Review Special Assessments Policy

Purpose:
The purpose of this case is to review the Special Assessments Policy and discuss whether modifications are warranted based on the first year’s application of the policy to applicable 2015 City Improvement Projects.

Background:
At the conclusion of the Assessment Hearings for the 2015 street improvement projects, the City Council requested a meeting with Staff to review the contents and implementation of the Special Assessments Policy.
 
Policy Development
Attached is the Special Assessments Policy (Policy) adopted by the City Council on December 9, 2014 and amended on January 13, 2015 (Amended Section 6 to reflect accurate rate of interest).  The Policy was developed and implemented to help offset a portion of the costs associated with overlaying and reconstructing the 176-plus miles of existing City streets.  The following chronology outlines the development process that was followed prior to adoption and implementation of the Policy.

May 20, 2014 - Public Works Committee directs City Staff to develop a Special Assessments Policy to establish the City’s process for levying special assessments against properties benefiting from Improvement Projects including street reconstruction projects. As was also discussed, even if special assessments are not utilized to fund street improvement projects, it would be advantageous for the City to have an adopted Special Assessments Policy.

June 25, 2014 - Charter Commission amends Section 8.4.5 of the City Charter by increasing the percentage of property owners required to petition against City Council initiated public improvements utilizing special assessments as a funding source from greater than 50% to at least 60%. While this action will make it slightly more difficult for property owners to petition against Council initiated improvements utilizing special assessments for partial funding, it still will not prevent petitions from occurring.

August 14, 2014 - Public Works Committee reviews the first draft of the Special Assessments Policy, which was developed using the model Special Assessments Policy by Ehlers and Associates, Inc. as posted on the League of Minnesota Cities (LMC) web site. A copy of this model policy is attached for reference. Since two voting members were absent, Staff was directed to bring the draft Policy back for review again at a later date. The Committee did however provide several comments including that all applicable MSA funds must first be applied to the City’s share of the project costs, that no conflicts can exist between the Policy and the City Charter, and that the Policy should provide as much flexibility as possible in considering existing property sizes, shapes, development status (developed vs. undeveloped), etc. when levying assessments.

September 16, 2014 - Public Works Committee reviews the draft Special Assessments Policy and directs Staff to revise the draft Policy incorporating proposed assessment percentages and by using Staff’s proposed recommendations for assessment methods. Staff was then directed to bring the draft Policy to a future City Council Work Session for review and input from the full Council.

October 14, 2014 - City Council reviews the draft Special Assessments Policy at work session and provides additional comments for incorporation into the draft policy for consideration at a future work session.

November 18, 2014 - City Council reviews the draft Special Assessments Policy at work session and provides additional comments for incorporation into the draft policy based on input from City Attorney Langel and Mr. Jason Messner of Patchin, Messner and Dodd, a firm specializing in real estate appraisals. Based on their input, Staff was directed to provide Policy language allowing Council to order appraisal consultations on improvement projects as needed to help verify that the amount of the special assessments will not exceed the benefit to the property. As discussed, typical fees for special benefit consultations range from $5,000 to $7,000 depending on the type and scope of the public improvement project.

December 9, 2014 – City Council adopts the final draft of the Special Assessments Policy which incorporated comments received from the Public Works Committee and City Council.

January 13, 2015 - City Council adopts Resolution #15-01-016 amending Section 6: #4:  Interest of the Special Assessment policy.  The amendment was to reflect the accurate rate of interest to be charged on bonded projects.
 
The City Attorney reviewed the Policy prior to adoption to ensure proper legal form and conformance with the special assessment requirements outlined in Chapter 8 of the Ramsey City Charter, which is attached for reference.

Attached is the Special Assessments Guide (SAG) as developed and distributed by the League of Minnesota Cities (LMC) which assisted with the development of the Special Assessments Policy.


Policy Implementation / Lessons Learned
The current Policy was implemented in 2015 and was successfully applied to three separate improvement projects.  These included the 2015 Street Maintenance Program – Division B (Overlays), the reconstruction of Garnet Street and 168^th Avenue, and the reconstruction of Jarvis Street. Following the application of the policy with these projects, staff recommends reviewing and modifying several sections of the policy prior to approving proposed 2016 City Improvement Projects to ensure that the policy is adequate to address anticipated project elements.
 
All 2015 improvement projects levied special assessments against benefiting parcels based on the "per lot" method of assessment.  This means each property was assessed an equal amount regardless of parcel size, location, orientation, or front footage.  Staff believes this assessment method worked well for the 2015 projects, which all served residential properties.  Staff will therefore propose using the same method on future projects as along as lot sizes area reasonably similar and the resulting benefit to each lot appears to be generally equal.
 
Special assessments were only applied to properties having direct Access to an improved street.  The intent of this is to assess each property for one reconstruction and two overlay improvement projects over the service life of the improved street serving the property, or the street the property directly accesses.  However, this becomes an issue when a property has direct access to two or more streets.  And the issue can be compounded further when more than one street that the property accesses is improved at the same time.  The 2015 overlay projects included numerous corner lots, but none had access to more than one street receiving improvements.  The 2015 street reconstruction projects included several corner lots, but again none had access to more than one street being improved.
 

Policy Modification Highlights
At this time, staff recommends reviewing several sections of the Policy to allow the Policy to be modified prior to Council approval of any of the 2016 proposed improvement projects as needed.  These sections include:

Section 1 – No modifications are recommended at this time.
 
Section 2 – No modifications are recommended at this time.
 
Section 3 – No modifications are recommended at this time.  It is important to note that the language in Section 3 referencing a four-fifths majority vote comes directly from State statute 429.031 and therefore cannot be modified.
 
Section 4 – Several errors were discovered in the special assessment improvement project general process language.  Staff will make the necessary modifications and will highlight them within an updated draft Policy to be presented at a future work session.
 
Section 5 – No modifications are recommended at this time.
 
Section 6 – No modifications are recommended at this time.

Section 7 – No modifications are recommended at this time.
 
Section 8 – No modifications are recommended at this time.
 
Section 9 – No modifications are recommended at this time.
 
Section 10 – No modifications are recommended at this time. While the City did not assess residential properties for 25% of either of the street reconstruction projects, the completed benefit appraisal consultation reports determined that the properties did benefit in an amount that would have warranted an assessment of 25% of eligible project costs.  As was discussed during the assessment hearings for the 2015 improvement projects, staff will likely recommend adopting increased proposed assessment amounts with the 2016 street reconstruction improvement project, though the amount assessed cannot exceed the benefit to the property. And as before, staff will recommend the use of a benefit appraisal consultation for the 2016 street reconstruction project.

Section 11 – No modifications are recommended at this time.

Staff estimates up to 10 minutes will be required for presenting this item, with another 15 minutes for discussion.

Any modifications made to the Special Assessments Policy will be completed as part of Staff's normal duties.

City Engineer Westby will present and lead discussion on this case.  City Administrator Ulrich, Finance Director Lund, and City Attorney Langel will be available to respond to questions if needed.

Direct staff to research potential modifications to the Special Assessments Policy for further discussion.