Special Assessments Research 2008

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House Research Department Updated: September 2008 Special Assessments Page 10 Market value v. benefit. Property taxes are based on the market value of the property—ad valorem taxes. Special assessments, on the other hand, are determined without regard to cash valuation. They are based on the benefit to the property. The formula used by a local government to determine how much of a project or service will be paid for by special assessments will typically use factors such as per foot of frontage amount after finding that the improvement provides substantially the same benefit on that basis to adjacent properties. Whatever factors are used, the formula used must approximate a market analysis for the specific local improvement.30 For example, two houses located in the same taxing jurisdictions, one with an estimated market value of $200,000 and one with an estimated market value of $500,000, pay significantly different property taxes. But if each home had 150 feet of frontage on the same street, and the city was installing curb and gutter to that street, both homes would pay the same amount for the assessment for the improvements since the assessment charge is based on footage and not on the market value of the property. Taxable property v. all real property. Property taxes can be levied only on taxable property, but special assessments are imposed on nearly all real property that is benefited. The state constitution does not exempt any property from special assessments for local improvements. Any exemption must be statutory and there are few exceptions.31 All property v. real property. Property taxes are levied on both real and personal property, although at this time, personal property subject to property tax is primarily public utility property. Special assessments may be imposed only on real property.32 Property tax limits do not apply to special assessments. In general, special assessments are not subject to limits that apply to local property taxes. This may be one of the reasons why they are used. They are a means of raising revenue outside of any levy, tax, or per capita limits. Furthermore, any bonds that are issued that are repaid with special assessment revenues are outside of the government’s net debt limits.33 Also, as long as at least 20 percent of the project 30 Bisbee v. City of Fairmont, 593 N.W.2d 714, 719 (Minn. App. 1999) (special assessment was invalid on its face because front-footage method calculation based on average costs of projects from prior years did not approximate a market analysis and was unrelated to particular costs). 31 State v. Roselawn Cemetery Assn., 259 Minn. 479, 481, 108 N.W.2d 305 (1961) (tax-exempt property subject to special assessment unless statutorily exempted as is cemetery property under specified circumstances under Minn. Stat. § 306.14). See Minn. Stat. § 473H.11 (metropolitan agricultural preserves not subject to special assessment). Special assessments imposed on property that is tax-forfeited are cancelled, but are collected when the property is sold. Minn. Stat. §§ 282.01, subd. 5, 282.02. 32 Country Joe, Inc. v. City of Eagan, 548 N.W.2d 281, 285 fn 3 (Minn. App. 1996) (dicta) (road unit connection charge not a special assessment because it was not assessed on property), aff’d 560 N.W.2d 681 (Minn. 1997). 33 Minn. Stat. §§ 475.51, subd. 4 (definition of net debt excludes debt repaid with special assessment revenues), 475.53 (net debt limit).