In Michigan, townships often use special assessments to fund a myriad of improvements ranging from building sidewalks, treating inland lakes for invasive aquatic weeds, and improving roadways to providing police and fire protection. The most common statute for township special assessment projects is Act 188 of 1954, MCL 41.721 et seq., (“Act 188”) which authorizes over 15 different types of improvements alone. See MCL 41.722. Another common statute townships sometimes use for special assessment projects is Act 33 of 1951, MCL 41.801 et seq., (“Act 33”). Act 33 allows special assessments to pay for township police and fire protection.
Townships may find special assessment projects attractive as they provide a mechanism to help benefit residents from various improvements (e.g., a project to benefit township lakefront owners with aquatic weed control). Yet, some townships are wary of special assessment projects because of the perceived complexity of the process to impose special assessments or because individuals can appeal special assessments. Having helped many townships fund various projects with special assessments, this E-letter addresses the “Top Seven” mistakes that we see townships make when utilizing special assessments to fund a project. The intent of this E-letter is to help your township avoid some of the pitfalls in the special assessment statutes so you can benefit your residents. Should you need any individual advice regarding the special assessment process, please do not hesitate to contact our firm.
1. Not Thinking Strategically
One of the biggest “mistakes” we see townships make when considering a special assessment project is not taking the time to think strategically about the project. Sometimes a property owners association or another group of private residents will submit materials (e.g., for a road improvement) and a township simply “rushes” by creating a special assessment district and imposing special assessments using a process that may or may not comply with Michigan law. Like any public project, when a township receives an inquiry for a project it should take some time to think about the project before moving forward.
Some things that a township should think about before starting on a special assessment project are as follows:
- What do the project plan documents look like? Under Act 188, a special assessment project must generally include plans and an estimate of costs. MCL 41.724(1). Although Act 188 is silent on the content of plans and costs, a township should think about whether the individual(s) responsible for putting together the plans (if not the township) was qualified to prepare such documents depending on the improvement. If an estimate of costs includes line items (e.g., paving costs), it is a good idea to inquire whether there are associated documents such as contractor estimates to justify the amounts of those costs. A project’s estimated costs are very important as a township should want to ensure that any assessments cover the entire cost of the project.
- Have we thought about how to finance the project? Some projects, especially road and sewer projects, may be expensive. Although special assessment statutes may allow a township to make the “costs” of these improvements reasonable through annual installments, a township should think about how it will pay upfront costs to be reimbursed by any annual installments. A couple of ways a township can do this is by creating a “township improvement revolving fund” under MCL 41.735a that essentially allows a township to “front” general fund monies for a project to be repaid by special assessments or by contacting bond counsel to assist with issuing bonds to pay for a project. See MCL 41.735.
- Setting a timeline and a kick-off meeting for project planning. One of the biggest considerations when funding a project by special assessments is setting dates to accomplish various required steps under Act 188 and other statutes such as two required public hearings. Townships should consider “mapping out” when they will accomplish certain tasks while in the planning stages of a project to set realistic expectations of when they can complete the special assessment process. A “kickoff” meeting with a township team (legal, elected officials, engineers/project consultants, and property owner representatives) before the process to start the project begins can be helpful to set expectations regarding the project.
2. Fear of the Process or Costs
Admittedly, the process to properly approve a project using special assessments can initially appear complex. To properly follow the Act 188 process, a township must hold multiple meetings and public hearings as well as pass specific resolutions. See e.g., MCL 41.724, MCL 41.725, and MCL 41.726. As mentioned above, townships also need to approve the costs and plans of a project. MCL 41.725(1)(b). It is very important to make sure that the costs and plans are “good quality” as poor planning or estimates of costs could cause a township to not approve enough assessments to fund a project.
Fortunately for townships, Act 188 allows a township to pass through incidental expenses related to approving a special assessment project such as legal, engineering, consultant, and notice costs, among other things, to those being assessed. See MCL 41.721. Accordingly, a township can ensure that it follows the Act 188 process correctly and has satisfactory plans for a project by using legal and other help. Often, these incidental costs become negligible amounts on annual assessments to property owners but utilizing help to ensure your township completed the Act 188 process correctly can ultimately save your township money by (1) not requiring additional hearings for deficiency assessments or correcting errors; or (2) having to defend assessment appeals in the Michigan Tax Tribunal.
3. Providing Notice and Notice Content
The content of a notice (especially one related to a public hearing regarding approving special assessments) is extremely important. Failing to provide notice or missing the proper content in notices can invalidate special assessments or require a township to hold additional hearings to fix deficient notice, which all costs money and delays projects. See e.g., Trussell v Decker, 147 Mich App 312, 325; 382 NW2d 778 (1985).
