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Subject of Investigation

The financial administration of two Lighting and Landscaping Assessment Districts formed by the City of Galt. The two districts are the Westside Galt Lighting, Landscaping and Maintenance District (Westside District), and the Northeast Galt Landscaping and Lighting District (Northeast District).

Reason for Investigation

The Grand Jury received a complaint from a resident of Galt questioning, among other items, the setting of yearly assessments and the transfer of monies out of the district funds to other funds.

Method of Investigation

Grand Jury members reviewed materials submitted by the complainant consisting of a 30-page handwritten document with thirteen attachments submitted on three occasions over a period of approximately six months. The members met with the complainant to clarify concerns and the submitted materials.

Grand Jurors reviewed various laws related to the management of these types of special districts, which are in the California Streets and Highways Code (hereafter, "S&HC"). In addition, Article XIII D of the State Constitution, added by Proposition 218 (Assessment and Property-Related Fee Reform) in 1997, regulates assessments, fees and charges. In order to assist in the interpretation of these laws, the Grand Jury requested an opinion from the County Counsel relative to the formation of, and annexations to, the districts and how assessments are developed and allocated to individual properties.

Based on the information from the complainant, these laws, and the County Counsel opinion, the Grand Jury requested the following information from the City of Galt:

  • The annual Engineer's Report for each district for the years 1990-1991 through 2000-2001.
  • The Combining Statement of Revenues, Expenditures and Changes in Fund Balance for each district from inception through 2000-2001.
  • The General Ledger for each district showing the detail of expenditures for each year.
  • Documentation supporting all transfers into and out of the distinct Fund for each district for all years.
  • Resolutions describing new improvements or changes to existing improvements as required by S&HC Section 22622.
  • Samples of letters sent to property owners pursuant to S&HC Section 22626.
  • Resolutions adopting installment levies for capital improvements as required by S&HC Section 22660.
  • The contract with a private engineering firm for the monitoring of a revegetation project for Deadman Gulch.

The Grand Jurors prepared charts for each district comparing yearly amounts both for costs assessed and for revenues and operating expenditures (but not capital improvement expenditures). They then met with the County Auditor to discuss financial questions concerning the management of assessment districts. For comparative information, the Grand Jury also requested and reviewed information from another city regarding the administration of Lighting and Landscaping Districts formed by that city.

Based on these inquiries and responses, the Grand Jury retained an outside Certified Public Accounting firm to perform the following procedures:

  • Review applicable State laws governing Landscaping and Lighting Districts.
  • Review applicable City Ordinances establishing and guiding the operations of each district.
  • Determine whether assessments for each district are apportioned in accordance with applicable laws.
  • Determine whether assessments for each district are appropriate.
  • Reconcile the difference between real costs and assessed costs. Determine which method is being used and whether it is in accordance with state laws.
  • Obtain copies of applicable annual financial statements, plot maps, financial records associated with each of the districts and prepare appropriate analysis identifying whether the city is operating each of the districts in accordance with applicable state laws.
  • Review each district's fund balances and determine whether they are excessive or appropriate.
  • Review significant professional service agreements and determine whether the services were appropriate.
  • Determine whether operating transfers were appropriate and consistent with applicable state laws.
  • Determine whether each of the districts had any unique transactions among themselves, school districts, and other organizations that are not in accordance with applicable state laws.


The two assessment districts were formed by the City of Galt pursuant to The Landscaping and Lighting Act of 1972, hereafter, "the Act", which is located in the Streets and Highways Code in Sections 22500 and following. The Act governs the formation and operation of these districts. Article XIII D of the California Constitution prescribes additional requirements for approval of new or increased assessments.

In assessing the validity of assessments and expenditures of lighting and landscape districts, these laws have specific protections for property owners such as requirements that assessments and expenditures relate to the benefits to assessed properties and that written notices regarding costs and assessments generally be provided. However, these laws also provide significant flexibility to the government agencies in their justifying the validity of the assessments, costs and notices. Thus, even assuming that a property owner (or councilmember) could obtain and understand the volumes of confusing financial documents, there are two significant hurdles to finding that actions are invalid.

