Williams v. Anne Arundel County

RODOWSKY, Judge. This case involves the long-standing practice in Anne Arundel County of creating special community benefit tax districts in residential subdivisions in order to finance certain local improvements and services. Specifically, this case concerns Anne Arundel County Code (1985, 1993 Supp.) (A.A.Code), Art. 6, § 2-104(f-3) which creates the Cape St. Claire Commu ¹¹³ nity Benefit District (the District). Petitioners own real property in the District.

They seek a judgment declaring invalid the ordinance creating the District, and they seek to enjoin collection of any tax levied under the authority of that ordinance by the Anne Arundel County Council on property in the District. Their principal contention is that the tax is not for a public purpose. The requested relief was denied by the Circuit Court for Anne Arundel County and, in an unreported opinion, by the Court of Special Appeals. For reasons hereinafter stated, we shall affirm.

The legal and historical background of the tax district concept, particularly as practiced in Anne Arundel County, will assist in understanding the issues presented here. 1 I It appears that the earliest special community benefit tax district in Anne Arundel County (the County) was Herald Harbor on the Severn, created by Chapter 261 of the Acts of 1929 for the purpose of constructing and maintaining roads within that community, as defined. Under the format there employed the Board of County Commissioners of Anne Arundel County (the Commissioners) appointed a five person board from among the area’s residents, and that board annually recommended to the Commissioners the amount to be raised by special tax in the district to carry out the statutory purpose. By Chapter 366 of the Acts of 1939 the General Assembly authorized the Commissioners “to establish from time to time special zones ... and to furnish and provide special privileges or benefits to persons or property in such zones, and to levy special taxes or assessments upon property in such zones receiving special ¹¹⁴ benefit to pay the costs of furnishing ... such special privileges or benefits.” Exercise by the Commissioners of the power conferred by Chapter 366 was conditioned on a petition, seeking creation of the zone, by a majority of the taxpayers therein and on publication. The County has been a home rule county under Maryland Constitution Art. XI-A since November 1964.

Article XI-A is implemented by the Express Powers Act, Md.Code (1957, 1990 Repl.Vol., 1993 Cum.Supp.), Art. 25A. One of the powers of chartered counties is to levy on land, improvements and personal property. Art. 25A, § 5(0). That provision was amended by Chapter 646 of the Acts of 1949 to confer power “to establish ... special taxing areas for any of the purposes enumerated in Article 25A----” 2 At this time there are forty-two special community benefit districts located throughout the County.

Each was originally created by a public local law of the General Assembly, by a resolution of the Commissioners, or by an ordinance of the County Council. These enactments are codified in A.A.Code, § 2-104(b) through (bb). 3 Cape St. Claire is a residential community of some 2200 homes on the south shore of the Magothy River, near its entrance into the Chesapeake Bay. Development of Cape St. ¹¹⁵ Claire was begun in the 1940s by the River Bay Company which recorded subdivision plats and imposed covenants running with the land. The development plan included certain community property, consisting primarily of several beaches and parks.

Recorded covenants require lot owners to pay a fee, apparently fixed at ten dollars per year, to the River Bay Company or its successor for the maintenance of community property. Title to the community property has been transferred to the Cape St. Claire Improvement Association, Inc. (the Association), a private membership corporation. Currently all persons owning property on the platted areas comprising Cape St. Claire are eligible for membership in the Association, but membership in the Association is limited to such persons. In February 1989 a majority of the owners of the lots in Cape St. Claire petitioned the County Council, pursuant to A.A.Code § 2-103, for the establishment of a special community benefit district in Cape St. Claire.

