Judge rules new Seattle LID tax is “arbitrary and capricious” – orders refunds

Mar 14, 2023

A King County Superior Court judge last week ordered Seattle to refund taxes paid by plaintiffs that challenged the Local Improvement District (LID) imposed in 2019 to pay for a waterfront park. The judge found the assessments were “arbitrary and capricious” and ruled in a 117-page decision: “Based on the foregoing findings of fact and conclusions of law, the City’s Waterfront LID assessment for [plaintiff] is annulled, and the City is ordered to refund any assessment paid by Appellant under protest.”

The new Seattle LID was controversial from the start. A 2018 Seattle Times op-ed opposing its creation said:

“Using this approach to increase city revenue circumvents limits on property taxes and bypasses the need for citywide voter approval. It unfairly burdens a small percentage of homeowners and renters and is completely at odds with making Seattle an affordable city.”

Based on the court ruling last week, the way Seattle attempted to assess the tax “was fundamentally flawed. The process was infected from its inception by a rush to judgment by City staff who were apparently anxious to begin collecting revenue…”

 From Judge Matt Williams’ March 8 ruling:

  • “Approximately 430 property owners including the Appellants submitted timely objections.”
  • “By the time City Council finalized the LID assessments in June 2021, Appellants had presented ample, uncontested evidence of the drastic impacts to businesses (and property values) downtown due to COVID.”
  • “In fact, the Examiner determined that COVID was irrelevant because the 2019 Study’s date of valuation predated the pandemic.”
  • “The Examiner nevertheless rejected the argument that COVID and other market forces could undermine assumptions in the 2019 Study…”
  • “This Court finds that the 2019 Study does not demonstrate reasonable compliance with appraisal standards.”
  • “This Court finds the special benefit estimates for Appellants’ properties were not supported by property-specific data and misapplied the Crompton study.”
  • “The City’s reliance on the presumption to reject evidence to the contrary of its desired conclusions is inappropriate use of the presumption and makes the action of the Hearing Examiner and the City Council fundamentally wrong as well as arbitrary and capricious.”
  • “It was fundamentally flawed and speculative to predict minor property value increases five years into the future, where both current and future valuations were complicated by the Global COVID Pandemic. Rejecting evidence of the impact of the Global Pandemic and refusing to consider its effect on valuations was arbitrary and capricious.”
  • “The Examiner’s failure to consider how COVID and other market forces might, and did, impact the validity and speculative nature of the 2019 Study, and specifically his understanding of Appellants’ request for relief from impacts from COVID as solely a ‘political’ question, was arbitrary and capricious.”
  • “Appellants’ unrebutted evidence is that, after discounted using standard techniques, the hypothesized benefits are significantly lower than the assessments, and hence improper.”
  • “The Court finds that the Council finalized the assessments on a fundamentally wrong basis in June 2021 by relying on speculative valuations in the 2019 Study and Macaulay’s remand testimony and by disregarding MAI testimony and other evidence that anticipated 2024 benefits should have been discounted to present value to reduce speculation and avoid overstatement. Failure to discount further renders the final Waterfront LID assessments illegal.”
  • “The assessments were fundamentally flawed to rely upon an appraisal that does not comply with professional standards.”
  • “The Court finds that the LID assessment process as conducted by the City was fundamentally flawed. The process was infected from its inception by a rush to judgment by City staff who were apparently anxious to begin collecting revenue based on assessments of a LID improvements far in advance of the completion dates.”

Though the judge didn’t overturn the LID in its entirety, his ruling that the assessments for plaintiffs are annulled and full refunds required could render the tax scheme functionally inoperable. It is unclear at this time if Seattle plans to appeal and what the next steps for the LID are.

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