Are MADs Driving You Mad?

Maintenance assessment districts are complicated little tools that local governments use to fund neighborhood maintenance and improvements like sidewalk washing, tree trimming and debris removal.

So how do they work? Why are they used, and why have some, like Golden Hill’s, which I wrote about yesterday, come under such scrutiny?

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First, a little background:

When Proposition 13 placed severe limits on local governments’ ability to generate revenue through property taxes in the 1970s, those governments started relying more heavily on alternative funding sources, including property-related fees, special assessments, and various taxes like hotel and business taxes.

In 1996, Proposition 218 targeted their ability to raise and spend revenue from these sources, too. Its intent was to make special taxes and assessments subject to voter approval. It also tried to ensure that revenue raised through assessments and property fees provided specific benefits to the property owners who paid them, rather than be used for general government services.

An assessment is a levy on property collected specifically for services that benefit property. It differs from a tax, which can be used by governments for purposes benefitting the general public.

That distinction is at the center of the Superior Court ruling in the Golden Hill case that I’ve been writing about.

A maintenance assessment district — which we’ll call a MAD from here on out — draws boundaries within a neighborhood.

Property owners are then assessed a fee for maintenance services and improvements. Property owners cannot be charged more than their proportional share of the total cost of the services. Prop. 218 also requires that those services provide “special benefits” to the properties assessed.

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This is where MADs get tricky. A special benefit provides a specific benefit to land and buildings. A general benefit is any benefit to the general public.

Under Prop. 218, local governments can only use assessments to pay for services that provide special benefits to the property or building owners who are assessed.

But many of the services funded by MADs also benefit the general public. Clean sidewalks benefit the houses that face them, but also benefit people who can pass through the neighborhood on foot without stepping in chewing gum.

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So local governments are required to use what’s called an engineer’s report to determine exactly how much benefit each property owner is receiving from the services they’re paying. This calculation, based on size of properties and other factors, is used to determine how much each property pays into the assessment.

These requirements have forced cities, including San Diego, to create engineer’s reports that devise complicated equations that make these calculations. Property owners then vote on the report to establish the MAD and agree to be assessed.

In most of San Diego’s 57 maintenance assessment districts, the reports lay out exactly how much “special benefit” properties within the district will receive. In Golden Hill, the special benefits were more nebulously defined:

Enhanced visual aesthetics
Increased economic opportunity
Creating a sense of community
Enhanced quality of life

These are many of the same benefits provided in MADs across the city, but in Golden Hill these intangible benefits were not quantified in the report, as state law requires.

And this is why using the tool has often been called more of an art than a science — it requires quantifying intangible benefits.

Because the report that Golden Hill voters approved two years ago was ruled in violation of state law last week, the city must now determine whether the entire MAD must be disbanded and started from scratch. Until the city announces its move, the future of MAD-funded services in Golden Hill remains uncertain.