Carol Crispino v. Township of Sparta (083171) (Sussex County & Statewide)

SYLLABUS
This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the
Clerk for the convenience of the reader. It has been neither reviewed nor approved by the
Court. In the interest of brevity, portions of an opinion may not have been summarized.
Carol Crispino v. Township of Sparta (A-16-19) (083171)
Argued March 16, 2020 -- Decided July 22, 2020
ALBIN, J., writing for the Court.
In this appeal, the Court considers a resolution, passed by defendant Township of
Sparta (Township), that imposed a special assessment on fifty-eight properties to recoup
public funds expended in the rehabilitation of a private dam owned by the Glen Lake
Beach Club, Inc. (Beach Club).
The Beach Club owns Glen Lake and the Glen Lake Dam, which impounds the
water that forms the lake. All owners of real estate within a specifically delineated
perimeter near the lake known as the “reserve” -- as set forth in the Beach Club’s bylaws
-- are automatically eligible for membership and voting rights.
To fund necessary repairs to the dam, the Beach Club received a loan from the
New Jersey Department of Environmental Protection’s Dam, Lake and Stream Project
Fund. In accordance with N.J.S.A. 58:4-12(d)(1), the Township agreed to serve as a co-
borrower: the Beach Club would be responsible for repayment of the loan and the
Township would act as the “collection agent” by passing an ordinance imposing a special
assessment on “real estate in the Township benefitted by [the dam] improvement.”
The Township Council enacted Ordinance 16-03, which authorized the Township
to impose a special assessment on “the benefitted properties” of the dam project, and
Ordinance 16-04, which established an Assessment Commission to identify the benefitted
properties and to determine the assessment to be imposed on those properties.
In March 2016, the Council appointed Scott Holzhauer, a real estate appraiser and
consultant, to assist the Assessment Commission in fulfilling its charge. Holzhauer
recommended that fifty-eight properties that fell within the Beach Club’s “reserve” be
subject to the special assessment to repay the loan. The owners of those properties
received a “peculiar benefit” or “advantage,” according to Holzhauer, because they have
the option to become members of the Beach Club and to enjoy its recreational amenities.
Holzhauer devised an approach to allocate the special assessment by dividing the
properties in the “reserve” into three separate categories: (1) seven lakefront properties,
(2) eleven lakeview properties with lake access, and (3) the forty remaining properties.
1
In that three-tiered approach, Holzhauer assigned “share values” to each category,
allocating the highest share value to lakefront properties (2.0), a lower value to
lakeview/access properties (1.5), and the lowest value to all other properties (1.0).
Holzhauer’s report does not explain the methodology he followed in assigning the values
to the three classes of property.
Despite opposition from some residents, the Township Council passed Resolution
6-1, adopting the recommendations made in Holzhauer’s report. Plaintiffs filed an action
in lieu of prerogative writs in Superior Court challenging the validity of Resolution 6-1.
The court voided Resolution 6-1, reasoning that the Township arbitrarily applied the
special assessment to plaintiffs’ properties. The Appellate Division reversed, and the
Court granted certification. 239 N.J. 600 (2019).
HELD: The expert report relied on by the Township did not apply any reliable
methodology to assure that the assessment allocating the costs among the properties was
“in proportion to and not in excess of the benefits conferred,” as required by N.J.S.A.
58:4-12(d)(1) and other statutes. The Court is constrained to invalidate Sparta Township
Resolution 6-1, which imposes a special assessment on plaintiffs’ properties to recoup the
costs of the dam restoration project. The Township must pass a resolution allocating
costs based on a valid methodology in accordance with the applicable statutes and
relevant case law.
1. The Dam, Lake and Stream Project Fund provides a means for the owner of a private
dam, such as a lake club or association, to secure a loan for the rehabilitation project.
N.J.S.A. 58:4-12(d)(1) provides two important features: (1) the cost of an improvement
funded under this section must be assessed “in the same manner as provided for the
assessment of local improvements generally under chapter 56 of Title 40 of the Revised
Statutes,” and (2) the assessment against the properties benefitted must be “in proportion
to and not in excess of the benefits conferred.” The plain language of the statute makes
clear that the Legislature intended to incorporate the law governing the special
assessments for local improvements under Title 40 into Title 58’s assessment for private
dam and lake improvements financed by public funds. By that act of incorporation, the
Legislature did not have to repeat the procedural and substantive standards for the
imposition of an assessment already set forth comprehensively in Title 40. The
Township understood that the special assessment process was governed by both Title 58
and Title 40. (pp. 17-20)
2. The justification for any special assessment levied for the purpose of financing a local
improvement, N.J.S.A. 40:56-27, or an improvement to a privately owned dam, N.J.S.A.
58:4-12, is that the assessed property has received a benefit from the improvement. If
there is no “peculiar benefit, advantage or increase in value” to the property from the
improvement, then there is no basis for imposing an assessment. See N.J.S.A. 40:56-27.
