MATTHEW FINK, WILLIAM COMPTON, PATRICIA LEFEVRE, CORBETT MOTHE, CLARK C. RUSH, ELIZABETHMORGAN, NANNIE SCHLEUSNER, CHUCK SPINELLI, DIANE WILKE, JASON DORRIS, KARLA GRUMMAN, JAMES NIGH, and NICOLAS WIEDER, Appellants,
v.
MUNICIPALITY OF ANCHORAGE, Appellee.
Appeal
from the Superior Court No. 3AN-15-06925 CI of the State of
Alaska, Third Judicial District, Anchorage, Eric A. Aarseth,
Judge.
James
N. Reeves, Holmes Weddle & Barcott, P.C., Anchorage, for
Appellants.
Robert
P. Owens, Assistant Municipal Attorney, and William D.
Falsey, Municipal Attorney, Anchorage, for Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
Carney, Justices.
OPINION
BOLGER, Justice.
I.
INTRODUCTION
Owners
of real property (Property Owners) appeal special assessments
that the Anchorage Municipal Assembly levied on their lots to
pay for recently constructed road, water, and sewer
improvement projects benefiting the lots. The Property Owners
claim that the special assessments improperly include nearly
$ 1 million in costs from another municipal utility project
unrelated to the improvements built for the benefit of their
lots. They also claim that the special assessments exceed
limits set by ordinance and that the assessed costs are
disproportionate to the benefits provided by the
improvements, violating municipal ordinance, charter, and
state law.
We
conclude that the Assembly's allocation of costs among
these projects was supported by substantial evidence and that
the ordinance limit the Property Owners rely on does not
apply to these assessments. We also conclude that the
Property Owners have not rebutted the presumption of
correctness that attached to the Assembly's
proportionality decisions. We therefore affirm the superior
court's decision affirming the Assembly's special
assessment determinations.
II.
FACTS AND PROCEEDINGS
The
present appeal concerns lots located in an Anchorage
residential neighborhood called Turnagain Heights. This
neighborhood was destroyed by the 1964 earthquake and
remained undeveloped decades later. In 2002 some Turnagain
Heights lot owners petitioned the Municipality of Anchorage
to establish road, water, and sewer improvement districts.
The Municipality produced cost estimates for the projects,
and a majority of the property owners in the proposed
improvement districts approved the estimates. The Assembly
consequently enacted ordinances in 2004 creating three
special assessment districts: a road improvement district
(RID), a water improvement district (WID), and a sewer
improvement district (referred to as a "lateral
improvement district" or LID).[1]
The
Municipality hired an engineering consulting firm to do the
design work for the three projects. Based on a geotechnical
analysis of the area, the firm recommended that subdrains be
incorporated in the projects' designs to remove
groundwater and ensure soil stability during seismic
activity.[2] These subdrains were to be placed in
"the sewer utility trenches[, ] ... the deepest utility
trench[es] that [are] graded to drain." The proposed
subdrainage system significantly increased the cost estimates
for the RID, WID, and LID projects, and the Municipality
issued revised estimates in 2006. A majority of the property
owners in the improvement districts approved the revised
estimates. The Assembly amended the 2004 ordinances
accordingly.[3]
The
Municipality consolidated the RID, WID, and LID projects with
an unrelated project by the Anchorage Water and Wastewater
Utility (AWWU) to replace Pump Station 10, an aging sewer
pump station in the area that had needed to be replaced for
years. The contract manager for the RID, WID, LID, and Pump
Station 10 projects characterized the Pump Station 10 project
as "a basic infrastructure upgrade" that benefited
users outside the improvement district area as well as within
it. The Municipality believed consolidating the projects
would "allow maximum cost and schedule
efficiencies."
The
Municipality created six work schedules for the consolidated
projects, lettered A-F. Schedules A-C included all the work
necessary for the Pump Station 10 project, as well as some
work needed for the RID, WID, and LID projects. Schedules D-F
included the balance of the work needed for the RID, WID, and
LID projects. The Municipality invited contractors to submit
a "base bid" comprising work identified in
Schedules A-C and bid on "deductive alternates"
comprising work identified in Schedules D-F. The Municipality
divided the work and solicited bids in this manner so that
the Pump Station 10 project could go forward without the
improvement district projects in the event that none of the
bids was compatible with the cost estimates that the district
property owners had approved.
The
Municipality received an acceptable bid for the entire
contract (Schedules A-F), and all four projects were built.
In November 2011 the Municipality submitted proposed
resolutions to the Assembly to levy special assessments on
the improvement district properties to pay for the completed
work. The Assembly held a two-day public hearing, and in
February 2012 it issued resolutions levying the
assessments.[4] The RID, WID, and LID assessments included
not only costs from Schedules D-F but also some costs from
Schedules A-C.
