Opinion
No. C4-01-582, C6-01-583
Filed September 11, 2001.
Appeal from the District Court, Mower County, File No. C4981584.
Steven J. Hovey, (for appellant)
Frederick S. Suhler, Jr., (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
The City of Austin appeals from the district court's order vacating special assessments levied against respondents Eastside Development and F.W. Resources, L.L.P., for street improvements adjacent to respondents' properties. The district court found that the improvements did not result in a measurable increase in market value to respondents' properties and that the City had not levied assessments in a uniform manner. Because the evidence supports the district court's findings that there is no measurable increase in market value to respondents' properties, we affirm.
FACTS
In 1997, based on the city engineer's determination that Eleventh Street Northeast (the street) between Oakland Place and Eighth Avenue Northeast was structurally deficient and at the end of its useful life, the City undertook Local Improvement Project No. 1-A-96 to replace the street with eight-inch thick reinforced concrete and to replace curbs and gutters. The street's width was reduced.
During the project, the sewer and gas lines were repaired, and the cast iron water main was replaced and extended. The below-grade improvements were funded by the utilities and were not considered part of the improvement project.
Initially, the City calculated property owners' assessments by dividing the total share of the project cost that would be borne by the owners by the total number of linear feet each individual owned along the street, giving an amount per linear or "front foot" that was multiplied by the number of front feet an individual owned. Residential property owners were assessed $21.69 per front foot, and the industrial owners (respondents) were assessed $30.81 per front foot. The difference reflected the City's decision not to make residential owners share in the incremental cost of paving beyond a thickness of six inches in depth and thirty-six feet in width. Under this formula, F.W. Resources' property would have been assessed $5,846.20 and Eastside would have been assessed $30,843.27. At all times relevant, F.W. Resources was a partnership and Eastside was a closely held corporation.
When F.W. Resources and Eastside objected, the City postponed levying the assessments and commissioned James Robinson to appraise the before-and-after values of the subject parcels to determine any special benefit that had accrued to the properties as a result of the improvements. Robinson concluded that, after the improvements, F.W. Resources' property's market value increased $5,250 and the aggregate market-value increase of the Eastside Development property was $25,000. The City then levied special assessments on respondents' properties based on Robinson's appraisal. Respondents appealed to the district court.
At trial, Larry Hanson, sole shareholder of Eastside, testified that he bought the property in 1994 for $.185 per square foot, then subdivided it into nine parcels, seven of which are the subject of the assessments. The district court found that Hanson is an experienced developer and buyer and seller of real estate in Austin. Hanson testified that in December 1994, he sold parcel three to James Woodruff for $.46 per sq. ft., although the property was appraised at that time at $.35 per sq. ft. Woodruff paid a premium to preserve a building on the property constructed while F.W. Resources leased the property. The remaining parcels were on the market for $.46 per sq. ft. before and after the street-improvement project. Hanson testified that the street improvements did not increase the market value of the property. Currently, Eastside uses one parcel as an office, and the other parcels remain undeveloped. Woodruff testified that he did not believe that the street improvements had increased the market value of F.W. Resources' property. F.W. Resources operates a wholesale plumbing-supply company with one warehouse-office building and a separate structure to store pipe.
After the improvements, Hanson sold parcel one for $.605 per sq. ft., but remained responsible for the assessments. Hanson attributed this price to factors other than the improvement project.
The parties agreed that Woodruff's testimony from prior proceedings would be admitted in lieu of actual appearance at trial.
Robinson testified that he calculated the market value before the improvements using a subdivision analysis, which contemplates a time period within which the subject land will be sold. Robinson assumed that the Eastside parcels would be sold off at one lot per year for six years at a constant sales price of $ .46 per square foot. Robinson based the length of this period on "the history of the neighborhood and lots that have already been sold." Robinson stated:
That's not a real rapid sell-off, but given the history of fairly slow commercial development in Austin and the recent history in the Eastside Development Subdivision, I felt that that was a reasonable expectation as of that time.
Robinson based his assumption of sales price upon some sales that had already occurred and asking price in the Lone Oak Subdivision by the City for a subdivision for a similarly zoned industrial subdivision on the north end of town and one or two other sales * * * and by a comparison process.
Robinson discounted the projected future net-sales prices back to net-present value using an 11.5% discount rate. The district court found that Robinson had no factual basis for his premise that the land would be sold at a rate of one lot per year for six years and that the market price of $ .46 per square foot was "speculative at best."
