LOS ANGELES--A Sacramento, Calif., transit agency may fund two light-rail extensions with revenues from an assessment district that would levy fees on residential and commercial property owners along the route.
The Sacramento Regional Transit District by mid-December will choose underwriters, bond lawyers, and an assessment district engineer for the potentially controversial $200 million project, said Douglas Wentworth, director of finance for the district.
By taxing both residents and businesses, the district hopes to avoid some of the problems met by a Los Angeles-area transit district that tried a similar arrangement last year to help fund its share of costs for a subway. That plan attracted sharp criticism and litigation that is still pending before the state Supreme Court.
"We're not fooling ourselves that this will be quick or easy," Mr. Wentworth said. "We're keeping an eye on Los Angeles, [but] we think our district is significantly different."
The proposed extensions to an existing 18-mile line are expected to cost $200 million. Half the funds will come from Proposition 116, a state rail bond measure passed by voters in 1990. At least $100 million of that $2 billion statewide measure is earmarked for light rail in Sacramento over 10 years.
The state bond funds require a 50% local match. The agency is proposing to finance the other $100 million by creating a benefit assessment district, although the board has not given final approval to such a proposal.
"I've never done one of these myself," Mr. Wentworth said. "We don't even know at this time if we have the taxing ability to support $100 million -- we did a preliminary study and it said, 'Maybe.'"
Benefit assessments in California are generally calculated by determining the level of benefit that property owners in a district receive from an improvement. These assessments are then levied on property owners and can be used to secure bonds.
But such arrangements can run into legal complications.
In 1990, a state court invalidated a plan by the Southern California Rapid Transit District to use a benefit assessment district to secure $130 million of subway bonds.
In the case, Southern California Rapid Transit District v. Helen M. Bolen et al. commercial landowners challenged the legality of the plan because residential property owners would be excluded from taxation. Taxes could only be levied on business property owners in the benefit assessment district that was set up along the route of metro Rail, a subway under construction in Los Angeles.
The California Court of Appeal, Second Appellate District, ruled that the transit district lacked authority to exclude residential property owners from taxation. It also found the plan unconstitutional because it would have allowed only property owners to vote in the validation election. The Court of Appeal found that a one-person, one-vote standard should apply.
"We are convinced that the benefits and burdens of the assessment fall indiscriminately on property owner and non-property owners alike" because owners can pass on some of the costs to tenants, the court said. "As a result, there is no basis for concluding that non-property owners are substantially less interested in an election called to validate the assessment districts than are property owners."
The case is now pending before the state Supreme Court.
Los Angeles benefited from special legislation that allowed it to create an assessment district along its subway route. Sacramento hopes to form its district under the Municipal Improvement Act of 1913. Sacramento officials predict their transit assessment district would tax all members, thereby avoiding at least one problem that Los Angeles encountered.
"It's unlikely that any benefit assessment district would raise enough money unless both residential and business property owners are included," said Mark Gilbert, general counsel for the Sacramento District. "But we won't know the answers until we do a study. We're in the early stages."
Bond lawyers have said a ruling in the Los Angeles case may affect attempts to create other transit assessment districts, but at least one lawyer noted that such assessment districts for transit improvements are possible.
"There is a set of circumstances that can be followed successfully," when using assessment districts for transportation, said Samuel A. Sperry, a partner in the law firm of Sturgis, Ness, Brunsell & Sperry, in Emeryville, Calif.
Mr. Sperry, a bond lawyer with more than 22 years of experience in assessment financings, said one important factor in a successful benefit assessment district is the involvement of property owners.
Sacramento transit officials said the Los Angeles case may affect their district formation. Mr. Gilbert noted that the Sacramento district will take at least two years to create.
"The reason it's taking a while is that we are including folks from the city and the county in our evaluation team," Mr. Wentworth said. The transit board includes three members from Sacramento, two from the Sacramento County Board of Supervisors, and two who are appointed.
The Sacramento transit agency operates 215 buses and 36 lightrail vehicles and has daily ridership of nearly 80,000. Its annual operating budget for fiscal year 1992 is $51.5 million.