Some
affected property owners - including most of the Property
Owners in the present appeal-were unsatisfied with the
assessments and the process afforded them by the Assembly;
they filed an appeal in superior court. The superior court
remanded the matter to the Assembly, ruling that the Assembly
needed to conduct an adjudicatory hearing and decide disputed
issues of fact in accordance with Anchorage Municipal Code
(AMC) Chapter 3.60.[5]
A panel
composed of three Assembly members conducted such a hearing
over three days in December 2014. Following the hearing, the
panel issued findings of fact and conclusions of law
rejecting most of the aggrieved property owners'
objections to the assessments.[6] The Assembly approved the hearing
panel's findings of fact and conclusions of law and
issued new resolutions confirming and levying assessments on
the improvement district property owners.[7]
A group
of property owners - the Property Owners - remained
unsatisfied and filed a renewed appeal in superior court. The
Property Owners argued, among other things, that "[a]ll
items of work set forth on Schedules A-C were necessary
components of [Pump Station] 10" and that it was thus
"improper and unlawful [for the Assembly] to pass those
costs to the improvement districts." The Property Owners
also argued the assessments exceeded "120% of contract
construction costs," in violation of AMC
19.30.040(A)(1). And they argued the special assessments were
not proportional to the benefit conferred by the
improvements. The superior court rejected all arguments; the
Property Owners appeal to this court.
III.
STANDARD OF REVIEW
We
review a municipal assembly's decision
directly.[8] We apply the substantial evidence standard
of review to the assembly's findings of
fact.[9] "Substantial evidence is 'such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.' "[10]
Interpretation
of an ordinance or municipal charter provision presents a
question of law.[11] We generally review such questions using
our independent judgment, adopting "the rule of law that
is most persuasive in light of precedent, reason, and
policy."[12] But "when reviewing questions of
law that involve the [Assembly's] expertise . . . [or]
fundamental policy determinations," we apply the
rational basis standard, deferring "to the
[Assembly's] determination as long as it is supported by
the facts and has a reasonable basis in
law."[13]
Our
review of a municipal assembly's special assessment
decision is also constrained by the "presumption of
correctness."[14] This presumption attaches whenever a
municipal assembly acting in its legislative capacity levies
special assessments.[15] When the presumption has attached, we
will reverse the assembly's decision "only upon
proof of 'fraud or conduct so arbitrary as to be the
equivalent of fraud, or [where a decision is] so manifestly
arbitrary and unreasonable as to be palpably unjust and
oppressive.' "[16]
IV.
DISCUSSION
A.
Allocation Of Costs Between The Improvement Districts
And The Pump Station 10 Project
The
Property Owners first claim that the Municipality improperly
"shifted" about $ 1 million in costs from the
installation of a subsurface drainage system needed by Pump
Station 10 to the RID, WID, and LID projects. As a result,
the Property Owners argue, "a small group of property
owners" has been forced to "hold[] the bag
for" expenses related to AWWU's maintenance of its
sewer system - expenses that ordinarily would have been
passed on to the utility's systemwide customer base.
1.
Additional background
As
explained above, the Municipality divided the construction
work for the RID, WID, LID, and Pump Station 10 projects into
six different schedules: Schedules A-F. Schedules D-F
included work necessary for the RID, WID, and LID projects
but not for the Pump Station 10 project. The Municipality
charged the expenses associated with Schedules D-F to the
improvement districts and included them in the special
assessments.
Schedules
A-C included all the work needed for the Pump Station 10
project and some work needed for the RID, WID, and LID
projects. The Municipality charged nearly $1 million in
expenses associated with Schedules A-C to the improvement
districts and thus included them in the special
assessments.[17] A significant portion of this nearly $1
million-namely, $834, 542 from Schedule B- resulted from
construction of a subdrainage system.[18] As explained
above, the firm that designed the RID, WID, and LID projects
recommended construction of this subdrainage system in order
to remove groundwater and make the soil more stable in the
event of an earthquake. Ensuring stability was essential
because it was expected that the improvement districts would
be developed for residential use.
Pump
Station 10 also needed the subdrainage system. But the
Assembly hearing panel heard testimony that a subdrainage
system that served only Pump Station 10 would have been more
limited than the shared system actually constructed. The
projects' contract manager explained that
"maintaining the stability" of the improvement
districts was "more important than dewatering the pump
station." The primary author of the geotechnical report
for the projects further explained, "If a pump station
slides down the hill, the consequences are far less than a
lot of houses." The Municipality charged the vast
majority of the expenses associated with constructing the
subdrainage system to the RID project.