First, S&HC Section 22509 states that the Act should be "liberally construed to effectuate its purpose" and that assessments shall not be invalidated "for failure to comply with the provisions of this part if such failure does not substantially and adversely affect the rights of any person." Also, the Act and cases interpreting it state that the determination of a benefit from an improvement is conclusively presumed to be valid in the absence of fraud or an abuse of discretion. These burdens make legal challenges to assessment determinations and related financial procedures almost impossible because the presumption is that the government action was valid.


This district, consisting of seven original parcels with eleven added in later years, was formed by Resolution 90-131, adopted by the City Council on August 9, 1990. The resolution indicates that it was formed without notice, hearing, and filing of an engineer's report pursuant to Section 22608.1 of the Act in order to levy and collect annual assessments for construction, installation and maintenance of certain generally identified improvements. Assessed costs are calculated for eighteen "Parcels" that contain subdivisions or commercial properties. These costs are then apportioned among individual properties.
Following is a chart for the Westside District that shows the types of costs assessed for each parcel.


This district, consisting of nine contiguous properties, with another added in FY2000-2001, was formed by Resolution 90-47 adopted by the Galt City Council on March 20, 1990. The resolution indicates that the district was formed "without notice, hearing, and filing of an engineer's report" pursuant to Section 22608.1 of the Act. This was done in order to levy and collect annual assessments for construction, installation and maintenance of certain generally identified improvements.


Based on the review of the information related to both districts, the Grand Jurors identified the following areas for further evaluation although, as noted below, much of the documentation reviewed is unclear, incomplete, and/or inconsistent:

    · Validity of lack of annual notices to property owners.
    · Definition and calculation of "increased assessments".
    · Validity and methods of apportionment of assessed costs.
    · Creation, carry-over, and use of annual operating surpluses.
    · Validity and lack of resolutions supporting capital improvements.

Annual Notices to Property Owners

Section 22626 of the Act states that, if the assessed amounts are the same or less than the previous year, the City Clerk is to give notice by having the resolution of intention to assess published one time in a newspaper of general circulation (Government Code Section 6061). However, if the assessments are to be increased from any previous year, notice of the public meeting and public hearing must be mailed to all property owners whose names and addresses appear on the last equalized county assessment roll (Government Code Section 54954.6).

In addition to the Act's specific requirements, Section 4 of Article XIII D of the California Constitution delineates procedures and requirements for assessments, including the calculation and consideration of "special benefits". It also provides that the amount of the proposed assessment for each identified parcel must be calculated and the owner of record of each parcel be given written notice by mail of the proposed assessment; the total amount chargeable to the entire district and to the owner's parcel; other specific information; and the date, time and location of the public hearing.

In the information provided, City staff indicated that public notices were published; however, no such notices were mailed to individual property owners. To the extent that information has been provided or is available regarding past and future activities and expenditures, it is technical, confusing, incomplete, and generally difficult-if not impossible-to reconcile with a layperson's knowledge of either accounting or government finance. However, City staff stated "no letters have been sent per Cal Code since inception of districts as no assessments have ever been increased.

Whether or not there were assessment increases or apportionment issues that required written notices are complex legal, fiscal, and programmatic questions discussed below. Thus, the validity of the lack of written notices depends on the validity of the City's determinations of how "increases" in assessments and benefit allocations are calculated.

Definition and Calculation of "Increased Assessments"

The difficulty in determining whether "new or increased assessments" exist arises because the legal definitions of these terms are unclear. The Act does not specifically state whether "new or increased assessments" (which then triggers special notice requirements) means (a) the total assessment for the district, or (b) the individual costs assessed by the district for various services.
Generally, the total assessments for both districts have been reduced or kept the same. However, keeping the same assessment level has been accomplished by reducing or deleting some specific costs items in order to offset the new or increased costs.

Total Assessment Increases.

