Authority and Structure of a Road Improvement & Maintenance District
A Road Improvement and Maintenance District (RIMD) is one of a variety of improvement districts technically referred to as a “county improvement district” because it is an improvement district that may be formed in unincorporated areas of a county. Authority for “county improvement districts” is found in Title 48, Chapter 6 of the Arizona Revised Statutes. A RIMD is authorized by law to have a local governing board not the County Board of Supervisors.
Arizona State statutes authorizing the establishment of a RIMD do not provide for the development of a cost estimate for improvements prior to the establishment of the district. Understandably, this can make it difficult to form an improvement district because the potential cost to property owners in the district may not be known until some time after the district is established.
AUTHORIZATION FOR A ROAD IMPROVEMENT AND MAINTENANCE DISTRICT
Authorization for RIMD stems from the Arizona State legislature’s passage of House Bill 2486, which took effect on September 19, 2007. Statutes specifically applicable to RIMD are found in Arizona Revised Statutes Title 48, Chapter 6, Article 7 (A.R.S. §48-1081 through 48-1088). While Article 7 specifically addresses RIMD, Articles 1, 2 and 3 of Chapter 6 also apply. The Arizona Revised Statutes are available online at the following address: http://www.az.leg.gov/arizonarevisedstatutes.asp
Once established, a RIMD is a governmental entity that has taxing authority, among other authorities granted by statute. The statutory powers granted to this type of improvement district are found in Title 48, Chapter 6, Article 1 (A.R.S. §48-909(A)(1) through (A)(4) and 48-909(B)). The property owners in a RIMD are responsible for all costs related to the district.
A RIMD cannot be used to improve and maintain private roads as private roads.
GOVERNANCE OF A ROAD IMPROVEMENT AND MAINTENANCE DISTRICT
A RIMD is governed by a board of directors consisting of a t least three (3) members. In order to serve on the board of directors, a person must live within the boundaries of the RIMD and be registered to vote. The first members of the board of directors are appointed by the County Board of Supervisors when the district is established. The persons appointed may be the persons listed in the petition for establishment, or they may be persons chosen by the County Board of Supervisors who are statutorily eligible to serve. Thereafter, members are elected by the qualified electors (registered voters) in the district. If there is a vacancy on the board of directors, the remaining members appoint a replacement to complete the term of the person who created the vacancy. Once appointed or elected to the district’s board of directors, members must continue to serve until a qualified replacement is appointed. Members of the district’s board of directors, whether they are appointed or elected, are subject to recall (see Arizona Revised Statutes, Title 19).
In addition to statutory powers and responsibilities that are found in Arizona Revised Statutes Title 48, as a governmental entity, a RIMD is also subject to state statutes related to budgets, elections, the Arizona Open Meetings Law and public records. (Title 42 – budget; Titles 16 and 19 – elections; Title 38 – open meeting law; and Title 39 – public records)
The RIMD may contract with the County Elections Department to conduct its elections, or it may contract with a private election service or conduct its own elections.
COUNTY ROLE WITH REGARD TO ROAD IMPROVEMENT AND MAINTENANCE DISTRICTS
The role of the County with regard to RIMD is essentially limited to the establishment process. Although there is no statutory requirement that counties provide a petition form or any kind of technical assistance to persons wishing to form an improvement district, as a courtesy to the public Mohave County has chosen to provide general information, a Petition to Form, and staff is available to provide a limited amount of technical assistance. Technical assistance from staff, if requested, consists of answering questions, providing forms and reviewing the petition, legal description and map and mailing labels prior to property owner(s) circulating petitions. Mohave County does not advocate for the establishment of RIMD or any other type of improvement district, nor does it discourage the establishment of such districts. Instead, the County acts as the legal authority for the establishment process when petitions containing sufficient signatures to warrant a hearing on establishment are filed. There are not state or county regulations governing who may draw up and circulate a petition for establishment of a RIMD, and it is up to the property owners of the RIMD to decide what the boundaries of the district will be and which road or roads will be improved and maintained by the district. It is also up to the property owners of the RIMD to list as part of the petition the names of the persons proposed to serve as the first board of directors for the district.
