SHG Garage SPE v. City of Seattle

1

SHG GARAGE SPE, Respondents, SHG RETAIL SPE; SHG HOTEL SPE, LLC; SOUND VISTA PROPERTIES, LLC; ELLIOTT NE LLC; LOT B, LLC; MADISON HOTEL LLC; HEDREEN, LLC; HEDREEN HOTEL LLC; 7TH & PINE LLC; ASHFORD SEATTLE WATERFRONT LP; EQR-HARBOR STEPS, LLC (SE); EQR-HARBOR STEPS, LLC (SW), EQR-HARBOR STEPS, LLC (NE); EQR-HARBOR STEPS, LLC (NW); EQR-SECOND & PINE, LLC; RRRR INVESTMENTS (UNIT 3800); RRRR INVESTMENTS (UNIT 3802); UNITED WAY OF KING COUNTY; and VICTOR and MARY MOSES, Plaintiffs, v. CITY OF SEATTLE, Appellant.

No. 85147-1-I

Court of Appeals of Washington, Division 1

April 22, 2024

UNPUBLISHED OPINION

Smith C.J.

Washington statutes give municipalities the authority to make local improvements and fund those local improvements, in part through assessments to property owners who obtain a special benefit from such improvements. The City of Seattle initiated a major, multiyear project to rebuild and transform its central waterfront. The City now appeals a superior court decision which annulled the Seattle City Council's confirmation of a local improvement district assessment levied against property owners to help fund that project. We hold that the superior court erred in determining that the assessments were founded on a fundamentally wrong basis and that they were arbitrary and capricious. Accordingly, we reverse.

FACTS

In January 2019, the Seattle City Council created Local Improvement District (LID) No. 6751 to partially fund six major improvements to the downtown waterfront by assessing some costs of the improvements on the owners of 6,238 parcels in the downtown area. The six LID improvements are:

1. The Promenade: A continuous public open space extending along the west side of Alaskan Way from King Street to Pine Street;

2. The Overlook Walk: An elevated pedestrian bridge at the end of the Pike Street and Pine Street corridor that would connect Pike Place Market and the waterfront;

3. Pioneer Square Street Improvements: Includes streetscape, roadway, and sidewalk improvements to portions of South Main Street, South Washington Street, Yesler Way and South King Street. These improvements would create pedestrian-friendly links between Pioneer Square and the waterfront.

4. Union Street Pedestrian Connection: An accessible pedestrian link between the new waterfront and Western Avenue.

5. Pike/Pine Streetscape Improvements: Pedestrian improvements along Pike Street and Pine Street between First Avenue and Ninth Avenue. These improvements will also provide enhanced pedestrian access to and from Pike Place Market and the waterfront.

6. Pier 58 (formerly known as the Waterfront Park) A rebuilt pier park located at the base of Union Street for social gatherings and performances.

The City Council limited the total amount of assessment to affected property owners to no more than $160 million plus the amount necessary to pay the costs of financing.

Calculation of Assessments Based on Special Benefit Study

In January 2019, the City commissioned ABS Valuation, Inc., (ABS) to estimate the increase in value accruing to each parcel due to the waterfront improvement projects, referred to as each parcel's "special benefit." ABS then allocated the cost of the projects among the LID parcel owners in proportion with those special benefits.

In November 2019, ABS submitted its final special benefit study to the City Council. Using mass appraisal techniques, market sales data, and lease data, ABS provided with- and without-LID values for each of the parcels based on "highest and best use" and market value of the affected properties. Although the study provided a general overview of ABS's reasonings and analyses, it did not include the specific calculations used to arrive at the estimated values.

Using a valuation date of October 1, 2019, ABS determined that the total special benefit estimate for all the LID parcels was $447,908,000. Then, to calculate the recommended assessments, ABS divided the total assessment limit by the estimated total special benefit to reach a cost/benefit ratio of 39.2 percent. ABS then multiplied the special benefit assessable to each parcel by the cost/benefit ratio to determine the recommended final assessment for each parcel.

Hearings before the Hearing Examiner

In December 2019, the City Council published and mailed notices of a public hearing for the final LID assessment roll to all property owners within the LID. The notices identified each property owner's final assessment and provided information on how to object to the assessment. Of the 6,238 properties assessed, 430 property owners submitted timely objections. The City Council designated the City of Seattle Office of Hearing Examiner to conduct the hearings and provide a recommendation to the City Council.