In at least two cases, the total assessments have been increased as shown below. However, the Galt Director of Public Works stated in a November 20, 2000, memo to the City Clerk that these increases did not, in his opinion, constitute "increased assessments" which would trigger the notice requirements. The rationale for this opinion is unclear, since the assessments themselves increased.

      Westside. The total assessment for Parcels 1-7 was increased from $117,604 in 1990-91 to $140,050 in 1991-92. This increase resulted in increased assessments on 660 properties. And the total assessment for Parcel 11 was increased from $4,950 in 1992-93 to $5,346 in 1993-94. This increase resulted from the unexplained increase in the number of properties assessed.

Component Cost Increases.

In most cases, however, the total assessments remained the same and possible "assessment increases" were attributable to individual cost items such as the following examples, while other component costs were decreased or eliminated.

      Administrative Costs. The pattern for assessing administrative costs is similar for both districts, with some variations. The Westside district assessed 5% for all administrative costs for the first three years. In 1994-1995 the administrative cost increased to 5% for the Finance Department and 5% for Engineering. In 1996-1997 a new administrative cost was added for City Administration and included in the total assessment. The net result was that the 1991-1992 assessment for these administrative costs was $5,000 and the 1999-2000 amount was $25,564. In 2000-2001 the amount was reduced to $7,610.

      In the Northeast District there were no administrative charges for the first two years. In 1992-1993 $8,000 was added for engineering. In 1994-1995 $10,747 was added for the Finance Department, and in 1996-1997, $13,495 was added for City Administration. The administrative cost totals ranged from a low of $8,000 in 1992-1993 to a high of $46,705 in 1998-1999. In 1999-2000, administrative costs were reduced to $31,380, and in 2000-2001 to $29,800

      Program Monitoring for Deadman Gulch. This cost was assessed in the Northeast District for a monitoring of a revegetation project. The maintenance costs for Deadman Gulch open space have been assessed each year beginning in 1990-1991. However, the Program Monitoring cost was first assessed in 1991-1992 in the amount of $25,000. In 1993-1994 the amount was increased to $27,000 and in 1994-1995 to $45,000. It was deleted in 1998-1999.

It is unclear legally whether component cost increases such as these should have resulted in mailed notices. The County Counsel's opinion merely stated that "the new costs are legal" and that increases in annual assessments trigger the notice requirement; it did not state whether or not the increased component costs, themselves, were equivalent to an increased assessment. The auditor's report stated generally that the Districts were complying with applicable laws, but did not address this question directly.

Apportionment of Assessed Costs

From the review of the materials submitted by the complainant and by City staff, Grand Jury members identified some concerns about the apportionment of certain specific assessed costs. The most significant examples of questionable apportionments are discussed in more detail below.

      Maintenance of sound walls and landscaped medians and frontages. These improvements (and related maintenance) generally are located on the major streets bordering subdivisions. Two questions exist. First, are these maintenance expenses a general benefit or a special benefit to certain properties? And second, if they are a special benefit, do all properties benefit equally from these improvements?

      Construction and maintenance of different categories of parks. Four different categories of parks are in the Westside District: Neighborhood; Tot Lots; Regional; and Regional/Neighborhood. Two types of assessed cost are used. The first method uses the number of square feet times a cost per square foot. The second method assesses a per lot cost. The primary issue is how the benefits to individual properties are calculated and whether the two methods provide a consistent method of apportionment. This calculation is particularly important for the regional park because, if a park is truly regional in nature and is used by all city residents, the issue is whether the costs for such a park should be funded through the General Fund of the City.

      Debt Service for Park Bonds. This issue relates to an assessment levied in the Northeast district for three years (from 1990-91 through 1992-93). The annual Engineer's Report shows an annual assessment of $100,000 with the explanation that it is for a principal amount of $800,000 at 12% interest for 30 years. This assessment is not shown in succeeding years through 1999-00. The 2000-01 Engineer's Report includes an assessment of $100,000 for debt service on a Community Park Bond. The issues here are: 1) whether the initial bonds were actually issued and for what purpose (e.g., benefits to which parcels); 2) if the bonds were not issued and the assessments were not used for debt service, whether the expenditures of assessed funds were used to benefit parcels assessed; and 3) if the bonds were issued, how debt service was financed (assessments on which parcels) in those years the district was not assessed this cost.

