DIXON ROAD GROUP v. CITY OF NOVI

Decided November 6, 1986. Rehearing denied 428 Mich. 1201.

WILLIAMS, C.J.

The issue in this case is whether the Tax Tribunal was correct in upholding a special assessment which allocated a cost of $13,236.81 per acre to the Novi land and $38,769.11 per acre to the Dixon Road land. The Tax Tribunal found that, if there were no zoning change, there would be no increase in the value of either property as a result of the assessment and that, even if there were a zoning change, the value of the land would increase by only $5,000 per acre for the Novi land and $15,000 per acre for the Dixon land. We hold that, while the factual findings of the tribunal are supported by competent, material, and substantial evidence, because of the large disproportionality between the cost and the benefit, as a matter of law, we cannot uphold the special assessment.

FACTS

The Dixon Road Group and Novi-Twelve Associates are limited partnerships which own land in the City of Novi. The parcels are located on Twelve Mile Road, one-half mile west of the intersection of Twelve Mile and Novi Roads.

The properties are currently zoned R-1-F, Small Farm Agricultural Residential District. An area development plan adopted by Novi in 1978 designated the northerly portion of the Dixon Road parcel and the Novi parcel for PD-2 development and the southerly portion of the Dixon Road parcel for PD-3 development.1 The PD-2 option is intended to permit limited mid- and high-rise development. The PD-3 option is intended to encourage intensive major nonresidential use of the land.

In 1981, the city determined that road improvements, water mains, and storm sewers were necessary for the area and created a special assessment district for each improvement. The total cost of these special assessments is $264,736.16 or $13,236.81 per acre for the Novi land and $765,302.33 or $38,769.11 per acre for the Dixon Road land.

Petitioners argue: 1) that the assessments are invalid because the cost of the improvements exceed the increase in value of the property and 2) that there is no special benefit conferred upon the property beyond that to the community as a whole.

The hearing officer at the Tax Tribunal found that the benefit conferred upon the properties was disproportionate to the costs allocated and therefore vacated the special assessments. The Tax Tribunal adopted most of the findings of the hearing officer, but deleted the findings on increased value. The tribunal did not adopt any specific finding of its own, but found that the land was specially benefited as a result of the improvements. The Court of Appeals affirmed the opinion of the Tax Tribunal in an opinion released on December 26, 1984. This Court then remanded the case to the Tax Tribunal with directions to

In a response dated May 28, 1985, the tribunal found:

I. FACTUAL FINDINGS MADE BY THE TAX TRIBUNAL ON REMAND ARE SUPPORTED BY COMPETENT, MATERIAL, AND SUBSTANTIAL EVIDENCE ON THE RECORD

On remand, the Tax Tribunal stated that the benefits which accrued to the property, assuming rezoning, were $5,000 per acre for the Novi land and $15,000 per acre for the Dixon land. These factual findings were said to be "consistent with the proposed judgment of the hearing officer, and based upon the reasons expressed therein." The figures adopted were taken from the testimony of appraiser McDonnell.

The primary approach used by McDonnell in evaluating the properties both before and after the improvements involved a "comparison of properties recently sold in the area to the subject property, and adjust[ment] for location, physical differences and lot size...." As a result of this market data approach, McDonnell arrived at a price of $55,000 per acre for the improved Dixon Road property.

As a further justification for this figure, he stated that on the basis of projections for future office space in the area and considering other more desirable properties available, the Dixon Road property would not be in demand for office space for about four years. He stated that "it just seems to me that office use is really, very, very, speculative for this area...." He therefore took the price at which nearby small parcels of land were currently being sold for immediate office construction and discounted that price to reflect his belief that it would be a number of years before there would be a buyer willing to pay the going rate for either the Dixon Road or the Novi-Twelve land. The result of these calculations is a price very close to his original market data estimate as indicated in the last paragraph.2 Because the estimate of value adopted by the Tax Tribunal on remand is supported by competent, material, and substantial evidence on the record, Const 1963, art 6, § 2, we uphold these factual findings.3

II. SPECIAL BENEFITS MUST BE REFLECTED BY AN INCREASE IN MARKET VALUE

The hearing officer, the Tax Tribunal in its original opinion, and the Court of Appeals all assumed that a special assessment could be supported by a showing which did not necessarily include an increase in the market value of the assessed property. We disagree. As Cooley stated:

Other authorities support this position.