The
hearing panel heard testimony on the accounting practices
used to ensure that costs were properly allocated among the
projects. In particular, AWWU's capital program manager
testified that expenses for the different projects were
"tracked separately" and that multiple individuals
reviewed the pertinent records as the projects progressed. A
proj ect administrator acknowledged discrepancies of around $
10, 000 total in the accounting records. She testified that
the errors had been corrected and that "the total
project costs that were calculated and allocated [were]
accurate."
The
Assembly hearing panel found that the subdrainage system was
"necessary" for the improvement district projects.
The panel found that the Municipality "properly shifted
approximately $1 million . . . back into the Special
Improvement Districts so that [they] would pay for that part
of the construction work essential to and directly benefiting
the Improvement Districts." And the panel found that the
Municipality "used proper accounting procedures to
separately track the costs of each project individually, and
that none of the costs for [Pump Station] 10 were improperly
assessed against the property owner taxpayers." The
Assembly approved these findings.
2.
Analysis
In
arguing that the Municipality erroneously shifted about $ 1
million from the Pump Station 10 project to the improvement
district projects, the Property Owners rely on Anchorage
Municipal Charter section 9.02(e). This provision states:
"An account or accounts for each special assessment
district shall be created and kept separate from all other
municipal accounts. Revenues collected within a special
assessment district may be applied only to costs incurred
with respect to that assessment district."
The
Property Owners fail to show that the Municipality violated
this provision. The Assembly hearing panel's findings set
forth above establish that the Municipality complied with
section 9.02(e) by maintaining separate accounts. The
findings also establish that the Assembly complied with
section 9.02(e) because the special assessments did not
include any costs other than those "incurred with
respect to the assessment district[s]." The Property
Owners do not challenge these findings, let alone show that
they are not supported by substantial evidence.[19]
The
Property Owners point to hearing panel testimony by an
"engineer engaged by AWWU and the [Municipality]... that
all of the items on Schedules A, B and C were necessary for
Pump Station 10, regardless of whether the Improvement
District[s] were built." But the Property Owners ignore
contrary testimony that the subdrainage system included in
Schedule B would have been more limited had the improvement
districts not been built. In any case, the fact that items in
Schedules A-C were required by the Pump Station 10 project is
consistent with these items also being required by the RID,
WID, and LID projects. Or to use the language of section
9.02(e), the mere fact that costs were "incurred with
respect" to the Pump Station 10 project does not mean
that the same costs were not also "incurred with respect
to the assessment district[s]."
In the
alternative, the Property Owners argue that even if the
subdrainage system benefited the improvement district
properties in addition to Pump Station 10, the Municipality
failed to" 'fairly allocate' the costs" and
improperly "forc[ed] the [improvement district
properties] to pay for the entirety of them." However,
the Property Owners do not cite any authority other than
section 9.02(e). This provision does not impose a "fair
allocation" requirement over and above its requirements
that expenses be properly segregated and accounted for and
that assessments "be applied only to costs incurred with
respect to th[e] assessment district." To the extent the
Charter and other sources of law do not fully dictate how
expenses should be divided once the requirements of section
9.02(e) are satisfied - as they are in this case - such
division is a policy matter that is legislative in nature.
The Assembly may accordingly exercise its discretion in
dividing the expenses within the bounds of the controlling
law.[20]
If the
Property Owners could show that the Municipality or Assembly
acted arbitrarily or with bias or malice in dividing the
costs - and thus rebut the presumption of correctness - then
perhaps it would be appropriate for this court to intervene.
But the Property Owners fail to do so. We thus reject the
Property Owners' claim that the Municipality did not
properly divide the expenses among the RID, WID, LID, and
Pump Station 10 projects.
B.
AMC 19.30.040(A)(1) Assessment Limit
The
Property Owners next claim that the special assessments
levied by the Assembly violate AMC
19.30.040(A)(1).[21] AMC 19.30.040(A) states:
Generally. Except as provided in subsection B of
this section or elsewhere in this title, the project costs
assessed against benefited parcels shall be the least of the
following:
1. Construction contract costs plus 20 percent for
noncontract costs, including but not limited to engineering
and design, surveys, soil investigations, right-of-way
negotiations, inspection and contract supervision, and net
interest, plus actual property acquisition costs;
2. The last approved estimate plus ten percent; or
3. The total cost of the improvement less the amount of any
grant the municipality uses to defray the cost of the
project.
The
Property Owners argue that the special assessments exceed the
cap in subsection .040(A)(1) because the assessed project
costs exceed the "construction contract costs" of
the RID, WID, and LID projects by more than 20 percent. For
instance, the Property Owners assert that the construction
contract costs for the RID project were $2, 371,
707.[22] Yet in calculating the RID assessments,
the Municipality used an adjusted project cost of $4, 860,
838, a figure which far exceeds 120% of the construction
contract ...