Under relevant case law, the benefit to the assessed property must be certain rather than
2
speculative, although it may arise in the future, and the benefit to the specific property
must be substantially greater than to the public in general. An assessment, moreover,
must be proportionate to the benefit conferred on the property. The proportionality
requirement is measured by a standard of reasonableness, not by scientific precision. See
N.J.S.A. 58:4-12(d)(1) (“in proportion to . . . the benefits conferred”); N.J.S.A. 40:56-27
(“as nearly as may be in proportion to”). (pp. 21-23)
3. The test often used to determine the value of the benefit and the amount of the
assessment is the difference between the market value of the land before and after the
improvement. Nevertheless, no inflexible formula applies, nor is mathematical precision
required. Another assessment methodology may be used, so long as the result is a just
and equitable assessment of the benefits conferred. The value of the benefit conferred on
the assessed property by the improvement must be established by reliable proof. To state
the obvious, a municipality cannot impose an assessment based on an arbitrary
methodology. (pp. 23-24)
4. The Holzhauer report, which was adopted by the Assessment Commission and the
Township Council, did not comport with the statutory mandates and the governing case
law. Holzhauer simply concluded that property owners listed within the geographical
ambit of the Beach Club’s bylaws received a “benefit” because of “their right, by
property ownership and/or interest, to become a member of the club and therefore have
access to the lake and other amenities.” Plaintiffs suggest that the Beach Club randomly
placed their properties in the “reserve,” pointing to properties an equal distance from the
lake, whose owners are not automatically eligible for membership in the Beach Club.
Additionally, there is lack of certainty whether all property owners within the Beach Club
“reserve” are, in fact, automatically eligible for membership. Even assuming that
plaintiffs were eligible to become members of the Beach Club and that such membership
conferred on them a benefit from the dam restoration project, the Holzhauer report does
not set forth a rational methodology for the assessments imposed on plaintiffs’ properties.
Holzhauer did not explain how he arrived at assigning value shares to each category or
refer to any reliable methodology to support his opinion. (pp. 25-28)
5. Special assessments cannot be imposed on properties based on arbitrary
categorizations or speculative valuations. The Court concludes that the presumption of
validity accorded to Resolution 6-1 has been overcome by clear and convincing evidence
and invalidates Resolution 6-1 as an arbitrary and unreasonable law. (pp. 28-29)
REVERSED and REMANDED to the Sparta Township Council.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON,
FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE ALBIN’s
opinion.
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SUPREME COURT OF NEW JERSEY
A-16 September Term 2019
083171
Carol Crispino, Vilma Verber,
Mark Edwards, Jorge Cabrera,
Stephen Cappadora, Paul O’Keefe,
Kenneth Gardner, and Mary Gardner,
Plaintiffs-Appellants,
v.
Township of Sparta,
Defendant-Respondent.
On certification to the Superior Court,
Appellate Division.
Argued Decided
March 16, 2020 July 22, 2020
John E. Ursin argued the cause for appellants (Schenck,
Price, Smith & King, attorneys; John E. Ursin and Sandra
Calvert Nathans, on the briefs).
Thomas N. Ryan argued the cause for respondent
(Laddey, Clark & Ryan, attorneys; Thomas N. Ryan and
Jessica A. Jansyn, on the brief).
JUSTICE ALBIN delivered the opinion of the Court.
1
Defendant Township of Sparta (Township) passed a resolution imposing
a special assessment on fifty-eight properties to recoup public funds expended
in the rehabilitation of a private dam owned by the Glen Lake Beach Club, Inc.
(Beach Club). Under the Beach Club’s bylaws, the owners of the fifty-eight
properties -- all within close proximity to Glen Lake -- are eligible to join the
Beach Club and enjoy its amenities.
Eight of those property owners (plaintiffs) filed an action in lieu of
prerogative writs challenging the validity of the special assessment. Plaintiffs
are not members of the Beach Club, and they do not own properties either on
the lake or with a view of the lake. They claimed that the special assessment,
which allocates the costs for the restoration of the dam among the fifty-eight
properties, was not in proportion to any benefit they received, thus violating
N.J.S.A. 58:4-12(d)(1). Plaintiffs attacked the expert appraiser’s report relied
on by the Township, asserting that it offered no methodology or justification
for imposition of the assessment on their properties and therefore it constituted
a “net opinion.”
The trial court agreed. The court determined that the expert report did
not follow any discernible methodology in allocating the cost for the dam
restoration among plaintiffs’ properties and therefore declared the resolution
imposing the special assessment arbitrary and void. The Appellate Division
2
reversed, finding within the four corners of the expert report a sufficient basis
to justify the special assessment on plaintiffs’ properties, and reinstated the
resolution.
We come to a different conclusion than the Appellate Division.
Although plaintiffs’ properties may have received a benefit from the dam
restoration project, the expert report relied on by the Township did not apply
any reliable methodology to assure that the assessment allocating the costs
among the properties was “in proportion to and not in excess of the benefits
conferred,” as required by N.J.S.A. 58:4-12(d)(1) and other statutes. The
Legislature has delegated to municipalities the power to impose special
assessments on property owners to fund certain improvements. That power,
however, may not be arbitrarily exercised. The presumption of validity
accorded to a municipal law cannot shield a special assessment based on a
methodology that lacks any indicia of reliability. Accordingly, we are
constrained to invalidate Sparta Township Resolution 6-1, which imposes a
special assessment on plaintiffs’ properties to recoup the costs of the dam
restoration project.
We therefore reverse the judgment of the Appellate Division. The
Township must pass a resolution allocating costs based on a valid
methodology in accordance with the applicable statutes and relevant case law.
3
I.
A.
The Glen Lake Beach Club -- a private club located in the Township of
Sparta -- owns Glen Lake and the Glen Lake Dam, which impounds the water
that forms the lake. The Beach Club offers various amenities to its members
and their guests, such as boating, fishing, swimming, and social activities.