In holding that special benefits did not need to be reflected by an increase in market value, the tribunal and the Court of Appeals relied on a Court of Appeals decision which stated that

The language of this case derives from 63 CJS, Municipal Corporations, § 1371, p 1128 and the complete sentence reads:

We do not agree with the Court of Appeals that the emphasized portions suggest that there are three alternative methods of calculating benefits.

The first phrase, "would increase the value of the land" clearly reflects the increase in market value which we believe to be the appropriate basis for determining special benefits. The third phrase, when read in its entirety, also refers to the increase in value resulting from the special adaptability of the land. It clearly does not anticipate that a finding of a special adaptability without a corresponding increase in value would support a finding of a special benefit. The four cases cited in support of the second phrase, "relieve it from a burden" do not support the proposition that the relief of a burden without an increase in value can be used to support a finding of a special benefit. Two of these cases explicitly require a finding that the value of the property be increased by the improvement.4 A third states that in order "to sustain a special assessment it must appear that a benefit has been occasioned to the premises assessed at least equal to the burden imposed." Satter v Littleton, 185 Colo. 90, 97; 522 P.2d 95 (1974). Only the oldest case even arguably supports the proposition that the relief of a burden on the land which is not reflected in an increase in its value is a special benefit. However, in that case the court was only considering whether a cemetery derived any benefit from the installation of sewers. Mullins v Mt St Mary's Cemetery Ass'n, 268 Mo 691; 187 SW 1169 (1916). The idea that either the relief of a burden on the land or a special adaptability without an increase in the market value can justify a special assessment is at odds with the entire concept of market value which necessarily includes such improvements.

We believe that a determination of the increased market value of a piece of property after the improvement is necessary in order to determine whether or not the benefits derived from the special assessment are proportional to the cost incurred.

III. PROPORTIONALITY BETWEEN THE AMOUNT OF THE SPECIAL ASSESSMENT AND THE BENEFITS RECEIVED

There is general agreement that there must be some proportionality between the amount of the special assessment and the benefits derived therefrom. Although various formulations of this relationship have been stated,5 the concept of proportionality is not new in Michigan. In Fluckey v Plymouth, 358 Mich. 447; 100 N.W.2d 486 (1960), this Court found that no benefits accrued to the property as a result of the special assessment, but the Court also stated that the amount of the property increased in value as a result of the expenditure had to be at least equal to the amount of the assessment. 358 Mich. 453. See also German Lutheran Church Society v Mt Clemens, 179 Mich. 35, 40; 146 NW 287 (1914). ("There can be no justification for any proceeding which charges the land with an assessment greater than the benefits.") In another case we stated that there must be reasonable proportionality between the amount of the assessment and the value of the benefits. See St Joseph Twp v Municipal Finance Comm, 351 Mich. 524, 533; 88 N.W.2d 543 (1958). ("It is an essential of a special assessment that the improvement concerned should be of value to the property assessed in reasonable relationship to the assessment....") (Emphasis added.) See also Crampton v Royal Oak, 362 Mich. 503, 520; 108 N.W.2d 16 (1961). ("This court ... accepted the view that an assessment must be levied in proportion to benefits.") We have also suggested that we would not invalidate a special assessment unless there was a "substantial excess" between the cost of an improvement and the benefits accruing to the land as a result. Blades v Genesee Co Drain Dist No 2, 375 Mich. 683, 695; 135 N.W.2d 420 (1965).

While we certainly do not believe that we should require a rigid dollar-for-dollar balance between the amount of the special assessment and the amount of the benefit, a failure by this Court to require a reasonable relationship between the two would be akin to the taking of property without due process of law. Such a result would defy reason and justice. Therefore, we conclude that while decisions made by municipalities with respect to special assessments generally should be upheld, this Court will intervene where there is a substantial or unreasonable disproportionality between the amount assessed and the value which accrues to the land as a result of the improvements. In this case, the cost of the improvements is approximately 2.6 times the increase in value of the properties and for that reason we hold the special assessment invalid.

