Request By:
Ronald W. McCormick
Chairman, Campbell County Conservation District
Gailen Bridges
Chairman, Kenton County Conservation District
Kristin Scott
Chairman, Boone County Conservation District
Opinion
Opinion By: ANDY BESHEAR,ATTORNEY GENERAL;Sarah Ellen Eads Adkins,Assistant Attorney General
Opinion of the Attorney General
Chairmen for the Conservation Districts in Campbell, Boone, and Kenton County request an opinion of this office, clarifying the language in KRS 262.850(11), which provides, in part, "[t]he owners of land within the boundary of an agricultural district shall be exempt under KRS 74.177 from any assessment." They ask specifically what the meaning of assessment is as used in this statute and whether surcharges on their water bills qualify as assessments. As explained more fully below, we conclude that these surcharges are not assessments because they are not tied to the value of the land.
Before rendering this opinion, this office spoke with Ronald W. McCormick, Chairman of the Campbell County Conservation District. The Conservation Districts have already posed the same question to the Northern Kentucky Water District, the Legislative Research Commission, and the Campbell County Attorney, Steven J. Franzen. At our request, they forwarded these responses to this office.
According to the requestors, farmers who are located in Agricultural Districts are being charged "subdistrict surcharges" on their water bills for a water-line extension project. The Chairmen included a portion of a Public Service Commission ("PSC") rate approval opinion, which approved subdistrict surcharges for Subdistricts D and F, which encompass Agricultural Districts. The PSC opinion states, "customers in Subdistrict F shall be assessed a monthly surcharge in the amount of $ 17.97." In a different opinion regarding Subdistrict F in the Northern Kentucky Water District, the PSC held: "[a] Northern District customer that resides in a subdistrict service area is assessed a surcharge to cover the debt service for the installation of the 8-inch main constructed to provide service." In Re N. Ky. Water Dist. , 2004 WL1896973 (June 14, 2004).
KRS 262.850 is known as "the Agricultural District and Conservation Act." Its stated purpose is to "conserve, protect and to encourage development and improvement of its agricultural lands for the production of food and other agricultural products[,] . . . to conserve and protect the agricultural land base as a valuable natural resource which is both fragile and finite, [and] . . . to provide a means by which agricultural land may be protected and enhanced as a viable segment of the state's economy and as an important resource." KRS 262.850(2). At issue here, KRS 262.850(11), in part, states: "The owners of land within the boundary of an agricultural district shall be exempt under KRS 74.177 from any assessment authorized for the extension of water service lines until the land is removed from the district and developed for nonagricultural use." KRS 74.177 states:
(1) When a water district extends its water lines within its district or extends its water lines under KRS 74.110 beyond the district's territorial limits, and the extension would benefit land within an agricultural district created under KRS 262.850, the assessment against the land within the agricultural district for the cost of the extension shall be deferred. The assessment shall become payable when the land is removed, in part or in its entirety, from the agricultural district and developed for nonagricultural use. If only part of the land is removed from the agricultural district, the deferred assessment shall be prorated and paid only on the portion of the land removed. The land remaining in the district shall continue to benefit from the deferred assessment.
(2) The owner of land for which the assessment of costs for a water line extension has been deferred shall pay for any connection to provide water service from the water line extension to the land benefited by the deferred assessment.
Though assessment is not defined specifically in KRS 262.850, there are various references to assessments throughout KRS Chapter 262, which lead to the conclusion that these surcharges are not assessments, but more akin to water utility rates. 1
Case law provides additional insight into assessments. Assessments are fees imposed on land that have received an "improvement benefit." Robertson v. City of Danville, 291 S.W.2d 816, 819-20 (Ky. 1956). Special assessments "pay for a local improvement, or, stated differently, a local burden[] laid on property made for a public purpose, but fixed in amount once and for all time with reference to the special benefit which such property derives from the cost of the project." Pinnacle Dev. II, LLC v. RML Const., LLP, 410 S.W.3d 169, 173 (Ky. App. 2013) (citing Krumpelman v. Louisville & Jefferson Cty. Metro. Sewer Dist., 314 S.W.2d 557, 561 (Ky. 1958). See also Conrad v. Lexington--Fayette Urban Cty. Gov't, 659 S.W.2d 190, 196 (Ky. 1983). Though not specifically a tax, "special assessments are at least in the nature of a tax. . . This follows because they must be levied for a public purpose, and because they are an enforced contribution on the property owner for the public benefit." Krumpelman, 314 S.W.2d at 561.
Taking the various definitions of assessment together, we conclude that these surcharges are not assessments, but more akin to water utility rates. With the subdistrict surcharges, Northern Kentucky Water District is merely attempting to distribute the cost of the water extension lines throughout a district rather than tie the rate to the value of the property or the benefit conferred there. KRS 262.850(11) does not prohibit the distribution of costs to extend a water line, it does not prohibit rate increases in general, and it does not prohibit rate increases due to establishment of new services. In specific reference to the surcharges in Subdistrict F, the PSC found that the subdistrict was established for "rate-making purposes" and approved it because "the proposed surcharge results in a fair and reasonable rate." In Re N. Kentucky Water Dist., 2007 WL 4643672, at *6 (Dec. 26, 2007). In contrast, assessments are generally performed by Property Valuation Administrators and cause a lien to be placed on the land. Assessments are tied directly to the benefit of the land and the property value of the actual land. No valuation of property has occurred here and no liens have been placed. Finally, though the water company chooses to call there surcharges assessments on their billing statements, this confusing wording choice has no bearing on whether said surcharges are in fact assessments as prohibited by KRS 262.850(11).
We agree with Steven Franzen, Campbell County Attorney, that these surcharges are not assessments for the reasons stated above. Accordingly, farmers in Agricultural Districts in these subdistricts are not exempt from the surcharges according to KRS 262.850(11).
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