Eligibility for membership in the Beach Club is governed by the organization’s
bylaws. All owners of real estate within a specifically delineated perimeter
near the lake known as the “reserve” -- as set forth in the Beach Club’s bylaws
-- are automatically eligible for membership and voting rights, provided they
apply for membership and satisfy the Club’s membership requirements.1
Other Township residents who live outside of the “reserve” can apply for
“special membership” in the Beach Club if sponsored by a voting member.
Those residents granted special membership by the Beach Club’s governing
body may enjoy all of the Club’s amenities but do not have voting rights.
In the early 2000s, the New Jersey Department of Environmental
Protection (NJDEP) classified the Glen Lake Dam as a “high hazard dam”
requiring rehabilitation. To fund the repairs necessary for the dam to meet the
1
The record reflects that the geographical boundaries of the “reserve” have
not changed since the 1970s.
4
state’s regulatory requirements, the Beach Club applied for and received a
$725,000 loan from the NJDEP’s Dam, Lake and Stream Project Fund,
N.J.S.A. 58:4-12. In accordance with N.J.S.A. 58:4-12(d)(1), the Township
agreed to serve as a co-borrower on the loan. The co-borrower agreement
between the Beach Club and the Township provided that the Beach Club
would be responsible for repayment of the loan -- $925,726 in principal,
interest, and related costs -- and the Township would act as the “collection
agent” by passing an ordinance imposing a special assessment on “real estate
in the Township benefitted by [the dam] improvement.”
In February 2016, the Township Council enacted Ordinances 16-03 and
16-04. Ordinance 16-03 authorized the Township to impose a special
assessment on “the benefitted properties” of the dam project, and Ordinance
16-04 established an Assessment Commission to identify the benefitted
properties and to determine the assessment to be imposed on those properties.
In March 2016, the Council appointed Scott Holzhauer, a real estate
appraiser and consultant, to assist the Assessment Commission in fulfilling its
charge. More than a year earlier, before his appointment, Holzhauer had
submitted a written proposal to the Township setting forth a market-value
approach in assessing the benefit that properties received from the dam project.
Under that approach, the Township would appraise the market value of each
5
affected property before and after the dam rehabilitation project. The
difference between the property’s market value before and after the project
would represent the property’s enhanced value.
In a report dated June 22, 2016, Holzhauer submitted his consulting
report to the Assessment Commission. Holzhauer identified fifty-eight
properties that benefitted from the Glen Lake Dam Rehabilitation Project. He
recommended that those properties be subject to the special assessment to
repay the loan received from the NJDEP’s Dam, Lake and Stream Project
Fund. The fifty-eight properties that Holzhauer proposed for the special
assessment came from a list of sixty-five properties that fell within the Beach
Club’s “reserve,” an area near the lake delineated in the organization’s
bylaws.2 Seven of the sixty-five properties were exempt from the special
assessment for various reasons, such as by the terms of the co-borrower
agreement or the NJDEP loan agreement. The owners of the fifty-eight other
properties were eligible for voting membership in the Beach Club, even though
a number had chosen not to become Club members.
Holzhauer’s report acknowledged that, by statute, the special assessment
on the fifty-eight properties must be proportionate to “and not in excess of the
2
Holzhauer transposed a map of the Beach Club’s “reserve” onto the then-
current Township tax map.
6
peculiar benefit, advantage or increase in value” from the dam project , quoting
N.J.S.A. 40:56-27. The owners of the fifty-eight properties received a
“peculiar benefit” or “advantage,” according to Holzhauer, because they have
the option to become members of the Beach Club and to enjoy its recreational
amenities. The report states that “[t]his benefit serves as an enhancement to
property value for these property owners,” thus distinguishing them from
property owners outside the “reserve,” except for those who had availed
themselves of special membership. In explaining the reasons for imposing the
special assessment on the properties within the “reserve,” the report states that
“[o]wnership of property in a lake community . . . brings with it the
expectation of recreational amenities and scenic views that each contribute to
the value and desirability of the property.” The report adds, however, that
those rewards must be balanced against the “risk” associated with the
“survival” of a dam that “is generally crucial to property value for owners that
have located within the lake community.”3
Holzhauer devised an approach to allocate the special assessment by
dividing the properties in the “reserve” into three separate categories:
3
The report noted that if the Beach Club did not undertake the dam
rehabilitation project, then the NJDEP possessed the authority to do so under
N.J.A.C. 7:20-2.9 and to recoup the costs by imposing a lien on the benefitted
properties within the “reserve.”
7
(1) seven lakefront properties, (2) eleven lakeview properties with lake access,
and (3) the forty remaining properties. In that three-tiered approach,
Holzhauer assigned “share values” to each category, allocating the highest
share value to lakefront properties (2.0), a lower value to lakeview/access
properties (1.5), and the lowest value to all other properties (1.0). 4 The
following chart sets forth the special assessment imposed on each class of
property over a fifteen-year period -- the period required to accomplish the
repayment of the loan:
Special
Number Of Value Share
Share Payment/Year Assessment
Properties Summary
Over 15 Years
7 Lakefront 2.0 $1750.87 $26,263
11 Lake View/Access 1.5 $1313.13 $19,697
Other Properties In
40 1.0 $875.40 $13,131
The “Reserve”
Total Assessment To Be Collected From All Properties $925,726
Holzhauer’s report does not explain the methodology he followed in
assigning the values to the three classes of property -- other than presenting his
conclusion that the properties closest to the lake received the greatest benefit
4
The lakefront properties “enjoy unimpeded direct access to the lake, along
with the potential for establishing lake edge improvements,” such as docks.
