Property Owners Ass'n of the Highland Subdivision a Portion of USMS 769, Ketchikan, Alaska v. City of Ketchikan

• Citation: 781 P.2d 567
• Decision Date: 20 October 1989
• Docket Number: No. S-2760,S-2760
• Parties: PROPERTY OWNERS ASSOCIATION OF THE HIGHLAND SUBDIVISION A PORTION OF USMS 769, KETCHIKAN, ALASKA, Appellant, v. CITY OF KETCHIKAN, a Home Rule Alaska Municipal Corporation, Appellee.
• Court: Supreme Court of Alaska (US)

Page 567

781 P.2d 567

PROPERTY OWNERS ASSOCIATION OF THE HIGHLAND SUBDIVISION A PORTION OF USMS 769, KETCHIKAN, ALASKA, Appellant, v. CITY OF KETCHIKAN, a Home Rule Alaska Municipal Corporation, Appellee.

No. S-2760.

Supreme Court of Alaska.

Oct. 20, 1989.

Michael W. Flanigan and Susan M. Williams, Clark, Walther & Flanigan, Anchorage, for appellant.

Mitchell A. Seaver, Asst. Municipal Atty., and Russell W. Walker, Municipal Atty., Ketchikan, for appellee.

Before MATTHEWS, C.J., and RABINOWITZ, BURKE, COMPTON and MOORE, JJ.

OPINION

MOORE, Justice.

This case involves the construction and financing of capital improvements in the Highlands subdivision of the City of Ketchikan. Following construction, the Ketchikan City Council levied a special assessment against the land which benefitted from the improvements. The subdivision lot owners appeal the amount of the assessment and the interest rate charged during the payment period. The lot owners raise due process and estoppel issues, among others, in their attack on the Ketchikan City Council's financing decision.

I.

In 1978, Charles and Mary Hoyt decided to subdivide a parcel of land in Ketchikan into thirty-two lots. They petitioned the Ketchikan City Council to create a local improvement district ("LID") encompassing the proposed subdivision. LIDs are vehicles by which private landowners may benefit from advantageous financing methods available to cities, such as tax free municipal bonds. The Hoyts asked the Council to provide LID financing for capital improvements including road, water, sewer, telephone, and power line installation.

Following a public hearing at which no objections were raised, the Council created the Highlands LID for the Hoyts' property. When the LID was created, the Council, developer, and city staff all contemplated that construction would be financed by the issuance of bonds. At that time, the maximum legal interest rate for LID bonds was eight percent. Former Ketchikan Municipal Code [hereinafter KMC] 03.16.130. ¹

In May 1979, the Council amended the Highlands LID. Although it continued to authorize the issuance of bonds, the amendment also permitted interim construction financing through such short-term obligations as would be approved by the Council. Construction commenced with interim financing from the Ketchikan General Fund.

During 1980, it became clear that municipal bonds could not be marketed at eight percent due to an unprecedented rise in interest rates. In December 1980, the Council amended KMC 3.16.130 to remove the cap on special assessment bond interest rates. ²

The capital improvements were substantially completed and inspected in October 1980, although work was not fully completed until August 1981. Until December 1980, the funds borrowed from the Ketchikan General Fund accrued interest at eight percent. Between December 1980 and January 1982, the funds accrued interest at eleven percent. In December 1981, the Council approved the final assessment roll which assessed total accrued construction, interest, and administrative expenses of $968,468.16 against the lot owners. The Council proposed that the lot owners pay the assessment over ten years at thirteen percent interest.

At a public hearing on the assessment on January 22, 1982, the lot owners objected to the amount of the assessment, the proposed thirteen percent interest rate, and the length of the repayment period. The Council passed a motion retaining the amount and the thirteen percent interest rate, but extended the repayment period from ten to fifteen years. The Council reaffirmed this decision in February 1982.

Certain lot owners identifying themselves as the Property Owners Association of the Highlands Subdivision appealed the assessment amount and repayment terms to the superior court. The owners moved for a trial de novo and shortly thereafter submitted the affidavit of real estate broker Charles Elliott.

The superior court ordered the Elliott affidavit stricken from the record as untimely and later denied the motion for a trial de novo. Following briefing and oral argument, the court affirmed the decision of the Council and entered final judgment. This appeal followed.

II.

A municipality may create a LID to help property owners finance capital improvements. AS 29.46 (formerly AS 29.63). Ketchikan implemented its delegated authority in chapters 3.16 and 3.18 of the Ketchikan Municipal Code. A LID involves an agreement by the Council to pay interim construction costs. KMC 3.16.110. ³ The Council may finance construction by issuing warrants or bonds, or by transferring funds from the city general fund. Id.; KMC 3.16.120(a). ⁴ Once the project is complete and the total costs known, ⁵ the Council levies a special assessment against the property benefitted by the improvements. The owners are entitled to notice ⁶ of the proceedings and may object to the assessment roll or any separate assessment during the public hearing. KMC 3.18.060. ⁷ After the assessment roll is completed, the Council establishes a repayment schedule and interest rate. KMC 3.18.070. ⁸

III.

