CHAPTER III. The Distribution of the Cost of Land Acquirement

THE DISTRIBUTION OF THE COST OF LAND ACQUIREMENT

Cities may pay for improvements as they go along, appropriating the funds out of the general tax levy, or they may make special issues of bonds from time to time, and draw upon the general tax levy gradually for the interest charges and the redemption of the bonds. The income applicable to improvements derived from the tax levy, both directly and through the sale of bonds payable out of the tax levy, is likely to prove inadequate in almost any city in the United States, since a limit to the borrowing ability of a city is usually fixed in the state constitution at from 2 per cent to 10 per cent of its assessed valuation, and the amount available from taxation is just as effectively limited by the inelasticity of the tax rate above a certain figure. The most obvious way out of the financial difficulty is to remove the limitation on borrowing power, and there are precedents for this in nearly every progressive city. It is in fact the usual thing when comprehensive plans are proposed involving considerable financing, for the legislature to allow a bond issue and provide that it shall not be reckoned in determining the amount of the municipal indebtedness.

DEVICES EQUIVALENT TO BORROWING OUTSIDE THE DEBT LIMIT

The city of Milwaukee employs a somewhat different expedient in stretching its borrowing ability. The constitution of the state of Wisconsin allows cities to incur indebtedness up to 5 per cent of their valuation, provided that the bond issue is approved by the people at a special election. Counties are also given the right to become indebted up to 5 per cent of their valuation and no approval of the people is required. These provisions give Milwaukee the right practically to borrow money up to 10 per cent of its assessed valuation, since most of the county’s valuation is included within the city’s limits. Improvements are construed whenever possible to be county improvements in order to give the city a greater borrowing power and avoid the submission of the bond issue to the people.

But Milwaukee and other cities of Wisconsin have also worked out a method of purchase of land by contract, which amounts really to purchase on the instalment plan, as a further relief from the exigencies of the financial situation. The same practice is sanctioned by legislation in Minnesota and is employed at least in Minneapolis. This method is useful where a city is close up to its limit of indebtedness. The legislation of both states specifically provides that the contract shall not create a corporate liability or constitute a pledge of the general credit of the city. In construing this language the supreme court in both states has held that there is no obligation on the part of the city to meet unpaid instalments, since the city has merely an option to purchase, with the right of possession till default in payment.

It was argued in Burnham vs. Milwaukee, 98 Wis. 128, that a land contract was merely a scheme to evade the constitutional limitation on municipal indebtedness, but the supreme court sustained the contract, holding that in spite of the weight and persuasiveness of the argument the legal meaning of the statute was definite and could not be twisted or enlarged. Its conclusion was, “that the unpaid instalments upon the park land contracts do not constitute a corporate indebtedness within the meaning of the constitution because the payment thereof is entirely optional on the part of the city.” To the same effect are Perrigo vs. Milwaukee, 92 Wis. 236; Milwaukee vs. Milwaukee County, 95 Wis. 424; and in Minnesota, Kelley vs. City of Minneapolis, 63 Minn. 125.

Cities often have opportunities to secure a tract of land at a low figure subject to immediate acceptance of the offer. The offer will not stand until a bond issue, which must be submitted to popular vote, has been secured, and the amount of such an issue might increase the indebtedness beyond the limit of the borrowing power. In such an emergency the cities of Wisconsin and Minnesota may enter into a contract with the owners of land, paying 5 per cent of the purchase price at the date of contract and the balance in annual instalments. A piece of land costing $100,000 may be paid for by an initial instalment of $5,000 and 19 annual instalments of $5,000 each. In providing for these payments, the city issues bonds each year, bearing 4 per cent interest, the issues being for twenty years, of which 5 per cent is redeemed each year. The amount of each bond issue is made up of the annual instalment of $5,000 and the interest on the balance of the purchase price at 4 per cent. The last bond in the issue will be redeemed forty years after the purchase of the land. Each year the amount required for sinking fund and interest charges on each annual bond comes out of the tax levy.