For example, although Act 188 outlines a “notice requirement” section in MCL 41.724a, it does not reference Act 162 or 1962 which governs the content of notices for all special assessment hearings. Thus, if a township reads Act 188 in isolation, it may forget to include required notice language about the ability to appeal a special assessment under MCL 211.746. Also, the Trussell case cited above also suggests that certain notices should explain an individual’s right to submit an “objection petition,” which requires property owners to then submit a “supporting petition” (not mentioned in Act 188 itself). Trussell v Decker, 147 Mich App 312 at 325. Missing simple notice requirements (that are not obvious in Act 188) can invalidate assessments and a township may want to have its assessment notices reviewed by an attorney familiar with the area.
4. Knowing When to Require or Not to Require a Property Owner Petition
Townships often confuse whether they need or do not need a property owner petition for a particular Act 188 project. The simple answer is a township does not need a property owner petition to begin or even complete the Act 188 process for a special assessment project. But townships may want to require a property owner petition to gauge stakeholder support.
Depending on the improvement, a township can require a petition from property owners who own more than 50% of the lands in a proposed special assessment district or own more than 50% of the frontage of infrastructure to be improved (e.g., a road) to submit a petition desiring a special assessment project before beginning the special assessment process. See MCL 41.723(3). A township may also simply begin a project without a petition, but it must require a petition if a minority of property owners (landowners with more than 20% of land area in a district or frontage) submit an “objection petition” against a project. MCL 41.723(1).
Especially for costly or first-time improvements, a township may want to require a property owner petition before expending funds to begin the special assessment process as (1) it will gauge resident support for the project; and (2) will avoid an “objection petition” that can stall a project’s timeline or not allow a project to move forward (and also make a township not be able to assess to recoup costs it incurred to begin a project). Yet, for repeat projects (e.g., inland lake weed management or gravel road improvements), a petition may not be necessary due to existing support of the project, and requiring a petition could just slow down moving forward with the project.
5. Not Fixing Past Mistakes
Newly elected officials often find existing special assessment districts levying assessments for various projects in their township. An elected official may find that the special assessments were imposed not in accordance with Act 188 or other authorizing statute. For example, a township may have passed a special assessment (presumably under Act 188) without holding any public hearings or by not providing the required mailing notice to those being assessed.
Likely recognizing that the Act 188 process can be complex, Act 188 has a process to fix “mistakes.” MCL 41.733 outlines a process where if a township recognizes an error in the special assessment process, it can go back to the last “step” where the error occurred and “fix” the process to impose the assessment. To avoid challenges to existing assessments, townships can also hold the entire Act 188 process over again to ensure it creates valid assessments. Should your township review prior special assessment project approvals and identify errors with the special assessment formation process, it should consult with an attorney to identify potential options to fix any errors and/or to identify any risks from the errors.
6. Understand That You Can Say “No”
Property owners often drive the desire to move forward with a special assessment project. Understandably, property owners may not be familiar with the process under Act 188 and other special assessment statutes that govern making such improvements.
In some circumstances, a property owner or property owners association may pressure a township to deviate from the Act 188 process in ways such as (1) not holding required hearings (often to “speed up” a project); or (2) wanting to borrow funds for a project in a way not consistent with Michigan law. Furthermore, some property owners may advocate for a project (or assessment calculations) that most others may not want. Remember that a township can and should say “no” to a project that would require it to face potential legal ramifications (and corresponding financial ramifications) to cut corners or political ramifications by getting into neighborhood disputes, among other things. A township can always refuse to proceed with a special assessment project even if it receives a property owner petition for the project. See MCL 41.723(1).
7. Considering Alternatives
The last mistake townships sometimes make (aligning with Tip #1 above) is some townships consider a project only through the lens of the township’s special assessment process. For example, if a township receives a request for a special assessment project for major road improvements or police protection, it may want to consider whether the rest of the township may benefit from the improvement and whether it would be appropriate to put a millage question on the ballot for those purposes. That way a township board can defer to the entire township population whether they want a particular improvement or not.
Furthermore, there is also some overlap regarding other entities that can also make improvements by special assessment. For example, a township can assist with creating a new political entity (a lake improvement board) to independently assess for aquatic weed management, among other things, under the governance of a board that may have more familiarity with lake-related issues. See MCL 324.30901 et seq. Again, it is important to think strategically about proposed improvements, and it can be helpful to ask your township attorney in advance if they are familiar with any other ways to help move forward with an improvement so your township can evaluate all options.
Special assessment projects are a great way for a township to facilitate improvements to benefit residents. Although the process to properly approve a special assessment project can be complex, a township can avoid many “pitfalls” associated with improperly imposing special assessments by seeking help from legal counsel, engineers, and other consultants. These costs can be passed through as part of the special assessments themselves allowing a township to not have to weigh potentially having mistakes with their special assessments against “out-of-pocket” expenses. Should you or your township have any questions about special assessments, do not hesitate to contact our firm.
By: Kyle O’Meara
This publication is intended for educational purposes only. This communication highlights specific areas of law and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.