Questions remain from the Bischoff settlement

Tuesday, November 5, 2013

HOLIDAY ISLAND -- Now that two long-standing lawsuits against the Holiday Island district have been settled out of court, some property owners have questioned what the lawsuits accomplished and what impact these settlements will have on them individually.

One of the most confusing aspects of the Bischoff v. HISID lawsuit settlement is the difference between the interest rate applied to the diminishing assessment of benefits on each property (6 percent) and the interest rate used to set the annual levy, or assessment bill (currently 5.2 percent, and as yet not set for 2014, although the district used this amount in its 2014 draft budget). These two rates have nothing to do with each other, explained both Commissioner Linda Graves and David Bischoff in interviews last week.

But even with an explanation of this difference, questions about the remaining, diminishing benefits and the current AOB, upon which the annual levy is based, have surfaced and may take a further court ruling to untangle.

"A lof of the issues we're dealing with is because the law is open to interpretation," said Graves. And that seems to be the crux of the problem.

According to Graves, the levy never changes, regardless of the remaining assessment of benefits, which gets reduced on each property each year via the settlement.

"(The levy) has always been and will always be based upon the latest AOB," she said. "You don't multiply your percent of levy against the remaining benefit; you multiply against the latest AOB for that piece of property."

She said the fact that the levy is against the AOB and not against the decreasing amount of benefits is an important concept.

"(The benefit) does eventually go out (around the year 2040, according to her chart), but it gives us plenty of time," she said. "There might be another assessment of benefits if we add some improvements, which might extend the time frame, or if state law were clarified or changed on how a SID stays in business in perpetuity."

But what does it mean for the benefit to "go out"?

What remains unanswered is whether a property owner can come in, give the district a check for his or her remaining benefit of assessments, that is, pay it off, and not get levied against anymore.

Graves contends this cannot happen, as state law gives the district the right to continue to levy each year.

"There is no provision for anybody paying off their benefit in state law at all," she said.

"However, it does not forbid it, either," Bischoff responded. "There is no case law on file about voluntarily paying it off.... but if the benefits do not diminish, how come the remaining AOB balance/principal goes down every year in Graves' spreadsheet?"

The issue comes down to a fundamental difference in how state law is interpreted and what the assessment of benefits actually represents.

Does the diminishing assessment each year work like a credit card bill, that has a remaining principal balance if only the interest is paid each year, but decreases if payments above the interest amount reduce the principal until it is eventually "paid off," with no further indebtedness unless there is a new "purchase" of improvements?

Or is the assessment levy more like a county property tax that gets charged each year, based upon the value of the land and improvements?

This was not made clear in the settlement documents, and as Bischoff suggests, may be the subject of further court rulings or as Graves suggests, may need to be addressed in a clarification of state law.

As far as individual property owners are concerned, however, for the time being, they will continue to get a bill each year for their assessment, based on the 2011 AOB and whatever percentage the board opts to multiply it by to determine the bill.

Tentatively, that amount is at the 2013 rate of 5.2 percent, as presented in the 2014 draft budget. But the board may decide to change it at their November budget meetings.

As far as David Bischoff is concerned, some of the main impacts of the settlement on the district are to force it to operate more openly and to put restraints on its operating procedures while also allowing it to remain solvent, at least for a time.

Going forward, property owners will receive on their annual assessment billing a breakdown of how the assessment of benefits is figured.

"One of the main things they are now going to have to tell everyone is exactly where their indebtedness stands," he said. "They have to give an accounting of what portion of the AOB goes to principal and interest, and where we stand."

As for how assessment money can be used, the settlement allows HISID to fund police protection, ambulance and "reasonable" advertising, but not marketing.

"I felt these services were of great importance to our community," Bischoff said.

He also requested HISID be given relief from unpaid assessments on lots that had been foreclosed on or quit-claimed and were now owned by the district or in possession by the state. Since assessments cannot be waived, as they run with the land and not the individual property owner, anyone wanting to buy a lot would have to pay back assessments due, along with the purchase price.

This would kill the incentive to buy, and with hundreds of lots sitting in foreclosure, the district loses a large amount of revenue.

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  • And again I ask where does the $2300.00 credit come into play?

    -- Posted by property owner on Tue, Nov 5, 2013, at 8:08 PM
  • Sure would like to know where Graves received her law degree from.....

    -- Posted by CommonSense22 on Thu, Nov 7, 2013, at 4:37 PM
  • The Bischoffs achieved quite a lot, they got the attention they seek and the got 125k paid to their lawyer, plus the costs of HISID's lawyer. This is their idea of "saving HI". It is thousands of dollars that could have been used to repair water pipes and pave roads. Perhaps they are to blame for a good deal of our current situation cause I sure don't feel saved by their lawsuit

    -- Posted by HI truth seeker on Sun, Nov 24, 2013, at 7:33 PM
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