There are several advantages in the contract method of paying for land: First, the payment is distributed over forty years without the necessity of legislative sanction for a long term bond; second, desirable tracts of land may be purchased at any time during the year at an advantageous price and the city is not compelled to wait for the time-wasting formality incident to bond issues; third, the city’s borrowing power is in effect considerably extended.

Leaving out of consideration financially self-sustaining municipal investments, like many municipal water works, which are usually reckoned apart from the municipal debt and which do not impose a burden upon the tax payers as such, the temporary relief from financial difficulties secured as above described, by extending the limit of a city’s borrowing power or by expedients such as the contract method of paying for land, leaves the ultimate burden on the municipality and substantially distributes it over the whole of the taxable property of the city in accordance with valuation. Conservative policy will never allow a very great stretching of the debt limit, and any considerable increase beyond the customary annual tax rate is bitterly resisted. Sources of municipal revenue other than the general property tax are practically negligible in this connection in American cities. It is therefore very important to relieve the general tax payer of a portion of the cost of public improvements wherever they can be found to be of so much special benefit to the owners of a limited area as to justify a special assessment.

SPECIAL ASSESSMENTS

1. DEFINITION

“A special assessment is a compulsory contribution paid once for all to defray the cost of a special improvement to property undertaken in the public interest and repaid to the government in proportion to the special benefits accruing to the property named.”

Though a special assessment is an exercise of the taxing power, it differs from a tax in two particulars: First, the nature of a special assessment makes it a charge for a real benefit to property and one which can be more or less accurately measured in money values; second, it has been almost uniformly held by judicial decisions that special assessments need not conform to the constitutional requirement that taxation shall be equal and uniform.

The equity of this species of taxation is defended on the theory that the individuals of the community whose holdings have been made more valuable by the expenditure of the community’s money should repay at least some portion of that outlay. Specific application of the principle may produce an unfair result. If an assessment for street improvement is figured by the front foot, it is unfair to the man with a long, shallow lot. If it is levied in accordance with the area of lots, it is unfair to the land with much depth and small frontage. It is impossible to devise any method of taxation which distributes the financial burden automatically with perfect and indisputable justice. If a lot which was worth $1,000 before a public improvement can be sold for $1,100 after it, and if the lot is assessed any amount up to $100, the method of arriving at this amount is immaterial, since the result is just enough.

2. HISTORY

A special assessment law enacted for New York City in 1691 is said to be the first true special assessment law in the United States, and to have been based on a law passed in 1667 to aid the rebuilding of London after the great fire of 1666. This law of 1667 was one of three special assessment laws enacted in Great Britain before 1900 and their use was very infrequent. But in 1658 the general court of Massachusetts appointed a committee “to lay out the way through Roxbury lots to Boston farms, and to judge what is meet satisfaction to the proprietors for the way, and that they have power to impose an equal part upon all such of Boston or other towns as shall have benefit of such way.” Whatever may have been the origin of the principle, because of its general use and extensive development in the United States it is recognized even in Great Britain as an “American device.”

The New York law of 1691 assessed the cost of street pavements and sewers on the property specially benefited, in proportion to the benefits received. Pennsylvania passed a similar law in 1700: “To defray the charge of pitching, paving, graveling, and regulation of said streets ... each inhabitant was to pay, in proportion to the number of feet of his lots ... adjoining, on each or either side of the said streets.” Massachusetts in 1709 and 1761 provided that “Persons receiving any benefit from common sewers, either direct or remote, were obliged to pay such proportional part of making or repairing the same as should be assessed to them by the Selectmen of the towns.” The old New York law was little used until 1787 when it was amended and made somewhat more definite.