      Construction of the Lyonnia Drive Pedestrian Bridge. According to Amendment #1 to the Engineer's Report dated June 15, 2000 (for the 2000-01 year), there was an assessed cost of $100,000 for this project that would have resulted in an increase from the previous year in the total assessment for the district. To keep the same total assessment, $29,262.94 was used from accumulated surpluses to partially finance the project. This left a balance of $70,737.06. This same amount was assessed against Parcels 1 through 7 and identified only as capital improvements. To offset this capital project, some maintenance and operating assessments were reduced. Both the surplus funds and the funds related to the reduced maintenance and operating costs originally were assessed against all parcels based on specified special or general benefits. Ultimately, they were used to benefit only the parcels on the east side of Highway 99. The validity of this loss of maintenance benefits, which were the original basis of the assessments, is open to question.

      In addition, the project was constructed on the east side of Highway 99, while Parcels 1 through 7 are located on the west side. The outside auditor indicated that City staff explained that the bridge was part of a plan to develop pathways to link properties on both sides of the highway. The original concern of the members of the Grand Jury was the basis for assessing properties in Parcels 1 through 7 for an improvement across the highway. With the explanation by city staff, the issue becomes identifying the basis for assessing only the west side properties for an east side project that is part of a plan for improvements that potentially will benefit other properties in the district and possibly those in the Northeast District.

Based on concerns about the validity of the apportionment of assessed costs, the Grand Jury asked County Counsel, "Is there a standard to determine if the formula or method of apportionment of benefit per parcel is correct?" County Counsel responded that Section 22572 of the Act requires the district to "assess the net amount upon all assessable lots or parcels of land within the district apportioning that amount among the several lots or parcels in proportion to the estimated benefits to be received by each lot or parcel from the improvements." It also indicated that S&HC Section 22573 states that the net amount to be assessed may be apportioned by any formula or method which fairly distributes the net mount among all assessable lots or parcels in proportion to the estimated benefits to be received by each such lot or parcel from the improvements. However, no specific formula or method is provided by the applicable laws.

In addition, County Counsel noted that Article XIII D of the California Constitution prohibits assessments "on any parcel which exceeds the reasonable cost of the proportional special benefit being conferred on that parcel. However, this Article also has no specific formulas.

The County Counsel's opinion did not address the validity of specific assessments, but referred to a 1953 case which held that "the decision of the City Council is final unless the court can plainly see that manifestly and certainly no benefit can or could reasonably have been expected to accrue to realty from the improvement." A 1973 case held that the determination of the legislative body on the question of benefit received from a particular public improvement is conclusive in the absence of fraud or an abuse of discretion. The outside auditor found that the assessments appear to be appropriately apportioned within the limits of state and local laws, regulations, ordinances, and resolution reviewed by them. (emphasis added)

Based on the information available to the public, and the lack of adequate or clear detail in the Engineer's Reports or other official documents, members of the Grand Jury were not able to judge the reasonableness or validity of the apportionments by the City of each of the yearly assessed maintenance or capital improvement costs for specific purposes in both of these Districts. These assessments are subject to court review if a challenge is filed properly and timely; however, this is not an adequate substitute for clear information and analysis being available for property owner review.

Annual Surpluses

The Grand Jury was concerned with several aspects of the surpluses identified for each District, including how they were created, whether their general use (roll-over to a subsequent year) was valid, and whether their ultimate use (benefiting the assessed parcels) was consistent with law.

      Creation: Members of the Grand Jury compared assessed (estimated) operating costs with actual operating cost expenditures. The results of that comparison are shown in the chart on the facing page. As shown, the operations surpluses were created by consistently assessing operating costs that exceeded historical expenditures. This is inconsistent with the intent of the annual process, which requires an Engineer's report assessing potential costs and setting assessments based on those costs.