Once a RIMD is established, the County’s role is limited to setting the tax rate for the district based on the levy amount submitted to the County by the district’s board of directors. Arizona Revised Statutes also allow the County Board of Supervisors to review and comment on the financial transactions of a RIMD, but the Board of Supervisors has no authority to veto any such financial transactions. By statute, the Board of Supervisors may revoke the authority of an elected board of directors in order to protect the residents of the district. If such a revocation were to occur, the Board of Supervisors could either govern the RIMD or call for new elections for the district’s board of directors.
THE ESTABLISHMENT PROCESS
When a petition for establishment of a RIMD is filed with the County Improvement District Supervisor, it is verified against the County Tax rolls to determine if a majority of the property owners within the boundaries of the proposed district have signed. The verification process includes a check of the Count’s property records to confirm that the persons who signed the petition do in fact own property within the proposed district, and determination is also made as to whether the signature counts for 100% of the property or for only a proportionate share of the property. For example, persons who hold property in joint tenancy, as community property, tenants in common or multiple owners may sign only for their proportionate share of the property.
If it is determined that a majority of the property owners either by number or by acreage have signed the petition the petition, the County will move forward with a formal hearing on establishment. The process is as follows:
• An item is placed on the Board of Supervisors’ agenda to officially receive the petition, set a date and time for the establishment hearing and set an amount or “bond” to cover the County’s costs of establishment. The bond is provided by the property owners of the district. Mohave County takes the step of having official receipt of the petitions on a Board of Supervisors agenda in order to provide adequate public notice of the fact that petitions containing sufficient signatures have been received.
• The hearing on establishment must be held not more than 40 days from the Board of Supervisors’ receipt of the petition. The County publishes the notice of the hearing, along with the legal description and map of the proposed district, twice in the newspaper of general circulation closest to the proposed district and also mails the notice of hearing to all property owners of record within the proposed district. The notice must be mailed not less than 20 days prior to the hearing; the first publication of the notice must take place not less than 10 days prior to the hearing.
• At the Board of Supervisors’ hearing on establishment, the Board will hear and consider comments for or against establishment of the district and will also take into consideration any written comments that may have been filed. Regardless of the number of signatures on the petition, the Board of Supervisors retains the discretion as to whether or not to establish the district.
• If the Board of Supervisors approves establishment of the district, it also appoints the members of the first board of directors. The persons appointed may be those listed in the petition for establishment, but it is within the Board of Supervisors’ legal authority to appoint persons not listed in the petition as long as those persons meet the legal requirement to serve (must reside in the district and be registered to vote).
• If the Board of Supervisors approves establishment of the district, the County will record the Resolution of Establishment that contains the action of the Board and the legal description and map of the district. The County will provide the recorded Resolution of Establishment to the Board of Directors of the district and as a courtesy; the County will assist in requesting for taxing authority for the district from the Arizona Department of Revenue.
• If the Board of Supervisors approves establishment of the district, the bond required to cover the County’s costs of establishment becomes a charge against the district. If the cost for establishment is larger than the bond collected, the County will collect the balance to cover those additional costs. If the Board of Supervisors does not approve establishment of the district, the County will keep the funds that were provided by the property owners bond to cover cost incurred.
• Anyone wishing to contest the action of the Board of Supervisors may file an action in Superior Court within 20 days of the Board’s action.
It is important to be aware that while the law allows establishment of a RIMD to occur with a majority of the property owner signatures by either number or a majority of property owners by area (acreage), in order for a RIMD to go to bond for improvements a separate petition to Incur Expense must be circulated and must be signed by the owners a majority of the frontage of property fronting on the proposed improvement within the limit of the district.
HOW DISTRICT BOUNDARIES ARE DETERMINED
To reiterate, determining the boundaries of a RIMD is up to the property owners of the proposed district. As a general rule, consideration is given to which properties will benefit from the proposed improvements and maintenance in determining the boundaries. Properties that are located with the boundaries of the district are subject to all costs related to the district. Properties that are located outside the boundaries of the district are not subject to district costs or to district authority.
RIGHT-OFWAY AND EASEMENTS
In order for a RIMD to make improvements and maintain a road, it must have right-of-way. There are two ways to obtain right-of-way:
• A property owner can grant an easement to the public. A “public easement” is limited to ingress and egress for the public and district, but the property owner still retains ownership of the easement.
