Special assessments involve assessing incremental property taxes on land and often the buildings on that land deriving direct benefits due to a transportation improvement. The tax levied typically represents a portion of the estimated benefit to the properties located with a designated zone in close proximity to the improvement. Special assessments, which are also known as benefit assessments or special taxes, are one of the most prominent forms of value capture in the United States. In addition to transportation improvements, special assessments may be used in other sectors, including water and waste water.
Authorized in all 50 states by specific enabling legislation or constitutional provision, special assessments are a form of remuneration that a public agency may require from property owners to provide revenue to fund a public project that creates benefits for properties within a designated assessment district. They require some form of property owner approval through vote or petition. Property owners either pay the assessment immediately, or allow a lien to be placed on their property and repay the assessment over a prescribed timeframe, typically ten or twenty years. Most often, the special assessment is collected concurrently with owners' property tax payments.
The major limitation on the use of special assessments is that they must finance improvements that provide local benefits within the assessment zone. They cannot be used to fund improvements that benefit the larger community. This poses challenges when using special districts to finance transportation improvements because the transportation system is an open system, making it difficult to establish a district that includes all those who benefit from a road or rail line, while excluding those who do not. For this reason, special assessments are more often used on closed systems, such as water and sewer improvements. Nonetheless, special assessment districts for transportation improvements are often larger than those for other kinds of improvements, because the benefits of transportation projects typically accrue across a broader geographical base.
Special assessment districts can vary by the extent of their responsibilities, highlighted below. As result, there are notable variations in terminology. The same term may even be used differently from state to state.
- Some districts exist strictly as a financing entity, while others' responsibilities may extend further to project implementation.
- Certain districts focus on transportation improvements themselves. Others support a broader set of infrastructure, and some may also focus on services such as economic development, public safety, and beautification.
- Variations also exist in whether they form at the municipal or county level, or across jurisdictional boundaries, and therefore who makes up the governing body or board. Methods to establish the district and laws dictating their sunset or renewal can also differ.
- Several options for determining the special assessment (fee or tax): the anticipated increase in property value, the size of a property owner's frontage or acreage, or the proximity of the property to an improvement. The fee may be flat for all property owners or graduated based on proximity to the improvement. The tax may be assessed on a split valuation basis, with one rate for land and another for the improvements. Only select property types may be assessed depending on who receives the benefit and policy goals, for example some districts only charge commercial and industrial properties.
Types of Special Assessment Districts
Special Assessments Districts are known by different names in different regions of the Unites States. In some cases, the different forms are identical. In others, there are minor distinctions.