ever-increasing costs of maintaining improvements and providing services.
Communities and Benefit Assessment Districts
There are many communities in California using Assessment Districts successfully to fund improvements and services that enhance the lives of many thus improving neighborhoods with one of the most direct forms of self-taxation available. Participation in the formation of an assessment district and the ongoing process of working with public officials to establish levels of service, budgets, and annual assessment charges by citizen advisory committee members can be very rewarding. The goal of the CivicMic team is to assist public agencies by providing outreach and opportunities for the public to engage in a collaborative governance process.
Learn More by Listening to CivicMic: The Podcast
- Click here to listen to: Special Financing Districts - What are they?
- Special Financing Districts are used by local government to fund the construction, maintenance and servicing of public improvements. Special Financing Districts result in an additional charge being levied on the property tax bill. There are different kinds of Special Financing Districts. Learn more in this episode of CivicMic: The Podcast.
- Click here to listen to: Special Assessments 101
- A Special Assessment is one type of Special Financing District used by local government to fund the construction, maintenance and servicing of public improvements. Special assessments come in many flavors; each with different procedures and the ability to fund different types of public improvements. What do special assessments have in common? Learn more in this episode of CivicMic: The Podcast.
California State Legislature Senate Governance & Finance Committee. (2011). Assessing the benefits of benefit assessments: A guide to benefit assessments in California (Publication 801-S). Retrieved from https://sgf.senate.ca.gov/sites/sgf.senate.ca.gov/files/Assessing%20the%20Benefits%20of%20Benefit%20Assessments%20801-S.pdf