The adoption of the principle was extensive after the war of 1812. The following dates indicate about the time when the legislation was passed in different states and territories, the dates usually indicating the incorporation of the principle in the charter of some city, followed usually by court decisions in the main upholding the assessment. The active use of the special assessment principle may be considered as dating in New York from 1813; Kentucky, 1813; Michigan, 1827; Pennsylvania, 1832; Louisiana, 1832; New Jersey, 1836; Ohio, 1836; Illinois, 1837; Maryland, 1838; Connecticut, 1843; Wisconsin, 1846; Indiana, 1846; Mississippi, 1846; California, 1850; Oregon, 1851; Missouri, 1853; Rhode Island, 1854; Iowa, 1855; Delaware, 1857; Kansas, 1864; Massachusetts, 1865; District of Columbia, 1865; Virginia, 1866; Vermont, 1868; West Virginia, 1868; Minnesota, 1869; New Hampshire, 1870; Texas, 1871; Maine, 1872; Nebraska, 1873; Florida, 1877; Georgia, 1881; Nevada, 1881; Washington, 1883; Alabama, 1885; North Carolina, 1887; North Dakota, 1887; South Dakota, 1887; Montana, 1887; Idaho, 1887; Wyoming, 1887; Utah, 1888; Colorado, 1889; Oklahoma, 1890; North Mexico, 1891; Arizona, 1893.

In early times special assessments were most frequently used only to defray the cost of construction of improvements, but the language of the first Massachusetts act is broad enough to allow also an assessment to cover the cost of land acquirement. It is only the use of special assessments to defray the cost of land acquirement with which we are concerned in the present survey, although a special assessment for a more restricted purpose is based on the same principle.

3. SPECIAL ASSESSMENTS IN ACQUIRING LAND FOR PARK PURPOSES

It is generally agreed that parks judiciously acquired in a city are a benefit to the whole community, but the use of some of them, especially of small parks, is confined almost wholly to the people of the locality in which they occur, while other parks, especially the large ones, may be used by people from all parts of the city.

It is also a real estate axiom that residence property contiguous to parks commands a higher price, other things being equal, than similar property several blocks away. We should therefore expect the cost of park acquisition to be distributed, first, by an assessment on such property as really receives a special increase in value because of the nearness of the park; and second, either by assessment on a much larger area assumed to include practically the whole public served by the park as a local institution, or else by general taxation on the whole city.

In the case of small parks, it is logical and fair to subdivide a large city into local “park districts” or “improvement districts” and to make each district pay for its own local park. This practice is not only fair but extremely salutary. It forces a clearer understanding of what each dollar of the tax payer’s money has gone to secure, thus checking a loose extravagance in the acquirement of park lands, and at the same time makes it possible for a progressive and prosperous locality which is in need of parks to proceed with their acquirement unhampered by the resistance of other parts of the city which are satisfied with the existing situation or are really unable to afford further taxation for park purposes. The principle is the same as that which justifies the subdivision of a state into municipalities for the localization of taxes required for local purposes, and it becomes more and more important, as the size of municipal units is increased, for dealing with affairs that affect large groups of contiguous communities having many conflicting interests.

But although the amount and kind of benefit resulting from large and small parks is about the same in all cities similarly situated, the practice in paying for the cost of park areas shows the greatest divergence. It is usual in the United States to assess no part of the cost of acquiring park lands on property specially benefited. In some cities the law does not permit such assessment. In other cities the assessment is made in so limited a way as to give the community little relief from the financial burden. In several cities, notably Seattle and Portland of the western cities, and Baltimore in the east, which assess private property very liberally for street improvement, including the cost of land takings, there is no assessment for the acquisition of land for parks.

In the cities of Ohio, it was illegal up to 1912 to raise the cost of land acquired by condemnation by a special assessment. The case that establishes this law in Ohio is City of Dayton vs. Bauman, 66 Ohio St. 379. In that case the city appropriated land for the extension of two streets and assessed the cost on abutting lots. In deciding against the validity of the assessment the court based its decision entirely on