The District was created by Bill No. 19-89, enacted April 24, 1989, and codified as A.A.Code, § 2-104(f-3). Its purposes are: “(i) maintenance of community property, including lawn care, trash removal, repair, lighting, paving, and erosion prevention; “(ii) special security for community property; “(in) acquisition, improvement, and construction of real and personal community property; and “(iv) funding administrative expenses incidental to carrying out these purposes, including mailing, secretarial, auditing, insurance, and legal costs.” § 2-104(f-3)(2). The special community benefit tax in the District is “a uniform assessment for each real property tax account.” A.A.Code § 2-106(d)(3). 4 ¹¹⁶ “Unless otherwise provided by law, special taxing district budget requests [are] prepared by the board of directors of the civic or community association administering the district and submitted to the property owners for their comments____” A.A.Code § 8-106(a). Final budget requests must be submitted to the Anne Arundel County Budget Office on or before January 31 of each year. § 8 — 106(b)(1).

These budget requests must include “[a] detailed listing of the purposes to which the special taxing district funds are to be applied.” § 8 — 106(c)(1). The budget request must also state “the rate of special taxing district tax.” § 8 — 106(c)(4). The County charter embodies an executive budget system. A special taxing district must satisfy the County Executive that the requested appropriations be included in the County’s annual budget and appropriation ordinance.

See County Charter § 706 and, e.g., Bill No. 54-93 (the County Budget and Appropriation Ordinance for the fiscal year ending June 30, 1994). The County Council, with certain exceptions not here relevant, may decrease or delete any item from the budget as proposed, but the County Council may not “increase any expenditure recommended by the County Executive.” Charter § 709. A special community tax district’s annual tax must also be included in the ordinance of levy for special tax districts. See, e.g., Bill No. 55-93 for the fiscal year ending June 30, 1994.

Special benefit taxes are collected and enforced in the same manner as County real property taxes. A.A.Code § 2-107. The County Controller deposits a special tax district’s tax collections into a special account. A.A.Code § 2-108(a).

The Controller releases these collections to “[t]he Treasurer or other fiscal officer of each special community benefit district.” § 2-108(b). Those recipients must be bonded. Id. Disbursements are made monthly after deduction of a fee paid to the ¹¹⁷ general fund of the County of five percent of the collections, subject to an annual ceiling of $1,000 per tax district. § 2-108(c).

Under pain of fine or imprisonment for violation of the restriction, “[f]unds disbursed to a special community benefit district shall be expended only for the purposes for which appropriations have been made in the budget as enacted by the County Council.” § 2-108(d) and (e). It is clear from the foregoing that the legal theory underlying the forty-two special community benefit districts in Anne Arundel County is that they are special benefit assessment areas. Thus, the special taxes levied in those areas are special benefit assessments. “The use of such ‘special assessments’ has a long history in the United States.” O. Reynolds, Jr., Local Government Law § 99, at 300 (1982) (footnote omitted). In Gould v. Mayor & City Council of Baltimore, 59 Md. 378 (1883), this Court contrasted special assessments with the general property tax, saying: “The right to make such assessments is undoubtedly an exercise of the taxing power, but an assessment thus made differs from a general tax levied for State and city purposes.

The latter is a tax imposed on all persons within the territorial limits according to the value of their property, in consideration of the protection, which the government affords alike to all. A local assessment, on the other hand, is a tax levied occasionally as may be required upon a limited class of persons interested in local improvement, and who are presumed to be benefited by the improvement over and above the ordinary benefit which the community in general derive from the expenditure of the money. In the payment of the assessment thus made, the adjacent owner is supposed to be compensated by the enhanced value of his property, arising from the improvement.” Id. at 380 . “In order to justify a special assessment for a local improvement ... there must be both a public purpose and a special benefit to the properties to be assessed over and above that accruing to the public.” Montgomery County v. Schultze, 302 ¹¹⁸ Md. 481, 489, 489 A.2d 16, 20 (1985). See also Silver Spring Memorial Post No. 2562, Veterans of Foreign Wars v. Montgomery County, 207 Md. 442, 448 , 115 A.2d 249, 251 (1955).