The lake-access lots are located “immediately across the street from the lake,
enjoying direct pedestrian access to the lake and generally unobstructed
views.” The remaining properties -- assigned the lowest share value -- do not
enjoy any of the direct benefits of lakefront and lake-access properties but
have proximity to the lake and the option of joining the Beach Club.
8
from the dam rehabilitation project and that the properties further from the
lake received a lesser benefit.
After conducting a public hearing and considering public comments, in
June 2016, the Assessment Commission recommended that the Township
Council adopt Holzhauer’s “report and formulaic approach” in allocating the
special assessment.
During Township Council public meetings, a number of property owners
in the Beach Club’s “reserve” expressed their objections to the proposed
special assessment. The property owners made various complaints, for
example, alleging that their deeds, including the chain of title, did not alert
them to the potential of a special assessment; that the boundary lines of the
1970s bylaws did not include some of the targeted properties; and that the
bylaws had been amended in the 2000s to widen the perimeter of the “reserve.”
Sylvia Cappadora stated that, although the Beach Club claimed that the
property owners “had the ability to join the lake association,” she -- a thirty-
four-year resident of the “reserve” -- had been told when she attempted to join
that the Club was not taking new members.
Despite opposition from some residents, on August 23, 2016, the
Township Council passed Resolution 6-1, adopting the recommendations made
9
in Holzhauer’s report, including the special assessment of $925,726 to be
collected from the fifty-eight property owners in the Beach Club’s “reserve.”
B.
On September 12, 2016, plaintiffs Carol Crispino, Vilma Verber, Mark
Edwards, Jorge Cabrera, Stephen Cappadora, Paul O’Keefe, Kenneth Gardner,
and Mary Gardner filed an action in lieu of prerogative writs in Superior Court
challenging the validity of Resolution 6-1. In their complaint, plaintiffs
alleged that the Township Council failed to conduct a fair-market-value
analysis to determine whether their properties received a “benefit” from the
dam rehabilitation project, or the extent of any such benefit, and arbitrarily
placed their properties “in the assessment area.” Plaintiffs claimed that,
without some showing that the project conferred a “benefit” on their
properties, the special assessment violated N.J.S.A. 40:56-27, and therefore
Resolution 6-1 should be declared void. 5
5
The complaint also alleged other bases for striking down Resolution 6-1: a
councilperson’s purported conflict of interest that tainted the Township
Council proceedings, as well as purported violations of the Open Public
Meetings Act and the Open Public Records Act. Although we granted
certification on the conflict-of-interest issue, it is not relevant to our
disposition of this appeal and therefore we need not reach it. Nor in this
procedural history will we discuss other issues raised in plaintiffs’ complaint
that were decided by the trial court and Appellate Division.
10
C.
In a hearing before the Honorable Stuart A. Minkowitz, A.J.S.C., the
parties relied on various submissions, such as the Beach Club’s bylaws, the
minutes of the Township Council meetings, and the Holzhauer report. In a
written opinion, Judge Minkowitz voided Resolution 6-1, reasoning that the
Township arbitrarily applied the special assessment to plaintiffs’ properties.
In reaching that decision, the court acknowledged the presumption of
validity that attaches to municipal action. The court, however, recognized that
a Township cannot levy a special assessment on property owners for a local
improvement unless the improvement confers some benefit on the assessed
property, in accordance with N.J.S.A. 40:56-27. The court noted that the
Township Council relied on the Holzhauer report in passing the special
assessment, but the report “did not use any stated methodology for deciding
which houses would be burdened by the special assessment.” Although
Holzhauer did not have to use a “fair market value benefit analysis,” the court
declared that the expert had “to apply a non-arbitrary methodology” to justify
imposing a special assessment on plaintiffs’ properties. The court found that
Holzhauer’s reliance on the Beach Club’s bylaws to decide the reach of the
special assessment ceded to a private entity the “indiscriminate power” to
11
amend its bylaws to include, if it chose, the entire Township to contribute to
the assessment -- a “ludicrous result” in the court’s view.
Judge Minkowitz compared the Holzhauer report to a “net opinion” -- an
opinion resting “on unfounded speculation and unquantified possibilities,”
quoting Townsend v. Pierre, 221 N.J. 36, 55 (2015). The court concluded that,
in imposing the special assessment, the Township’s reliance on an expert
report devoid of any meaningful methodology was “arbitrary and
unreasonable.” The court held that “[t]he Township must begin the special
assessment process anew, using an expert report that relies on . . . factual bases
and a methodology that is reliable and not arbitrary,” citing ibid.
In denying the Township’s motion for reconsideration, the court further
elaborated that the Holzhauer report did not show that the properties subject to
the special assessment -- based on the Beach Club’s bylaws -- “would receive
a benefit from the Project, simply because those properties were eligible for
membership.” Nor had the Township shown, the court stated, that
“membership even had value.”
D.
In an unpublished opinion, the Appellate Division reversed the trial
court’s voiding of Resolution 6-1. It determined that the Township Council
properly relied on the methodology in the Holzhauer report and that the
12
Council’s adoption of Resolution 6-1 and the accompanying special
assessment “was neither arbitrary nor unreasonable.”