LEVIN, CAVANAGH, and ARCHER, JJ., concurred with WILLIAMS, C.J.

BOYLE, J.

Petitioners began the present action on March 24, 1981, seeking to invalidate the creation of certain special assessment districts in the City of Novi. Petitioners are landowners in the assessment districts which cover an area across from Twelve Oaks Mall, one-half mile west of Novi Road and in between Twelve Mile Road and the I-96 expressway.

The land is currently zoned for large lot, low density, single family dwellings. In anticipation of further development after the construction of Twelve Oaks Mall, the Novi City Council amended its zoning ordinance to create planned development options for multiple, commercial, and office development in the area at issue.1 The city later determined that a new road system, water main, and storm drainage improvements were necessary and created special assessment districts to defray the costs of the improvements. The properties were then assessed according to the special benefits to be derived.

The parcel owned by petitioner Dixon Road Group was assessed a total cost of $765,302.33, or $38,769.11 per acre. The parcels owned by petitioner Novi-Twelve Associates were assessed a total cost of $264,736.16, or $13,236.81 per acre. Petitioners sought to vacate the assessments, contending that they were invalid because 1) the improvements did not confer a special benefit on the properties beyond that conferred upon the community as a whole, 2) the allocations of cost were unreasonable and out of proportion to any benefits derived from the improvements, and 3) the special assessment districts were not created pursuant to the local ordinance and statutes.

The hearing officer at the Michigan Tax Tribunal agreed with petitioners and in her proposed opinion and judgment declared the special assessments invalid. While adopting the bulk of the facts found by the hearing officer, the Tax Tribunal refused to accept the hearing officer's ultimate conclusion and corresponding factual support and affirmed the special assessments. The Court of Appeals upheld the decision of the Tax Tribunal.

Pursuant to petitioners' application for leave to appeal, this Court remanded this cause to the Tax Tribunal to make specific findings on the benefits conferred on petitioners' properties, including increase in valuation after the proposed improvements, if any, under the following alternative hypotheses: a) if the zoning were not changed, and b) if the zoning were changed to planned development or some other use. On remand, the Tax Tribunal simply adopted findings consistent with the findings of the hearing officer as to these questions.2 This Court then granted petitioners leave to appeal.

I

"A special assessment is in the nature of a tax upon property levied according to benefits conferred on the property." Cooper, Wells & Co v City of St Joseph, 232 Mich. 255, 260; 205 NW 86 (1925) (quoting 1 Cooley, Taxation [4th ed], p 105).3 The theory sustaining special assessments is that the party assessed is locally and peculiarly benefited, to the extent of the assessment, over and above the ordinary benefit which one of the community receives from the public improvement.4 Kuick v Grand Rapids, 200 Mich. 582, 588; 166 NW 979 (1918). A special benefit may be found from an increase in value, relief from a burden, or in the creation of a special adaptability in the land.5 Soncoff v Inkster, 22 Mich.App. 358, 361; 177 N.W.2d 243 (1970), citing 63 CJS, Municipal Corporations, § 1371, p 1128. In determining whether a special benefit exists, the inquiry is not limited to the present use of the property, but also includes the uses rendered more feasible by the completion of the improvements. Crampton v Royal Oak, 362 Mich. 503, 514-516; 108 N.W.2d 16 (1961). See also 14 McQuillin, Municipal Corporations (3d ed), § 38.33, p 125.

The creation of a special assessment district through the legislative powers of a municipality enjoys a presumption of validity. Auditor General v Maier, 95 Mich. 127, 131; 54 NW 640 (1893); Crampton, supra. Whether there is any benefit at all, or the amount of the benefit, is a decision best made by the legislative body imposing the assessment. Courts are reluctant to interfere in this legislative determination where a municipality acts in good faith and has a good reason to believe that benefits will accrue and there is no showing of fraud, mistake, discrimination, or a clear absence of the benefits claimed. Frischkorn Investment Co v Detroit, 257 Mich. 546, 552-553; 241 NW 903 (1932).

In the case at bar, the Tax Tribunal found that a reasonable basis6 existed for the city's conclusion that petitioners' properties would be specially benefited by the improvements at issue. In reviewing a decision of the Tax Tribunal, this Court must determine whether the decision is authorized by law and whether the decision is supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28.