One treatise expands on the concept, as follows: “In order to justify a local assessment the improvement must be a public one; that is, it must be one which confers a general benefit upon the public at large, and which, therefore, the public acting through its government may construct without the consent of the particular individuals affected thereby. Local assessment for benefits is a form of taxation and the very nature of taxation implies that it is for a public interest. An improvement which lacks this element is essentially a private improvement, and no matter how useful or advantageous it may be, the public cannot compel its construction, nor can it pay therefor by funds raised by general taxation.” 1 W. Page & P. Jones, Taxation by Local and Special Assessments § 288, at 439 (1909) (footnotes omitted). Although special benefit assessments were first utilized to finance certain capital improvements, typically elements of the infrastructure of local government, special benefit assessments may also be used to finance the operating expenses of local government for services beneficial to property in an area.

See Pumphrey v. County Comm’rs of Anne Arundel County, 212 Md. 536 , 130 A.2d 297 (1957) (rejecting landowner’s challenge to a benefit assessment for garbage collection imposed against realty occupied by tenant); City of Seattle v. Rogers Clothing for Men, Inc., 114 Wash.2d 213, 787 .P.2d 39 (1990) (sustaining special assessment for promotional activities, cleaning, decorating, and security in the central business district of Seattle). See generally O. Reynolds, Jr., supra, § 15, at 38. II In the instant matter the County and the Association are the defendants. Following creation of the District, the Association annually has submitted to the County a requested bud ¹¹⁹ get and tax for the District.

For the fiscal year ending June 30, 1990, the District tax was $29.09 per tax account, for fiscal 1991, $29.45, and for fiscal 1992, $30.01. An affidavit submitted by the Association president reflects that the tax monies through June 30, 1992 were used for: • Property maintenance, including grass cutting, tree trimming, trash bags and providing for dumpsters and their periodic emptying; • Construction of a recreation pier; • Outdoor lighting at beach facilities; • Security patrolling (shared with others); • Providing sanitary facilities at community properties; • Constructing a storage facility for maintenance equipment; • Removal of debris from community property; • Installation and maintenance of outdoor pay telephones; • Professional costs, including insurance, accounting, and legal, associated with the foregoing; • Governmental fees and taxes; • Administrative costs, including postage and shared secretarial and office expenses. The circuit court decided this action by granting the County’s second motion for summary judgment which was filed on the third court day (the fifth calendar day) prior to the trial date and was argued on the trial date without any written response to the motion by the petitioners. The trial court considered the facts stated in argument by petitioners’ counsel as a proffer of what the petitioners could demonstrate in opposition to summary judgment.

On that basis the circuit judge in essence concluded that there was no dispute of material fact. III Petitioners primarily contend that the acquisition and maintenance of the Association’s community property cannot, ¹²⁰ as a matter of law, satisfy the public benefit requirement for a special benefit assessment because the use of the private property is limited to owners and occupants of lots in the subdivision, and presumably, their invitees. Petitioners say that this is a private use and that the services funded by the special assessment are not available to the general public. Relying on the 1909 treatise, Taxation by Local and Special Assessments, supra, §§ 283, 390, and 393, petitioners assert that there are three requirements in order for a local improvement to be regarded as public, namely, it must confer a general benefit on the public at large, it must be of a type that would justify the expenditure of general tax revenues, and it must be owned by or subject to an easement by the unit of local government assessing for the benefit.

We disagree. Maryland law on the subject is far more flexible than petitioners’ proposed criteria. “What is a public purpose for which public funds may be expended is not a matter of exact definition; it is almost entirely a matter of general acceptation.” Finan v. Mayor & City Council of Cumberland, 154 Md. 563, 565 , 141 A. 269, 270 (1928). “[T]he line of demarcation” between a permissible public purpose and an impermissible private purpose “is not immutable or incapable of adjustment to changing social and economic conditions that are properly of public and governmental concern.” City of Frostburg v. Jenkins, 215 Md. 9, 16 , 136 A.2d 852, 855 (1957). Illustrating a private purpose, in violation of Art. 15 of the Declaration of Rights, was the tax levied “upon the property of the citizens of Talbot County, to pay to certain residents of that county the claims due to them by an insolvent railroad company.” Baltimore & E. Shore R.R. v. Spring, 80 Md. 510, 517 , 31 A. 208, 210 (1895). This Court has said flatly that “the constitutional term ‘public use’ is not synonymous with physical use or access by the general public.” Prince George’s County v. Collington Crossroads, Inc., 275 Md. 171, 187 , 339 A.2d 278, 286 (1975).