The Appellate Division rejected the notion that the rules of evidence
apply to proceedings before a municipal body considering the imposition of a
special assessment, quoting N.J.R.E. 101(a)(4) (stating that “proceedings
before administrative agencies shall not be governed by [the rules of
evidence],” with the exception of the rule governing privileges). “On that
basis alone,” the Appellate Division reasoned, the trial court erred in applying
“the net opinion rule to bar Holzhauer’s unrefuted methodology.”
Assuming that the net opinion rule applied, the Appellate Division was
satisfied that Holzhauer’s report “sets forth the ‘why’ and ‘wherefore’ of his
methodology.” It did not discern any arbitrariness in imposing a special
assessment on plaintiffs’ properties, given that they received, under N.J.S.A.
40:56-27, a “peculiar benefit” or “advantage” from the dam rehabilitation
project due to their “proximity to the lake and [the] recreational amenities
[available] ‘through optional membership.’” The Appellate Division
concluded that plaintiffs had failed to demonstrate “by clear and convincing
evidence[] that the challenged decision was not ‘just and fair,’” quoting
N.J.S.A. 40:56-54.
We granted plaintiffs’ petition for certification. 239 N.J. 600 (2019).
13
II.
A.
Plaintiffs argue that the Township’s imposition of a special assessment
on their properties, which they allege received no benefit from the dam
rehabilitation project, was arbitrary and unreasonable. Plaintiffs describe
themselves as property owners who fall within the Beach Club’s “reserve”
only by the grace of the Club’s bylaws. They state that (1) they have “no lake
view or lake access except by crossing a very busy road”; (2) though eligible
to join this private Club, they have chosen not to do so; (3) they purchased
their homes with no obligation to pay Beach Club fees; and (4) “they never
expected to be burdened with a special assessment to repair a dam owned by
. . . a private club, to which they did not belong.”
Plaintiffs emphasize that the possibility or eligibility for membership in
a private beach club is not an “actual benefit” under the relevant statutes and
that the true test of whether they received a benefit from the dam project is any
difference in the market value of their properties before and after the project’s
completion. Plaintiffs point out that, during a Township Council meeting, one
homeowner within the “reserve” asserted that she was denied membership in
the Beach Club when she attempted to join. Plaintiffs complain not only that
their properties were chosen for the special assessment by a random selection
14
-- inclusion in the Beach Club’s bylaws -- but also that the Township made no
showing that the approximately $1000 annual assessment over fifteen years
was proportionate to any benefit conferred.
In sum, plaintiffs submit that the Appellate Division erred in upholding
Resolution 6-1 without any proof that the dam project benefitted their
properties or that the special assessment was in proportion to any benefit
received, as required by N.J.S.A. 58:4-12(d)(1) and N.J.S.A. 40:56-27.
B.
The Township counters that the Holzhauer report provided the Township
with a sufficient basis to impose the special assessment on plaintiffs’
properties. According to the Township, plaintiffs’ eligibility to become
members of the Beach Club since at least 1979 was a “benefit” under N.J.S.A.
58:4-12(d)(1). From the Township’s perspective, the Beach Club had
conferred on plaintiffs “the unique benefit of the ability to manage and control
the lake, dam, and associated facilities.” The Township contends that, in
determining the amount of the assessment, it was not required to analyze
whether the market value of plaintiffs’ properties increased as a result of the
dam project. It asserts that the standard governing public improvements,
N.J.S.A. 40:56-27, which refers to “increase in value,” is different from the
“more flexible standard” governing private dam improvements, N.J.S.A. 58:4-
15
12(d)(1), which refers to “benefits conferred.” The true test, the Township
maintains, is whether the special assessment when measured “against the real
estate benefited [is] thereby in proportion to and not in excess of the benefits
conferred,” quoting N.J.S.A. 58:4-12(d)(1).
The Township rejects plaintiffs’ use of an unsworn statement made by a
homeowner within the “reserve” during a Township Council meeting to
support the proposition that plaintiffs did not necessarily have the option to
join the Beach Club. The Township claims that plaintiffs have presented a
“moral argument,” not a legal one, “that only current [Beach Club] members
should be ‘saddled’ with the cost of the dam improvements.” It submits that
“limiting the assessment to current members could result in the perverse
incentive for members to withdraw, leaving no one managing or running the
club and, more importantly, no one to pay for the dam improvements, which
benefitted real estate.”
For those reasons, the Township urges that we affirm the Appellate
Division.
III.
The issue before us is whether Sparta Township Resolution 6-1, which
imposed a special assessment on plaintiffs’ properties for the repayment of a
publicly funded loan that financed the rehabilitation of a dam owned by a
16
private lake club to which plaintiffs did not belong, complies with N.J.S.A.
58:4-12 and other state laws.
We begin with the well-established principle that municipal legislation
enjoys a presumption of validity, and that courts will not invalidate an
ordinance that bears a rational relationship to a legitimate objective and is not
arbitrary or unreasonable. See N.J. Shore Builders Ass’n v. Township of
Jackson, 199 N.J. 38, 54-55 (2009). Plaintiffs and the Township dispute
whether Resolution 6-1 complies with state law. Our first task is to identify
the state laws that govern the municipal action in this case.
A.
After the NJDEP determined that the Glen Lake Dam needed to be
rehabilitated because of its hazardous condition, the Beach Club looked to the
Dam, Lake and Stream Project Fund, N.J.S.A. 58:4-12, to finance the project.