The hearing officer in this case found that the allocated costs to the petitioners for the improvements were approximately 2.6 times the increase in value that the improvements would confer upon the parcels assessed.7 The hearing officer then vacated the assessments, concluding that the assessments were both unreasonable and out of proportion to the benefits conferred. Axtell v City of Portage, 32 Mich.App. 491, 497; 189 N.W.2d 99 (1971). The Tax Tribunal refused to adopt the hearing officer's conclusion. The petitioners claim this was error. We disagree because the hearing officer's finding on increase in value was based on considerations which are contrary to law.

A

Special assessments for improvements like the ones at issue must be based on the special benefits to the land assessed. Contrary to petitioners' contention and the assertion of the majority, however, a finding of special benefit is not limited to a measurable increase in value equal to or more than the sum they are required to pay.8 This Court has never held that the measure of a special benefit is limited to the enhanced value of the property after it is improved. Actual and exact monetary benefit is incapable of precise quantification.9 Indeed, such a rule is totally unworkable where there has been a general depression in the market value of real estate. See 63 CJS, Municipal Corporations, § 1372, p 1130.

The existence and extent of a special benefit may be determined, therefore, by considering also whether the improvements result in the relief of existing burdens or the creation of a special adaptability in the land.10 These are considerations which embrace the actual and potential uses of the land as a result of the improvements and normally go hand in hand with an enhancement of value. So long as the value of the land is not diminished by the improvements and the relief of a burden or creation of a special adaptability in the land is clearly ascertainable, it cannot be said that the finding of a benefit to those specially assessed is without a reasonable basis. See Fluckey v Plymouth, 358 Mich. 447, 453; 100 N.W.2d 486 (1960); Oakland Co Drain Comm'r v Royal Oak, 325 Mich. 298; 38 N.W.2d 413 (1949).

The majority holds that "a determination of the increased market value of a piece of property after the improvement is necessary in order to determine whether or not the benefits derived from the special assessment are proportional to the cost incurred." (Ante, p 401.) It appears from this holding that the essential thrust of the majority opinion is that an increase in value established by an appraisal is a prerequisite to the validity of a special assessment. Such a holding is clearly wrong.

A municipality's determination of the existence and extent of special benefits is presumed valid. It is well-established that this determination may be based upon an increase in value, relief of burdens to the land, or the creation of special adaptabilities in the land which enhance the land's value. While we agree that an increase in value established by an appraisal is appropriate evidence, we note that a paper valuation of each property to be assessed has never been a prerequisite to the proper initial apportionment of a special assessment. Our disagreement with the majority concerns its apparent holding that a finding of special benefits must be supported by an appraisal reflecting market value. In our view, such evidence is appropriate, but not a necessity to justify a special assessment, unless the presumption of validity has been legitimately overcome.

Indeed, as early as 1892, this Court rejected increase in value as the only method of apportioning the costs of improvements because such valuations do not approach uniformity. Grand Rapids School Furniture Co v Grand Rapids, 92 Mich. 564, 569; 52 NW 1028 (1892).11 Further, this Court has long accepted the front-footage method for measuring the costs of assessments. Auditor General v Konwinski, 244 Mich. 384; 221 NW 125 (1928); Foren v Royal Oak, 342 Mich. 451; 70 N.W.2d 692 (1955).12 McQuillin also recognizes that "[t]he prohibition is that special taxes or local assessments shall not be levied in excess of the benefits conferred, whether by the valuation, front foot, area, or any other method." 14 McQuillin, Municipal Corporations (3d ed), § 38.02, p 20. (Emphasis added.)

The majority also believes that "[t]he idea that either the relief of a burden on the land or a special adaptability without an increase in the market value can justify a special assessment is at odds with the entire concept of market value which necessarily includes such improvements." We have never intimated a contrary position. Indeed, we agree with this statement. We further submit that an increase in value without correlative concrete advantages in the land resulting from the improvements smacks of pure sophistry and is fundamentally suspect.