• A property owner can deed right-of-way to the public. A deed conveys ownership to the public and must be approved by the Board of Supervisors.
IMPROVEMENT PROCESS
The level of improvements to roads in a RIMD may be spelled out specifically in the petition for establishment or it may be determined later by the district’s board of directors. The petition to form provided by Mohave County as a courtesy simply indicates that the road or roads will be built to “less than County standard.” In any event, some level of improvement is required but it may be something as simple as grading.
DETERMINING THE COST OF IMPROVEMENTS
As stated earlier, state statutes authorizing the establishment of a RIMD and other types of county improvement districts do not provide for the development of a cost estimate for improvements prior to establishment of the district. Following establishment, a RIMD would typically obtain the services of a professional engineer to design the improvements. Depending upon how the improvements will be funded, it may also be necessary to hire a bond attorney and financial consultant.
The typical cost of improvement includes engineering costs, construction costs, right-of-way acquisition and incidentals such as administrative costs. If bonds are to be sold to fund the improvements, the costs also includes the services of a bond attorney and financial consultant as well as costs for capitalized interest and a reserve fund.
The bond attorney, financial consultant and engineer are paid from the bond proceeds or from a combination of cash assessments and bond proceeds.
FUNDING THE IMPROVEMENTS
The proportionate share that each property owner must pay for the improvements is called an “assessment.” It may be possible to avoid bonding if all property owners in the district are willing to pay their assessment in cash once the cost of the improvements has been determined, which is often referred to as “cash only assessments.” Whether or not it is necessary to bond may depend on the level of improvements to be made. The improvements could also be made with money that is donated to the district.
If the RIMD plans to sell bonds or do “cash only assessments”, there is a statutory process for debt authorization that must be followed. The bond attorney hired by the RIMD will assist the district by providing the necessary legal forms and information regarding required mailing, publications and hearings but it is the responsibility of the district’s board of directors to ensure that the process is followed.
Once a final cost estimate has been prepared by the engineer and filed with the district, the district’s board of directors may pass a “Resolution of Intention” to perform the improvements that includes the engineer’s cost estimate. The Resolution of Intention specifies the funding method as the sale of bonds and makes clear that repayment of the bonds will be accomplished by the district levying assessments on the properties within the district. The Resolution of Intention also makes clear that property owners in the district have the right to file in writing, within a specified period of time “protests” and/or “objections” to the proposed improvement project, and it typically includes notification of the date, time and location for hearing to consider any protests or objections that may be filed. The Resolution of Intention must be mailed to each property owner in the district, and notice of the passage of the Resolution of Intention and information regarding the hearing must be published twice in the newspaper.
“Protests” and “Objections” are two different things:
• A “protest” is simply a written expression from a property owner stating that he protests the project. It is not necessary for the property owner to say why he protests the project. If a majority of property owners in the district by area (acreage) file written protests to the Resolution of Intention within the specified time period (20 days from the date the Resolution of Intention was mailed), the proposed improvement project must stop. The RIMD board of directors is then barred from moving forward with the project, but has the option of waiting six months and passing a new Resolution of Intention and going through the notification and hearing process again.
• An “objection” is a property owner’s written claim, filed within the 20 day filing period, that his property is either not benefited by the proposed improvement and his property should not included in the area to be assessed, or that some property outside the area to be assessed is benefited by the improvement and should be included in the assessment area. It is up to the RIMD board of directors to either uphold or overrule any objections, but if even one objection is upheld the project must stop and the board of directors then has the option of waiting six months and starting over again with a new Resolution of Intention.
If there are not sufficient “protests” filed and if the board of directors overrules any “objections” that are filed, the board of directors may pass a resolution ordering the improvement and at that point the district is able to go to bid for construction. However, if the bid for construction exceeds the engineer’s estimate as set forth in the Resolution of Intention, the district board of directors must sop proceedings and if it wishes to continue with the project it must begin the process over again with a new Resolution of Intention and new cost estimate.