The Legislature enacted the Dam, Lake and Stream Project Fund to
provide a financial source for the restoration and repair of private dams
without burdening municipal capital budgets. See N.J.S.A. 58:4-11 and -12.
The Fund provides a means for the owner of a private dam, such as a lake club
or association, to secure a loan for the rehabilitation project. N.J.S.A. 58:4-12.
To ensure repayment of the loan, N.J.S.A. 58:4-12 provides for a private and
public partnership between the Beach Club and the Township -- with the
17
Township acting as the collector of the debt through the use of its municipal
power to assess properties benefitted by the project.
To that end, N.J.S.A. 58:4-12(d)(1) states:
Loans awarded under this section to owners of private
dams or lake associations shall require local
government units to act as co-applicants. The cost of
payment of the principal and interest on these loans
shall be assessed, in the same manner as provided for
the assessment of local improvements generally under
chapter 56 of Title 40 of the Revised Statutes, against
the real estate benefited thereby in proportion to and not
in excess of the benefits conferred, and such assessment
. . . shall be a first and paramount lien upon the real
estate assessed to the same extent, and be enforced and
collected in the same manner, as assessments for local
improvements.
[(emphases added).]
For our purposes, N.J.S.A. 58:4-12(d)(1) provides two important
features: (1) the cost of an improvement funded under this section must be
assessed “in the same manner as provided for the assessment of local
improvements generally under chapter 56 of Title 40 of the Revised Statutes ,”
and (2) the assessment against the properties benefitted must be “in proportion
to and not in excess of the benefits conferred.” The plain language of the
statute makes clear that the Legislature intended to incorporate the law
governing the special assessments for local improvements under Title 40 into
18
Title 58’s assessment for private dam and lake improvements financed by
public funds.
By that act of incorporation, the Legislature did not have to repeat the
procedural and substantive standards for the imposition of an assessment
already set forth comprehensively in Title 40. Significantly, nothing in Title
40 is in conflict with the provisions of N.J.S.A. 58:4-12, including the
requirement that property assessed be benefitted by the improvement and that
the assessment be proportional to the benefit conferred.
The Township understood that the special assessment process was
governed by both Title 58 and Title 40. For example, the co-borrower
agreement between the Beach Club and Township stated that “[t]he cost of the
payment of the principal and interest on the Loan may be assessed, pursuant to
the Special Assessment Ordinance in accordance with N.J.S.A. 58:4-12 et seq.,
N.J.A.C. 7:24A-1.1 et seq., and N.J.S.A. 40:56-1.” Additionally, Ordinance
16-03 authorized the Township to impose a special assessment “against the
benefitted properties, pursuant to N.J.S.A. 40:56-1 et seq. and N.J.S.A. 58:4-
12 et seq. in accordance with the Special Assessment statutes including but not
limited to N.J.S.A. 40:56-27.” Ordinance 16-04 established the Board of
Assessment Commissioners “in accordance with N.J.S.A. 40:56-1 et seq.,” to
assist the Township Council, evidently because N.J.S.A. 58:4-12 makes no
19
provision for a Board of Assessment Commissioners. Finally, the Holzhauer
report, which the Township Council adopted, expressly relied on and quoted
from N.J.S.A. 40:56-27 in determining and identifying the benefitted
properties.
We therefore turn to the procedural and substantive standards set forth in
Title 40 governing the imposition for assessments on properties benefitted by
local improvements. See N.J.S.A. 40:56-1 to -64. “A local improvement is
one, the cost of which, or a portion thereof, may be assessed upon the lands in
the vicinity thereof benefited thereby.” N.J.S.A. 40:56-1 (emphasis added). A
municipality is authorized to appoint “commissioners to make the assessments
for benefits for [a local] improvement,” N.J.S.A. 40:56-22, and those
commissioners are empowered to “make a just and equitable assessment of the
benefits conferred upon any real estate by reason of [the local] improvement
having due regard to the rights and interests of all persons concerned, as well
as to the value of the real estate benefited,” N.J.S.A. 40:56-26.
N.J.S.A. 40:56-27 describes in detail how the assessment must relate to
the benefit received:
All assessments levied under this chapter for any local
improvement shall in each case be as nearly as may be
in proportion to and not in excess of the peculiar
benefit, advantage or increase in value which the
respective lots and parcels of real estate shall be
deemed to receive by reason of such improvement.
20
We do not discern any real distinction between the language above and
N.J.S.A. 58:4-12(d)(1)’s language stating that the imposition of an assessment
on property must be “in proportion to and not in excess of the benefits
conferred” by the dam improvement. Title 40 also sets forth procedural
guideposts. For instance, “[a]ll assessments for local improvements shall be
presumed to have been regularly assessed and confirmed . . . until the contrary
be shown,” N.J.S.A. 40:56-33, and ultimately a reviewing court must
determine whether the assessment is “just and fair,” N.J.S.A. 40:56-54; see
also 2nd Roc-Jersey Assocs. v. Town of Morristown, 158 N.J. 581, 597 (1999)
(stating that special “assessments are ‘presumptively correct and the taxpayers
[have] the burden of overcoming that presumption by clear and convincing
evidence’” (alteration in original) (quoting McNally v. Township of Teaneck,
75 N.J. 33, 44 (1977))).
Because N.J.S.A. 58:4-12(d)(1) incorporates the provisions of Title 40
that relate to “the assessment of local improvements” and because this is our
first occasion to address N.J.S.A. 58:4-12(d)(1), the case law construing the
relevant provisions of Title 40 offers guidance.