Similarly, “the public character of a condemnation is not necessarily changed because a private entity will own the property.” Id. The decisions of this Court furnish multiple illustrations of expenditures of public funds for public pur ¹²¹ poses despite the fact that there was also a benefit to privately owned property from which the public at large could rightfully be excluded by the private owner. Decisions involving public assistance to private business in order to stimulate or sustain economic activity and employment have approved those objectives as public purposes. See Reyes v. Prince George’s County, 281 Md. 279, 306-08 , 380 A.2d 12, 27-28 (1977) (finding employment of 400 persons as part of public purpose in approving revenue bond refinancing of obligations of private partnership that owned arena); Wilson v. Board of County Comm’rs of Allegany County, 273 Md. 30, 51 , 327 A.2d 488, 495-99 (1974) (revenue bond financing of pollution abatement equipment for private employer served public purpose both by abating air and water pollution and by “tying the industry more closely to its present location”); Grinnell Co. v. City of Crisfield, 264 Md. 552, 559 , 287 A.2d 486, 489 (1972) (sale and lease back financing of addition to paint brush manufacturing plant to relieve unemployment served public purpose); Lerch v. Maryland Port Authority, 240 Md. 438, 452 , 214 A.2d 761, 765-68 (1965) (revenue bond financing of office building to be tenanted by private businesses associated with port of Baltimore served public purpose of encouraging increased trade); Jenkins, 215 Md. at 16-17, 136 A.2d at 855-56 (industrial development revenue bond financing of privately owned lingerie factory promoted employment and thereby served public purpose).

Similarly, a public purpose is served when private property is condemned for resale to private business in the form of sites in an industrial park, Collington Crossroads, 275 Md. at 190 , 339 A.2d at 288 , and when, as part of a comprehensive plan for port redevelopment, land is condemned to construct wharves, docks, piers, and warehouses to be leased to private businesses. Marchant v. Mayor & City Council of Baltimore, 146 Md. 513, 522 , 126 A. 884, 887 (1924). The imposition of a one time tax on attorneys in order to fund the creation of a mutual insurance company writing legal malpractice coverage in a market that was ¹²² otherwise restrictive served a valid public purpose under Art. 15 of the Declaration of Rights by keeping an adequate supply of legal services available to the public. Ogrinz v. James, 309 Md. 381, 392-94 , 524 A.2d 77, 83-84 (1987).

Encouraging the recruitment and retention of police officers and fire fighters by indemnifying them with public funds for their legal costs in successfully defending against charges of criminal offenses or departmental violations is a public purpose. Snowden v. Anne Arundel County, 295 Md. 429, 439 , 456 A.2d 380, 385 (1983). And when private residences along a street are specially benefited by, and specially assessed for, the installation of public water and sewer in the street, the general public in the local governmental unit imposing the special assessment is also benefited, even though individual members of the general public are not free to enter the homes in order to make use of the sewer and water service. Cf Dinneen v. Rider, 152 Md. 343, 366 , 136 A. 754, 763 (1927) (where water and sewer installations were to be financed by connection charges and by benefit assessments on abutting owners, with any ultimate deficiency to be raised by the countywide ad valorem property tax, the benefit to the members of the class last referred to was “the remoter local or political interest of all the taxpayers in the general public welfare of the county as enhanced by public improvements in any of its parts ... ”).

Here, the benefit to the general public is the same as that arising from any special benefit assessment. The 2200 properties in the District are presumed to enjoy an increase in value as a result of the special benefits conferred. See Leser v. Philip Wagner, Inc., 120 Md. 671, 677 , 87 A. 1040, 1042 (1913); Burns v. Mayor & City Council of Baltimore, 48 Md. 198, 204