The lot owners argue that they were deprived of due process of law because the levy of special assessments is an adjudicative function and they were not afforded trial-like procedures. Ketchikan argues that trial-like procedures were not required because the Council acted in its legislative capacity.

This is a question of law upon which we exercise our independent judgment. Langdon v. Champion, 752 P.2d 999, 1001 (Alaska 1988). We review the decision of the Council directly because the superior court was acting as an intermediate court of appeals. Barcott v. State, Dep't. of Pub. Safety, 741 P.2d 226, 228 (Alaska 1987); City of Nome v. Catholic Bishop, 707 P.2d 870, 875 (Alaska 1985).

The question whether a governmental action is "legislative" or "adjudicatory" implicates important due process considerations. Where an act is deemed to be legislative, trial-type procedures need not be afforded to affected members of the public. The contrary is true where an act is deemed to be "adjudicatory." See 2 K. Davis, Administrative Law Treatise § 12:1, at 406-09 (2d ed. 1979) (citing Londoner v. City of Denver, 210 U.S. 373, 386, 28 S.Ct. 708, 714, 52 L.Ed. 1103 (1908); I.C.C. v. Louisville & Nash. R.R., 227 U.S. 88, 91- 92, 33 S.Ct. 185, 186-87, 57 L.Ed. 431 (1913)).

Assessment proceedings which affect individual taxpayers, rather than taxpayers as a group, ⁹ and which involve the ascertainment of facts material to those individuals are "adjudicatory." The requirement that an individual specifically targeted by a taxing authority be afforded a hearing has been interpreted to entitle the taxed party to trial-type procedures where disputed material facts must be ascertained. 2 K. Davis, supra p. 9, § 12:1, at 407.

The Council's decision in this case involved two components. First, the council decided how and at what interest rate it was going to fund the subdivision's improvements. This clearly involved a policy determination which is "legislative." The legislative character of the decision is evidenced by the fact that the Council did not sift through and decide evidentiary questions unique to any of the affected parties. See Greene v. McElroy, 360 U.S. 474, 496-97, 79 S.Ct. 1400, 1413-14, 3 L.Ed.2d 1377 (1959) (where government action seriously invades individual interest and requires findings of fact, trial-type procedures are required).

A more difficult question is whether the Council's decision to charge the taxpayers for delays caused by work allegedly benefitting only the city was "legislative" or "adjudicative." The Council based its decision to charge the taxpayers for these delays on testimony that the work which caused the delays benefitted the taxpayers as well as the city.

We believe that this was a legislative decision because the decision affected a large development and a group of similarly situated taxpayers. To hold otherwise would encroach upon and make too cumbersome the legislative policy-making function.

In a legislative assessment proceeding, due process requires notice and an opportunity to be heard, both of which were provided to the affected owners in this case. See, e.g., Hinz v. City of Phoenix, 118 Ariz. 161, 575 P.2d 360, 363 (App.1978); South Ferry St. Project v. City of Schenectady, 72 Misc.2d 134, 338 N.Y.S.2d 730, 733-34 (Sup.Ct.1972); Tramel v. City of Dallas, 560 S.W.2d 426, 429-30 (Tex.Civ.App.1977). Because the lot owners received all the process due, we conclude that the superior court did not abuse its discretion in refusing to conduct a trial de novo. See State v. Lundgren Pac. Constr. Co., 603 P.2d 889, 895-96 (Alaska 1979); see also Alaska Appellate Rule 609.

IV.

The owners asserted that the changes which delayed completion of the project until August 1981 were undertaken at the behest of and for the exclusive benefit of the city. City staff members, however, indicated that the rerouting of one water line, which delayed the project until the spring of 1981, was required to remain eligible for grants from the Alaska Department of Environmental Conservation. The installation of overhead power and telephone lines by Ketchikan Public Utility, which was not completed until January 1981, was done at the request of the Hoyts and saved the project at least $60,000. Finally, replacement of one old wood stave water main, while beneficial to the city, also facilitated the project's hookup to another water main.

Our review of a council's legislative assessment decisions is very limited. The Council's decision is presumed correct. City of Wasilla v. Wilsonoff, 698 P.2d 656, 657 (Alaska 1985). We will reverse only upon a showing "of fraud or conduct so arbitrary as to be the equivalent of fraud or so manifestly arbitrary and unreasonable as to be palpably unjust and oppressive." Id. at 658 (quoting Kissane v. City of Anchorage, 159 F.Supp. 733, 737 (D....