There is no guarantee that assessments based on valuation will be uniformly upheld. See St Joseph Twp v Municipal Finance Comm, 351 Mich. 524, 533; 88 N.W.2d 543 (1958). As pointed out by this Court in Grand Rapids School Furniture Co, supra, pp 570-571:

The holding of the majority increases the risk that the method of apportionment will not achieve uniformity and will not ensure that assessments will be validly laid in the future.

We believe the majority has confused the theory of special benefits with the applicable standard of review. The theory of special benefits is that the land to be assessed must be specially benefited by the improvements above those benefits enjoyed by the public at large and that the exactions for the improvements must not exceed the benefits. Kuick v Grand Rapids, supra. Review of a special assessment, on the other hand, begins with a presumption of validity in the determination of benefits by the municipality. As explained in McQuillin, supra, pp 19-20 and quoted by this Court in St Joseph Twp, supra, pp 533-534:

The holding of the majority seems to be that the presumption of validity does not attach where the determination of benefits is challenged by an appraisal indicating an increase in value which differs from the municipality's determination. It therefore appears to require that the reviewing tribunal make a de novo determination as to the existence and extent of special benefits and substitute its judgment for that of the municipality. The majority would therefore replace the established standard of review with a new standard of review that destroys the presumption of validity. Compare Foren v Royal Oak, supra; Frischkorn, supra, 553; Fluckey, supra, 454.

We adhere to the standard of review firmly established by more than a century of jurisprudence in Michigan. Under this standard, we do not believe that the petitioners in this case have rebutted the presumption of validity. In the case at bar, the Tax Tribunal found that the assessed parcels would increase in value. The amount of the increase was widely disputed. The figures adopted by the Tax Tribunal on remand as barometers of the increase in value are the same figures originally proposed by the hearing officer. The findings of the Tax Tribunal on remand are inconsistent with its original opinion.

In its original opinion the Tax Tribunal held in pertinent part:

This passage seems to state that an increase in value will inure to the land because of the improvements even if the land is not rezoned. On remand, however, the Tax Tribunal stated that no increase in value would occur in the absence of rezoning.

While this inconsistency is inexplicable and therefore troubling, it is not fatal to the decision of the Tax Tribunal upholding the special assessments. It is the future and best use of the land which is to be considered in evaluating benefits. In this case, it is not disputed that the highest and best use of the land at issue includes those uses made possible by rezoning. Therefore, the finding on increase in value after rezoning may be considered in reviewing whether the assessment was laid by arbitrary, capricious or unreasonable means if it properly takes into consideration the highest and best use of the property. In this case the finding did not. In fact, it appears that the appraisal upon which the Tax Tribunal based its finding was limited to an estimation of market value based on the land's current use.

Increase in market value based on current use is a standard too inflexible to determine whether a special benefit accrues to an affected property.13 Indeed, the settled law in Michigan is:

The appraisal which was the basis of the Tax Tribunal's findings on increase in value was made pursuant to the market data approach to estimating market value. According to the appraisal, this approach involves "the comparison of properties recently sold in the area to the subject property, and adjusting for location, physical differences and lot size between the properties to indicate value."

The appraisal was calculated twice using two different sets of comparables. The first set of comparables consisted of similar-type land sales involving similar acreage and land use similar to its current use. The second set of comparables consisted of smaller parcels sold for mid- to high-rise office use. This second comparison resulted in an increase in value substantially greater than that derived under the first comparison. However, this potential price of the land was discounted to current market value to reflect the appraiser's belief that the land could not be developed as the present proposed zoning indicates for five to eight years. It is clear that if this latter value had not been discounted, the increase in value of the land would exceed the cost of the improvements.

The majority disagrees that the appraiser considered only current use in evaluating the properties, notwithstanding that the highest and best future use of the property as improved was discounted to doublecheck a determination of market value on the basis of current land use and was thereby totally negated in the final determination. Petitioners' appraiser admitted that the reason for the discounting was his opinion that this future use is "really, very, very speculative for this area."