METHODS FOR ASSESSING PROPERTIES IN THE DISTRICT
Determining the “assessment methodology”, or what each property owner in the district will pay as his proportionate share of the costs, is a decision that is made by the board of directors of the RIMD. If bonds are being sold to fund the improvements, the district’s bond attorney will assist the board of directors in determining what method is fair. There are various ways to spread the assessment, including using a unit assessment that may be based on lot size. Unit assessment may also include adjustments for distance, which means that properties at the end of the road may be assessed more than properties at the beginning of the road. Other methods that are less common but which may be used include front food, and area assessment based on square foot or per acre. The bottom line is that there is no law that says assessments must be done this way or that way, but instead assessments should be based on benefit.
Once the assessment methodology has been determined, the district’s engineer prepares an assessment diagram assigning each property in the district and assessment number. Property owners are sent a “cash demand” letter that contains the assessment amount for their property and there is a period generally running 35-40 days during which property owners may pay all or part of their assessment in cash. If a property owner does not pay the entire amount of the assessment in cash, the assessment will go to bond and costs related to capitalized interest and the reserve fund for the bond will be added to the base assessment amount.
The RIMD board of directors is required to hold a hearing on the assessment, at which property owners who are subject to the assessment may appear and request that their assessment be eliminated or reduced. If the board of directors agrees to eliminate or reduce any assessment, the amount that is eliminated or reduced is spread among the remaining property owners.
An assessment that goes to bond becomes a lien against the property, not against the property owner. It is not necessary to pay off the assessment in order to sell the property. There are statutory provisions for assessment modification in the event a parcel with an assessment lien is split. Assessments are billed twice a year, with one billing being for interest only and the other billing being for both principal and interest. Failure to make assessment payments can result in monetary penalties and possibly in the sale of the property. A property owner who allows his property to be sold for failure to make the required payments can still redeem the property following sale, but the entire balance of the full assessment must be paid plus interest. It is the responsibility of the RIMD to bill and collect assessment payments, to bill and collect assessment payments, ensure assessment modification if needed, and to follow through with any necessary assessment sales.
MAINTENANCE PROCESS
It is necessary for a RIMD to provide for ongoing maintenance and operation. Maintenance and operation of the district is funded through an “ad valorem” tax (property tax). Foremost will be costs related to actual maintenance of the roads, and those costs may include such things as:
• Grading and/or adding surface materials.
• Repairs of potholes or cracking in asphalt or chip seal.
• Snow plowing.
• Maintenance of drainage ditches, culverts and weed control in the right-of-way.
It may also be necessary to pay an engineer to provide recommendations on the level of maintenance needed each year.
In addition to actual maintenance costs, a RIMD will also incur costs related to the operation of the district. It is reasonable to assume that these costs may include such thing as:
• General administrative costs, such as postage, preparation and publication of an annual budget as well as any other reporting requirements.
• Legal fees – it is recommended that improvement districts have an attorney; the County Attorney’s Office is not authorized to provide legal advice to improvement districts other than County improvement districts.
• Liability Insurance
• Specifically for an RIMD, a clerk must be appointed and a superintendent of streets must be employed (A.R.S. §48-1084(B)).
Each year the board of directors of a RIMD must prepare an annual budget, publish the budget, and hold a public hearing on the budget. The budget includes any amount that the district will levy in property taxes to cover the cost of maintenance and operation of the district. The district’s levy amount is sent to the Board of Supervisors, which, by law, calculates the tax rate and then “sets” the tax rate. The tax rate is calculated using the following formula:
Levy Amount divided by Total Assessed Value of District = Tax Rate
The resulting tax rate is then applied against each $100 of assessed full cash value of each property in the district. The assessed full cash value is the full cash value of a property as determined by the County Assessor times the assessment ratio.
The method used to determine the tax rate and the method of applying the tax rate against each $100 of assessed full cash value of each property in the district as noted above are the same methods that are used to determine tax rates and apply them in school districts, for County government, fire districts and so on.
The County Treasurer collects the RIMD property tax along with other taxes that are collected for the County, school districts, fire district, and so on.
Notice: This document is for informational purposes only and is based on Mohave County staffs’ understanding of state statutes related to county improvement districts. Users of this information should review state statutes for complete information and be aware that such statutes may be interpreted differently by other counties or by members of the legal community.