      Roll-Overs or Credits: Section 22569 of the Act requires that any surplus carried over from a previous year is to used to decrease the following year's assessments for operating cost or approved annual costs or installments for future capital improvement projects. Annual surpluses have not been applied to subsequent year assessments, but retained for unidentified capital improvements.

      Reallocation of "Surplus Funds": Some of these surplus funds were allocated to construction projects rather than maintenance. Also, as previously discussed, some funds may have been related to unspent bond proceeds. This raises issues of whether property owners actually received the benefits in proportion to the assessments levied on their properties and whether the approval of capital improvements complied with statutory requirements.

The County Counsel's opinion did not address specific surpluses and expenditures in subsequent years for maintenance and/or capital improvements. It merely restated the law, stating that "any surplus assessments in the improvement fund left over at the end of a fiscal year should have been deducted from the amount assessed for improvements in the next fiscal year in that district." It adds, "regarding apportionment based on special benefit to a particular lot or parcel, if an assessment is levied for a particular improvement which benefits a particular parcel, the surplus should offset the next year's assessment for that parcel's benefit."

Instead of crediting the surpluses to reduce future assessments attributable to maintenance, it appears that the Districts retained and then used them to finance improvement projects in later years. This roll-over process appears to be inconsistent with the Act, which requires that if the cost of a project is greater than can be financed in single year assessment, the legislative body may order by resolution that the estimated cost shall be raised by an assessment levied and collected over a period not to exceed five fiscal years or a period of not to exceed thirty years. Thus, the financing of improvements must be purposefully planned and assessed, not left to the serendipity of possible surpluses.

Validity of Use of Surplus Funds

A decision to allocate any assessed funds to capital improvements must be supported by a resolution. In response to a request for copies resolutions ordering annual installments, the Director of Public Works indicated that levies for installments for capital improvements were approved annually as part of the Engineer's Reports and have not been specifically cited in the resolutions themselves.

The Grand Jury requested copies of resolutions describing improvements or changes as required by Streets and Highways Code Section 22622. The response from the Director of Public Works indicated these descriptions were contained in Resolutions 90-131 and 90-47 (the forming resolutions) that previously had been provided He stated there had been substantial changes since then.

The outside auditor, after discussions with City staff, postulated an additional (and contrary) statutory justification for the improvements. The auditor stated that the City has adopted plans for improvements. These plans are not specific to just these two districts, but include the City General Plan, a Capital Improvements Plan, and a description of facilities to be constructed by a Community Facilities District covering the Northeast Area of the city. All of these plans were approved by resolutions adopted by the City Council.

While not finding the apparent justifications illegal, the underlying inadequacy of this rationale may be indicated by the auditor's finding that that currently the City has not established and enforced a fixed annual set-aside for remaining capital projects for either district pursuant to Section 22660. The auditor's report contains two recommendations

  • "that the City Engineer determine and recommend to the City Council appropriate annual fixed levels of funding set-asides for the future capital improvements for each of the Districts."
  • "that the City Council make a final determination and resolution, based on the City Engineer's recommendation, of the annual capital levels to be set aside in addition to debt service."


Based on its own review and the findings of County Counsel and the outside auditor, the Grand Jury reached the following conclusions:

  • At least two times, total assessments in the Districts increased, but there is no indication of written notices being provided to property owners.
  • With respect to whether increased individual costs or merely increases in total assessment trigger notices required for increased assessments, it is clear that the districts did not issue notices. It also appears that the law is ambiguous and possibly not being properly applied by the Districts.
  • The expenditures in these Districts appear to have been for lawful specific purposes, but there is a question as to whether the expenditures were properly allocated according to the benefits upon which assessments were based.
  • The City could not identify resolutions and plans with legally sufficient specificity to support the assessments for capital improvements.
  • The annual amounts of surplus funds in the maintenance and operations categories appear to be excessive due to inappropriate assumptions in the Engineer's reports and also appear to not be properly credited against the subsequent years' assessments.
  • Surplus funds appear to be reallocated to capital improvements without apparent supporting benefits to assessed property owners.