To calculate the market value after the improvements, because comparable data for improvements on existing roads does not exist in Austin, Robinson used new improvements "with a substantial discount" for comparison. Robinson attempted to find "purchases of undeveloped, commercially zoned land where the buyer agreed to assume city-provided street and utility services." Robinson found only one property matching those requirements, 25.94 acres purchased by the Dayton Hudson Corporation in 1997 for construction of a Target store. The district court found Robinson's reliance on the Dayton Hudson property inappropriate, because a critical difference between the Dayton Hudson property and the respondents' property was location. The Dayton Hudson site was along Interstate 90 and was zoned for highway business, whereas the respondents' property was along a road across the street from residential property and zoned for light industrial.
Robinson acknowledged that the results of improving market value by reconstruction are lower than in a situation where a new road was constructed for the Dayton Hudson property. He applied a 50% "reconstruction discount." Consequently, Robinson derived a 21% increase in market value by subtracting a 50% discount from the 42.7% increase in market value of the Dayton Hudson property. Robinson acknowledged that the 50% discount was subjective, stating:
Robinson found that the 42.7% corresponded with other recent lot sales.
the fact that a new street has * * * a much better appearance, is safe, less crumbled curbing, whatever, I felt that 50 percent of that ratio was a reasonable estimate.
The district court severely discounted Robinson's estimate of the increase in market value because of the subjectivity and speculativeness of the method and lack of comparables.
The district court also discounted the testimony of respondents' expert Russell Briggs, who used a paired-sales analysis. Briggs compared sales of several residential properties along new or nearly new streets with recent sales of similar properties on older streets in Austin. Briggs used a similar analysis for industrial land. Briggs noted, as did Robinson, that he could not calculate a more exact value due to the absence of like sales in the area, but concluded that, in Austin, street improvements had not resulted in increased market value of adjacent property. The district court noted that "there is really no way of knowing from this kind of appraisal, if the reconstructed streets used in Mr. Briggs' analysis were better or worse than Eleventh Avenue" prior to the improvement project and that the actual condition of the street before and after the reconstruction must be taken into consideration
Although Briggs is an appraiser, he did not perform an "appraisal" but presented instead a "consultation report."
The district court concluded that "[t]he City's attempt to bootstrap" the value of the below-grade infrastructure improvements, being paid for "outside of the confines" of the local improvement project, was not appropriate. The district court concluded that the property owned by respondents received no special benefit from the street-reconstruction project. The district court also determined that the city's method of calculating the ultimate assessments resulted in a different rate of assessment per front-footage for Eastside and F.W. Resources and therefore was not uniform for property in the same category. The district court ordered that the special assessments levied by the City be set aside. The City's motion for amended findings of fact and conclusions of law or for a new trial was denied. The City appealed the district court's decisions regarding both respondents, and this court consolidated the cases on appeal.
DECISION 1. Special benefit
In reviewing findings on special assessments, an appellate court must "ascertain whether the evidence as a whole fairly supports" those findings. Carlson-Lang Realty Co. v. City of Windom, 307 Minn. 368, 373, 240 N.W.2d 517, 521 (1976). "The evidence must be against the findings to justify a reversal." Dosedel v. City of Ham Lake, 414 N.W.2d 751, 756 (Minn.App. 1987).
A city may assess the cost of an improvement on property benefited by the improvement based on the benefit received. Minn. Stat. § 429.051 (2000). This power is limited:
(a) The land must receive a special benefit from the improvement being constructed,
(b) The assessment must be uniform upon the same class of property, and
(c) The assessment may not exceed the special benefit.Bisbee v. City of Fairmont, 593 N.W.2d 714, 718 (Minn.App. 1999) (quoting Lunderberg v. City of St. Peter, 398 N.W.2d 579, 583 (Minn.App. 1986) review granted (Minn. Feb. 18, 1987) and appeal dismissed (Jan. 24, 1988)). "The benefit received from an improvement is the increase in market value of the benefited land." Eagle Creek Townhomes, LLP v. City of Shakopee, 614 N.W.2d 246, 250 (Minn.App. 2000) (citing Buzick v. City of Blaine, 505 N.W.2d 51, 53 (Minn. 1993) review denied (Minn. Sept. 13, 2000)). "An increase in market value is the difference between what a willing buyer would pay a willing seller for the property before the improvement and after the improvement." Id. (citing EHW Props. v. City of Eagan, 503 N.W.2d 135, 139 (Minn.App. 1993)). An appraiser typically gives two values to the property, one before the public improvement is completed and one after the improvement is completed. Id. at 251.
