Daily Development for
Thursday, February 4, 1999

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

PUBLIC PROPERTY; UTILITY SYSTEMS: Even though city property owners funded the construction and operation of the city municipal utilities system through tax assessments, the system was a public system and therefore the State Constitution provision requiring just compensation for takings of private property did not apply when the city sold the utility system.

Falke v. Council of City of Fairbanks, 960 P.2d 589 (Alaska 1998).

The City of Fairbanks, following an elaborate public hearings process and election, sold its utilities operations to a private owner. The utilities operations including heating, telephone, electricity. Disgruntled property owners challenged the sale as an unconstitutional taking of their property because the facilities were constructed through tax assessments. The court does not discuss the specific type of tax assessments used.

The Alaska Supreme Court dismissed the appeal in a summary, two paragraph per curiam opinion with no citations supporting its primary holding. Article I, Section 18 of the Alaska Constitution provides that: “private property shall not be taken or damaged for public use without just compensation.” The court stated that, although property owners funded the construction and operation of the utilities systems through tax assessments, the fact that such tax assessments were paid does not make the taxpayers de facto owners of the utilities system. The court concluded that the utilities system was public property and not private property and that therefore a taking of private property had not occurred.

Comment: The case is a useful one for the precedent file, as it stands for a rather fundamental proposition. Taxes, even assessments based upon private benefit to the assessed property owner, do not create private property rights.

It is possible that the landowners might have had some kind of due process argument if they had been assessed for the cost of a public facility and that facility had then promptly been sold to a private party which then charged higher prices for the planned service. Here, however, the facility had been developed and operated for a long period of time by the city, and the there was no suggestion that the tax assessments, when made, were inappropriate.

To limit the ability of a city to bring in a private utility operator, through a process as open and public as this one appeared to be, would unduly hamper the governmental activities that all citizens rely upon, and the court properly gave short shrift to the opposition.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1 - 6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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