Findings and Recommendations

Finding #1. The City and Districts do not have a single, clear annual report or other official document for each district which displays prior and current maintenance, operations, and capital improvement expenses; an explanation of the specific benefits to specific property owners in a ratio reasonably related to their assessments; and identification of resolutions or other official acts which support current and future capital improvements. While such a unified report is not required by law, it would assist council members in their consideration of expenses and assessments, and property owners in the districts to evaluate the appropriateness of expenditures and assessments.
Recommendation #1. The City should develop an annual report or other official document which is available for review prior to each year's approval of expenditures and allocations which clearly displays prior and current maintenance, operations, and capital improvement expenses; an explanation of the specific benefits to specific property owners in a ratio reasonably related to their assessments; and identification of resolutions or other official acts which support current and future capital improvements.

Finding #2. The total annual assessment for both districts has been maintained at a constant level during most years by adjusting the assessed costs for each of the specific purposes listed in the resolutions forming the districts, rather than being based on prior year experience and expenses and actual future anticipated expenses.
Recommendation #2. The City Council should direct the City Engineer to develop historical cost information for each of the purposes listed in the forming resolutions and submit this information to the Council to justify the 2002-03 assessed operating costs. (This recommendation is supported by, the outside auditor's recommendation that "the City Council resolve and direct the City Engineer to estimate District operating costs at a per unit rates that are based upon actual costs from the most recent audited fiscal year end financial statements.")

Finding #3. If an annual operating surplus exists in any year, it appears that the City has not used the surpluses to reduce assessments in the subsequent year as required by law.
Recommendation #3: The City Council should direct its outside auditors to determine whether a current or accrued surplus exists and direct the City Engineer to develop the
2002-03 assessments for both districts in conformance with laws requiring a reduction in assessments consistent with the surplus, if a surplus exists.

Finding #4. The City of Galt takes the position that only increases in total assessed costs, rather than increases in any components of those costs (and concurrent decreases in other costs), trigger additional notice requirements, and that operational surpluses may be rolled-over for any pending capital improve expenses. These practices have deprived property owners of a realistic opportunity to question or challenge assessments.
Recommendation #4. Sacramento County Counsel should review the practices of districts such as those discussed in this Report and formally opine or seek a declaratory judgment from an appropriate court as to:

  (a) the validity of the position that only increases in total assessed costs, rather than increases in any components of those costs (and concurrent decreases in other costs), trigger additional notice requirements; and
  (b) the validity of spending surplus funds from a prior year, or unspent funds allocated to debt service, for specific capital improvements which have a different level of benefit to specific properties than the allocation of the initial assessments on those properties.

Finding #5: There appears to be legally inadequate formal justification, by way of resolutions or other official acts of the Council, to justify some past, current, and future capital improvements, including identification of the necessity of accruing reserves to pay for those improvements.
Recommendation #5. The City Council should direct the City Attorney to prepare a clear and valid "paper trail" of resolutions justifying past, current and future capital improvements and also direct the City Engineer to prepare and submit to the Council clear and valid resolutions for any proposed new capital improvements which will require annual installments to finance the total estimated cost.

Finding #6. Surplus funds in each District appear to have been derived in the past from funds against all properties in a district but then reallocated in the past to finance capital improvements without adequate specific benefits to all assessed properties.
Recommendation #6. The City Council should direct the City Engineer to submit a report to the Council for current and future capital improvements, clearly describing the method of apportioning the benefit of each new improvement to the properties assessed for the improvement and clearly demonstrating the consistency between the benefit created for each property and the assessments apportioned to that property.

Response Required

Penal Code Section 933.05 requires that specific responses to both the findings and recommendations contained in this report be submitted to the Presiding Judge of the Sacramento Superior Court by September 30, 2001, from:

      · Galt City Council: Recommendations 1, 2, 3, 5, and 6
      · Sacramento County Counsel: Recommendation 4

2000/2001 Sacramento County Grand Jury - Final Report (Internet Version) June 30, 2001

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