B.
The justification for any special assessment levied for the purpose of
financing a local improvement, N.J.S.A. 40:56-27, or an improvement to a
21
privately owned dam, N.J.S.A. 58:4-12, is that the assessed property has
received a benefit from the improvement. See Gabriel v. Borough of Paramus,
45 N.J. 381, 384 (1965) (“The foundation of the power to levy a special
assessment is the benefit or enhancement of value which the improvement
confers.”). Special assessments may be imposed on properties for such local
improvements as the installation of sewage and water lines, street paving and
curbing, and construction of parking facilities. See N.J.S.A. 40:56-1 and -1.1;
see also 2nd Roc-Jersey Assocs., 158 N.J. at 604 (upholding a special
assessment of commercial properties within a special improvement district). If
there is no “peculiar benefit, advantage or increase in value” to the property
from the improvement, then there is no basis for imposing an assessment. See
N.J.S.A. 40:56-27.
The benefit to the assessed property “must be certain rather than
speculative, although it may arise in the future.” 2nd Roc-Jersey Assocs., 158
N.J. at 593-94 (noting that an assessment for an improvement is proper even if
“the benefit is not presently apparent”). “The fact that a landowner has no
present, immediate use for the improvement is . . . immaterial, so long as the
use of the improvement is accessible and available to the land sought to be
assessed for any use to which the property may legitimately be put.”
Ridgewood Country Club v. Borough of Paramus, 55 N.J. 62, 68-69 (1969).
22
Ordinarily, “the benefit to the specific property must be substantially greater
than to the public in general.” 2nd Roc-Jersey Assocs., 158 N.J. at 592-93.
An assessment, moreover, must be proportionate to the benefit conferred
on the property. The proportionality requirement is measured by a standard of
reasonableness, not by scientific precision. See N.J.S.A. 58:4-12(d)(1) (“in
proportion to . . . the benefits conferred”); N.J.S.A. 40:56-27 (“as nearly as
may be in proportion to”); 2nd Roc-Jersey Assocs., 158 N.J. at 596. “So long
as [the] owner is required to pay [no] more than the benefit received and the
method of determining the amount of that benefit is reasonable and appli ed
uniformly to all property owners, the statutory mandate has been satisfied.”
McNally, 75 N.J. at 46.
The test often used to determine the value of the benefit and the amount
of the assessment is “the difference between the market value of the land
before and after the improvement.” Id. at 42; see also McQueen v. Town of
West New York, 56 N.J. 18, 23 (1970) (stating that the “‘[b]enefit’ is the
increment of value to land affected by improvement. It represents the
difference between the market value of the lands before the improvement and
the market value of the land immediately after the improvement” (quoting In
re Pub. Serv. Elec. & Gas Co., 18 N.J. Super. 357, 365 (App. Div. 1952))).
23
Nevertheless, no inflexible formula applies, nor is “mathematical
precision” required. See 2nd Roc-Jersey Assocs., 158 N.J. at 596, 601;
McQueen, 56 N.J. at 24. Another assessment methodology may be used, so
long as the result is a “just and equitable assessment of the benefits conferred.”
McQueen, 56 N.J. at 24; see also 2nd Roc-Jersey Assocs., 158 N.J. at 601-02
(finding that “[t]he method of assessment must necessarily be adapted to the
benefit conferred” and that other methods that are “just and equitable” or
“rational and appropriate” may be used). Although a fair-market-value
approach may be suitable for an improvement such as the installation of a
water or sewage line, see Ridgewood Country Club, 55 N.J. at 68-71, it may
not be suitable for determining the benefit to commercial properties located
within a special improvement district, see 2nd Roc-Jersey Assocs., 158 N.J
601-02 (noting that the standard fair-market-value approach was not applicable
because “the nature of the benefit [was] general and intangible, and the
quantum of the benefit [was] imprecise”).
The value of the benefit conferred on the assessed property by the
improvement must be “established by the conventional method of expert
testimony or by some other reliable proof.” See McNally, 75 N.J. at 42
(emphasis added) (citing McQueen, 56 N.J. at 24). To state the obvious, a
municipality cannot impose an assessment based on an arbitrary methodology.
24
See Ridgewood Country Club, 55 N.J. at 69-70 (finding that the assessment
was “arbitrary and unreasonable” because the record did not contain “proof by
any qualified witness of any such net dollar enhancement in value”).
IV.
The Holzhauer report, which was adopted by the Assessment
Commission and the Township Council, did not comport with the statutory
mandates and the governing case law. Holzhauer did not apply a fair-market-
value methodology to determine the value of the subject properties before and
after the dam improvement, as he stated in his proposal letter to the Township. 6
Although Holzhauer and the Township were not bound to follow the traditional
fair-market-value approach, they were required to employ a rational and non-
arbitrary methodology.
6
Holzhauer stated that his report would
contain valuation information for each property (base
land value with and without consideration of the dam
improvement), . . . the identification of each property,
purpose and function of the appraisal report, date of
valuation, identification of property rights appraised,
neighborhood characteristics, zoning, site data, highest
and best use conclusion, a discussion of the appraisal
technique(s) considered and used in the valuation
process, a presentation of comparable market data for
each approach considered, and a reconciliation of the
data into two separate estimates for each property as of
the appraisal date.