The City argues initially that the district court improperly shifted the burden of proof. A city's evidence on special benefits has a presumption of validity, but the presumption "disappears when adverse evidence on the question of value is introduced." Buettner v. City of St. Cloud, 277 N.W.2d 199, 204 (Minn. 1979); cf. Buzick, 505 N.W.2d at 54 (finding that in the absence of admissible evidence to rebut the presumption of validity, city met its burden of proof by properly entering assessment roll into record and offering additional testimony as to the value of the property before and after improvements).
In this case, Hanson and Woodruff testified about the use of the properties and their knowledge of the market value. Each testified that a special benefit had not accrued to the properties as a result of the street project, and respondents' expert Russell Briggs testified that the improvements did not increase the market value. Although the district court criticized Briggs's method, the court did not reject his testimony. Testimony of a property owner and his or her expert is competent evidence to rebut the presumption of validity. Dosedel, 414 N.W.2d at 756 ("Minnesota case law has never required that only expert testimony is sufficient to overcome the presumption that the city's assessment is valid, and we will not impose such a requirement in this instance."). The district court recognized the presumption of the assessments' validity and found that respondents' evidence overcame the presumption. The record supports this finding.
Once the presumption of validity of the special assessment is rebutted, the district court must independently weigh conflicting evidence presented by the parties on the benefit. See Tri-State Land Co. v. City of Shoreview, 290 N.W.2d 775, 778 (Minn. 1980); In re Meyer, 176 Minn. 240, 243, 223 N.W. 135, 136 (1929) (stating evidence to rebut the presumption of validity "raises an issue of fact upon which normally the decision of the trier of fact will be final").
The City argues that the district court erred in discrediting Robinson's appraisal. "'[A]ny method resulting in a fair approximation of the increase in market value * * * may be used'" to calculate the special benefit. Eagle Creek Townhomes, 614 N.W.2d at 251 (quoting DeSutter v. Township of Helena, 489 N.W.2d 236, 237 (Minn.App. 1992) review denied (Minn. Sept. 30, 1992)). Robinson calculated the before-improvement market value based on the assumption that the development would be sold at a rate of one lot per year for six years at $ .46 per sq. ft. The court found that this assumption had no factual basis and was speculative. In calculating the after-improvement value, Robinson relied primarily on the Dayton Hudson property for comparison, but the district court noted that the critical difference of location between the Dayton Hudson property and respondents' properties made the comparison speculative. Robinson then applied an admittedly subjective 50% reconstruction discount from the market-value increase of the Dayton Hudson property. The evidence supports the district court's conclusion that Robinson's appraisal is speculative. As fact-finder, the district court is not bound by the testimony of an expert. E.g., Dosedel, 414 N.W.2d at 756-57 (discrediting appraisal because seven comparables used were inadequate in number and quantity).
The City argues that the district court improperly failed to consider the below- grade infrastructure improvements. These improvements were not part of the City's improvement project. The City's expert did not consider these improvements in his analysis. The district court did not err by failing to consider the below-surface improvements in assessing a special benefit to respondents' properties.
In addition, the City argues that the district court erred in finding that an improved appearance of the road did not increase the market value of the properties. The district court acknowledged that the street is more esthetically pleasing than it was prior to the improvement project. Because a street has a bituminous surface prior to the improvements does not necessarily disqualify the improvement as an assessable benefit, but rather a court must assess the actual conditions and quality of the street. Schumacher v. City of Excelsior, 427 N.W.2d 235, 238-39 (Minn. 1988) (noting testimony in the record that poor street surface would have a negative effect on the "appeal" of an apartment complex). The district court distinguished Schumacher, concluding that the appearance and condition of the street does not have the same effect or impact on light industrial property as it does on residential property. We agree with the district court that Schumacher is distinguishable. There is no evidence in this record that the street's improved appearance would benefit property zoned as light industrial. There is some evidence in the record from respondent's expert that, in the city of Austin, improved street appearance has not even benefited residential properties. Furthermore, the district court noted that if there was any value to these commercial properties from improved appearance, that value was offset by the fact that the street is now narrower. The evidence as a whole fairly supports the district court's findings that the respondents' properties received no special benefit as a result of the improvement project.
2. Uniformity of assessment
The City also challenges the district court's finding that the properties were not uniformly assessed. Because we affirm the district court's finding that no special benefit accrued to the respondents' property, we decline to reach this issue.