The appeal hearings began in February 2020, soon after the onset of the COVID-19^[1] pandemic. The objecting property owners presented their cases-in-chief before the Hearing Examiner over the course of several days in March and April 2020. In June 2020, the City presented its case-in-chief and the objecting property owners were permitted to cross-examine the City's witnesses. In lieu of additional live testimony, the City also submitted declarations; qualifying objectors were then permitted to submit closing briefs and responsive declarations.

In September 2020, the Hearing Examiner issued its initial findings and recommendations to the City Council. Of the 430 objecting property owners, the Hearing Examiner recommended remanding 17 properties for further analysis by ABS. On remand, the objecting property owners and the City submitted supplemental declarations and briefing for the remanded properties. After ABS revised its analysis, it reduced the assessments for 15 of the 17 remanded properties.

In February 2021, the Hearing Examiner submitted its final findings and recommendations with the city clerk, recommending that the City Council accept the revised assessments for the 15 remanded properties and deny all the property owners' objections.

Confirmation of the Assessment Roll

After the Hearing Examiner issued its final report, several property owners appealed the initial and final reports with the city clerk. The City Council delegated review of the appeals to its Public Assets and Native Communities Committee and set dates for hearing the appeals.

After considering the property owners' written submissions on appeal, the Committee voted to recommend that the full City Council deny all the appeals. The Committee did not discuss any of the individual appeals, nor any of the common issues affecting the property owners.

On June 14, 2021, the full City Council confirmed the final LID assessment roll and adopted the Hearing Examiner's final findings and recommendations, which rejected all of the property owners' appeals.

Appeal to the Superior Court

Twenty-one property owners (Owners) appealed their assessments to King County Superior Court. After a hearing on the appeals, the superior court nullified the LID assessments for each of the Owners' properties and ordered the City to refund all assessments the appealing owners had paid to date. The court concluded that the City's method of assessment was founded on a fundamentally wrong basis because it failed to consider the impacts of COVID-19, failed to demonstrate how removal of the viaduct impacted property values, failed to comply with professional appraisal standards, and failed to connect any value increase to any property-specific data. The court also concluded that the City's process for assessing the Owners' property was arbitrary and capricious because the City instructed its appraiser to hypothesize values too far in advance of completion of the projects, because the City instructed the appraiser to treat all the improvements as continuous, because the Hearing Examiner mistakenly disregarded credible testimony from the Owners' witnesses, and because the City Council failed to independently review the Hearing Examiner's recommendations.

The City appeals.

ANALYSIS

Because this case involves a complex and specialized area of law, we begin with a brief overview of the principles governing LID assessments before turning to the parties' arguments on appeal.

LID Assessments in Washington

Local governments may impose special assessments on property owners within a local improvement district to pay for improvements that specially benefit those properties. Hamilton Corner I, LLC v. City of Napavine, 200 Wn.App. 258, 266, 402 P.3d 368 (2017). A "special benefit[]" is "the increase in fair market value attributable to the local improvements." Doolittle v. City of Everett 114 Wn.2d 88, 103, 786 P.2d 253 (1990). "Fair market value 'means neither a panic price, auction value speculative value, nor a value fixed by depressed or inflated prices.'" Bellevue Plaza, Inc. v. City of Bellevue, 121 Wn.2d 397, 403, 851 P.2d 662 (1993) (emphasis omitted) (quoting In re Loc. Improvement No 6097, 52 Wn.2d 330, 333, 324 P.2d 1078 (1958)). "To be subject to an LID assessment, a property must realize a benefit that is 'actual, physical and material[,] . . . not merely speculative or conjectural,' . . . that is 'substantially more intense than [the benefit] to the rest of the municipality.'" Hasit LLC v. City of Edgewood, 179 Wn.App. 917, 933, 320 P.3d 163 (2014) (alterations in original) (quoting Heavens v. King County Rural Library Dist., 66 Wn.2d 558, 563, 404 P.2d 453 (1965)). And "a special assessment may not substantially exceed a property's special benefit." Hasit, 179 Wn.App. at 933. Moreover, a property should not be assessed "proportionately more than its share" of the total assessment relative to other properties in the LID. Cammack v. Port Angeles, 15 Wn.App. 188, 196, ...