According to McQuillin:

I would submit that if such use is so speculative that in all fairness it should be discounted for its effect on market value, then, in keeping with the teaching of McQuillin, supra, it cannot be the basis of a determination of benefit based on enhanced value. Yet neither the petitioners nor the majority argues that this future use for the properties is so remote as to rest chiefly in the imagination. Indeed, it seems that the majority finds the future use an appropriate consideration. I note that the hearing officer who originally formulated the findings on increase in value gave no explanation for rejecting the city's appraisal in favor of petitioners'. She found no fraud or abuse of discretion. Nor is fraud or an abuse of discretion on the city's part manifest to this Court on appeal. Because I am not prepared to state that the city acted unreasonably in considering this future use as a basis for a determination of benefit to the land, it should be given full weight in a determination of market value.

Given that the appraisal relied upon by the Tax Tribunal limited the evaluation of the properties to their current use, we consider the amount of increase in value derived from that appraisal an inappropriate basis for invalidating the special assessments and confine our review to the remaining findings of the Tax Tribunal.15

B

In addition to an increase in value, the Tax Tribunal, in its first opinion, found that the proposed improvements would result in relief from existing burdens because the improvements would create internal access to the petitioners' parcels and drainage and water service where none existed before. The tribunal further found a strong possibility that the parcels could be rezoned in accordance with the city's master plan to allow for commercial development. The tribunal thus concluded that the proposed improvements would create a special adaptability in the land for development. It noted that even if the property were not rezoned, the petitioners would not be able to develop the property for residential use without the improvements. The record established that due to the long, narrow shape of the parcels, the southern portions have no direct access to any public right of way. These portions are unreachable and cannot be separately developed. Petitioners' own witness agreed that the improved road system would provide a special benefit to these parcels to the extent that it made separate development of the lower portions possible.

We would hold that these latter findings sustain the city's initial determination that special benefits would accrue to the properties assessed. We cannot ignore the obvious benefits conferred upon petitioners' properties when the finding of benefits is supported by material, competent, and substantial evidence in the record as a whole.16 See Foren v Royal Oak, supra.

II

Petitioners also contend that the city did not act properly in creating the special assessment districts. They submit that the city failed to consider and prescribe "what part or proportion of the cost shall be paid by special assessment upon the property especially benefited, [the] determination of benefits received by affected properties, and what part, if any, shall be paid by the City at large." Novi City Ordinance No. 79-1.04, § 7.

The Tax Tribunal found that the city council did give due consideration to this issue and complied with the city ordinance. The record supports the Tax Tribunal's findings.

The record also refutes petitioners' claim that they will not receive benefits from the improvements which are unique from the community as a whole. The instant case is distinguishable from Stybel Plumbing, Inc v Oak Park, 40 Mich.App. 108, 113; 198 N.W.2d 782 (1972), cited by petitioners in support of their position. In Stybel, the Court of Appeals found that while the landowners directly benefited from construction of a service drive and parking lot, the public at large also received the benefit of less traffic on a major thoroughfare. The fact that this benefit was not incidental, but the purpose of the project, caused the Court of Appeals to hold that the public must bear its fair share of the assessment.

In the case at bar, the proposed road system is consistent with the city's regional plan. The record indicates, however, that it is designed solely as an access road for development west of Novi Road and any effect on current traffic on Novi and Twelve Mile Roads would be nonexistent or incidental. Moreover, the parcels assessed will peculiarly benefit from the water and drainage systems not only because such systems are not existing there now, but also because the risk of failing to secure easements from neighboring lands for the development of alternative privately placed systems is removed.17 Therefore, petitioners' claim is without merit.

III

Petitioners' final contention is that the hearing officer's decision should be adopted in toto by this Court because the hearing officer had a firsthand opportunity to view the witnesses and was in the best position to determine credibility and make findings of fact. We cannot accept petitioners' contention. This is not a case which turned upon credibility. Cf. MERC v Detroit Symphony Orchestra, Inc, 393 Mich. 116; 223 N.W.2d 283 (1974). Nor did the hearing officer extend credibility as one of the reasons for accepting petitioners' appraisal of the property over the city's.

It is sufficient that the Tax Tribunal's decision affirming the city's levy of the special assessment is supported by material, competent, and substantial evidence on the whole record. Const 1963, art 6, § 28. For the foregoing reasons, the Court of Appeals decision affirming the decision of the Tax Tribunal should be affirmed.

BRICKLEY and RILEY, JJ., concurred with BOYLE, J.