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Gary A. Van Cleve, Contributing Author. Mr. Van Cleve is chair of the Real Estate Litigation practice group at Larkin Hoffman, where he has practiced for over 20 years. He is certified as a civil trial and real property specialist by the MSBA. Road Improvements: When Are Special Assessments Legitimate? Gary A. Van Cleve February 20, 2009 What legal mechanisms enable cash-strapped local governments in Minnesota to pay for road improvements in the face of a mountainous state government deficit? Cities and counties in Minnesota derive their taxing power from the Legislature, and a common vehicle for funding local road improvements is the levy of special assessments under Minnesota Statute Chapter 429. Indeed, in these times it appears that special assessment funding is becoming more common, with many Minnesota cities considering implementation of greater percentages of funding for local road improvements through the special assessment process.1 But what authority do local governments in Minnesota have to adopt impact fees as an alternative to special assessments for funding road improvements? This article submits that there is no such authority—and discusses a recent state district court decision—SJC Properties, LLC, et al. v. City of Rochester2—that struck down one Minnesota city’s attempt to collect $1.7 million in impact fees by levying them as special assessments. Minnesota cities and counties possess carefully circumscribed authority from the Legislature to levy special assessments to pay for the costs of certain local improvements.3 The statute states that a city or county may assess the “costs of any improvement or any part thereof …upon property benefited by the improvement, based upon the benefits received.” The special assessment statute expressly identifies the types of local improvements that may be funded by special assessments—ranging from roads to skyways—and mandates procedures that must be followed and criteria that must be met for a special assessment to be adopted and levied against a property owner. Before adopting a special assessment, the local government must prepare and make available to the public a report addressing the necessity, feasibility, and cost-effectiveness of the proposed improvement. There are three fundamental limiting conditions to a city levying a special assessment to pay for a local public improvement: (1) the land must receive a special benefit from the improvement being constructed, (2) the assessment must be uniform upon the same class of property, and (3) the assessment may not exceed the special benefit.4 A “special benefit” means an increase in the market value of the property resulting from the improvement. A key, yet little known, corollary to these limitations is that an assessment that provides a future benefit to the property may be too speculative and remote to be legal.5 The Minnesota Supreme Court has recognized for nearly 100 years that if a special assessment exceeds the special benefit conferred on the property assessed, then an unconstitutional taking without just compensation has occurred.6 A property owner may appeal a special assessment to state district court and the consequence of a court’s invalidation is that the assessment is set aside. While special assessments attempt to allocate the costs of specific, defined public improvements based upon the benefits receiv ed by individual properties, impact fees, by contrast, seek to allocate to undeveloped property owners the future costs of additional public infrastructure that will be required to accommodate new development. A phrase common throughout impact fee research is “you pay, you play.” Simply put, development can occur once impact fees are paid. Common examples of development impact fees include traffic mitigation fees, infrastructure improvement fees, and fees for improving water and sewer systems.7 A Minnesota Department of Transportation (MnDOT) technical report similarly defined impact fees as one-time charges on new real estate development as compensation for the higher incremental cost of off-site capital improvements. Like on-site dedications, impact fees shift the infrastructure cost of new development back on land