25
Holzhauer simply concluded that property owners listed within the
geographical ambit of the Beach Club’s bylaws received a “benefit” because of
“their right, by property ownership and/or interest, to become a member of the
club and therefore have access to the lake and other amenities.” Plaintiffs
suggest that the Beach Club randomly placed their properties in the “reserve,”
pointing to properties an equal distance from the lake, whose owners are not
automatically eligible for membership in the Beach Club. Surely, if
membership eligibility increased the value of property, that seemingly would
indicate an ascertainable and tangible benefit, even to plaintiffs, none of whom
were members of the Beach Club or intended to become members. But
Holzhauer did not conduct any analysis showing that plaintiffs’ outer-rim
properties received such a benefit because of Beach Club eligibility.
Additionally, there is lack of certainty whether all property owners
within the Beach Club “reserve” are, in fact, automatically eligible for
membership. One property owner spoke out at a Township Council meeting,
stating that she was denied membership because she was told the Club was not
taking any new members. Certainly, if an assessment were premised on
membership eligibility, the Township Council should have resolved the issue
of whether membership in the Beach Club was automatic for property owners
within the “reserve” who applied for and accepted the terms of membership.
26
Indeed, the trial court suggested at the action in lieu of prerogative writs
hearing that exposure of a property owner to an assessment because of
presence within the “reserve” might even hinder the marketability of property. 7
Such questions arise here only because of the lack of a market-value study or
some other reliable methodology establishing that plaintiffs received a “certain
rather than [a] speculative” benefit. See 2nd Roc-Jersey Assocs., 158 N.J. at
593.
Even if we assume that plaintiffs were eligible to become members of
the Beach Club and that such membership conferred on them a benefit from
the dam restoration project, the Holzhauer report does not set forth a rational
methodology for the assessments imposed on plaintiffs’ properties. Holzhauer
assumed that lakefront properties received the greatest benefit, lake
view/access properties a lesser benefit, and all other properties furthest from
the lake and in the “reserve” the least benefit. That assumption has some
logical and perhaps facial appeal. But Holzhauer did not explain how he
arrived at assigning value shares to each category or how he came to the result
7
During the public comment period before the Township Council, one
property owner within the “reserve” stated that he had purchased his property
several months earlier and had just received the approximately $14,000
assessment bill for the dam project -- an additional cost of which he was
unaware when he had purchased his home. For that reason, he asked the
Township Council to exclude his property from the assessment.
27
that the fifteen-year special assessment for lakefront properties is $26,263
(value share 2.0), lake view/access properties is $19,967 (value share 1.5), and
all other properties is $13,131 (value share 1.0). Holzhauer did not refer to
any reliable methodology to support his opinion. Special assessments cannot
be imposed on properties based on arbitrary categorizations or speculative
valuations.
Although we do not import the “net opinion” rule used in court
proceedings into this municipal/administrative setting, that rule simply stands
for the proposition that an expert opinion must have a rational basis.
Townsend, 221 N.J. at 53-54. For that reason, the “net opinion” rule “forbids
the admission into evidence of an expert’s conclusions that are not supported
by factual evidence or other data.” Ibid. (quoting Polzo v. County of Essex,
196 N.J. 569, 583 (2008)). Experts must “‘give the why and wherefore’ that
supports the opinion, ‘rather than a mere conclusion.’” Id. at 54 (quoting
Borough of Saddle River v. 66 E. Allendale, LLC, 216 N.J. 115, 144 (2013)).
The general conception of the “net opinion” rule has long guided our
local improvement assessment jurisprudence, which requires that a special
assessment be founded on “expert testimony or by some other reliable proof,”
see McNally, 75 N.J. at 42, or “proof by any qualified witness” that is not
“arbitrary or unreasonable,” see Ridgewood Country Club, 55 N.J. at 70.
28
The Holzhauer report did not address in any meaningful way the
statutory requirements -- that the special assessment imposed on plaintiffs’
properties for the dam rehabilitation project be “in proportion to and not in
excess of the benefits conferred,” see N.J.S.A. 58:4-12(d)(1), or “be as nearly
as may be in proportion to and not in excess of the peculiar benefit, advantage
or increase in value . . . by reason of [the dam] improvement,” see N.J.S.A.
40:56-27.
Ultimately, it is the role of our courts to “determine whether or not the
assessment . . . is a just and fair assessment,” see N.J.S.A. 40:56-54, after
giving due regard to the presumption of validity that attaches to the municipal
action in this case, see N.J.S.A. 40:56-33.
The Holzhauer report, on which the Township relies, does not set forth
any methodology or any sound analysis to justify the special assessment
imposed on plaintiffs’ properties. We therefore conclude that the presumption
of validity accorded to Resolution 6-1 has been overcome by clear and
convincing evidence. See 2nd Roc-Jersey Assocs., 158 N.J. at 597. Because
the special assessment cannot be sustained based on the record before us, we
must invalidate Resolution 6-1 as an arbitrary and unreasonable law.
29
V.
For the reasons explained, we reverse the judgment of the Appellate
Division. We remand this matter to the Sparta Township Council to start anew
the process of establishing a special assessment for the repayment of the loan
that funded the dam rehabilitation project -- guided by the applicable statutes
and the opinion of this Court.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON,
FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE ALBIN’s
opinion.
30