Can a Kentucky watershed conservancy district base its assessment on the value of buildings, not just the land?

Plain-English summary

The Plum Creek Watershed Conservancy District covers about 24,000 acres across four counties and maintains eleven flood-prevention structures. After houses were built downstream of one of its dams, the state reclassified that dam as "high hazard," meaning the district has to upgrade the structure, which costs money. That raised a question about how the district can raise the money: when it assesses the real property inside the district, can it base the assessment on the full value of the property (including the houses and other improvements), or only on the value of the bare acreage?

The Attorney General said the district can do either. Reading KRS Chapter 262, the opinion explained that a watershed conservancy district levies an annual assessment on real property within the district, and KRS 262.760 lets the board do that "either by millage rate or per acre rate." A millage rate is an amount charged per $1,000 of assessed value. The county clerk then computes what each landowner owes based on "the value or acreage of the real property" on the tax roll.

The key word is "real property." The opinion noted that the plain and ordinary meaning of "real property" includes the land and everything permanently attached to it, and Kentucky's own definition in KRS 132.010(3) includes "all lands within this state and improvements thereon." So when the district assesses by value (the millage option), that value can include the value of the buildings and other improvements. When it assesses by the per-acre option, it charges per acre regardless of improvements. One technical note from the opinion: although the statutes use the word "tax," Kentucky courts have held these conservancy-district levies are special assessments, not taxes.

What this means for you

Special district boards and flood control officials

Under this opinion, a watershed conservancy district may assess real property by a millage rate on full value (land plus improvements) or by a per-acre rate that ignores improvements. The choice of method rests with the district's board under KRS 262.760.

Property owners

If your district assesses by the value-based millage method, the opinion says the value can include your buildings and other permanent improvements, not just the acreage. If it uses a per-acre rate, improvements are not factored in.

County clerks

The opinion describes the clerk's role under KRS 262.765(2): compute the amount due from each landowner using the rate the board fixed and the value or acreage shown on the tax roll.

Common questions

Q: Can a watershed conservancy district charge based on the value of my house, not just my land?
A: Yes, if it uses the value-based millage method. The opinion concluded that "real property" includes improvements, so a value-based assessment can capture the value of buildings; a per-acre assessment would not.

Q: Does the district have to use one method?
A: No. The opinion reads KRS 262.760 to let the board choose "either by millage rate or per acre rate."

Q: Are these charges taxes?
A: The opinion notes that although the statutes use the word "tax," Kentucky courts have held that watershed conservancy district levies under KRS Chapter 262 are special assessments rather than taxes.

Q: Why does the meaning of "real property" matter here?
A: Because the value-based option assesses "real property," and the opinion read that term (consistent with KRS 132.010(3)) to include land and the improvements permanently attached to it.

Background and statutory framework

KRS 262.700 authorizes watershed conservancy districts for water conservation, flood prevention, and erosion control. KRS 262.745(1) lets a district levy an annual assessment on real property within the district, subject to KRS 262.760, which requires an annual budget and provides for assessment "either by millage rate or per acre rate" (KRS 262.760(2)). KRS 262.765(2) directs the county clerk to compute each landowner's amount due based on the rate fixed by the board and the value or acreage on the tax roll. Applying the plain-meaning rule from Kentucky Unemployment Ins. Comm'n v. Wilson, and the definition of "real property" in KRS 132.010(3), the opinion concluded a value-based (millage) assessment may include improvements. It noted, citing Webster Cnty. Soil Conservation Dist. v. Shelton and KRS 262.748, that these levies are special assessments rather than taxes.

Citations and references

Statutes:
- KRS 262.700 (formation and purpose); KRS 262.745(1) (annual levy)
- KRS 262.760; KRS 262.760(2) (millage or per-acre rate); KRS 262.765(2) (clerk computation)
- KRS 262.748 (special assessments); KRS 132.010(3) (real property includes improvements)

Cases:
- Kentucky Unemployment Ins. Comm'n v. Wilson, 528 S.W.3d 336 (Ky. 2017)
- Webster Cnty. Soil Conservation Dist. v. Shelton, 437 S.W.2d 934 (Ky. 1969)
- Grise v. Finley Commercial Enterprises, 2019 WL 645913 (Ky. App. 2019)

Source

• Landing page: https://www.ag.ky.gov/Opinions/Pages/default.aspx
• Original PDF: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG%2022-03.pdf

Original opinion text

The full opinion as issued by the Office of the Kentucky Attorney General:

Commonwealth of Kentucky
Office of the Attorney General
Daniel Cameron, Attorney General
Capitol Building, Suite 118, 700 Capital Avenue, Frankfort, Kentucky 40601
February 18, 2022
OAG 22-03
Subject: May the assessments levied by a water conservancy district under KRS Chapter 262 account for the value of improvements to real property located within the district?
Requested by: Gil Tucker, Chairman, Plum Creek Watershed Conservancy District
Written by: Carmine G. Iaccarino, General Counsel; Lindsey R. Keiser, Assistant Attorney General
Syllabus: Under KRS Chapter 262, the assessments levied on real property within a watershed conservancy district may be calculated according to the value of the real property, which includes any improvements to the real property, or on a per acre basis.

Opinion of the Attorney General

KRS 262.700 provides for the formation of watershed conservancy districts for the "purpose of developing and executing plans and programs relating to any phase of conservation of water, water usage, flood prevention, flood control, erosion prevention and control of erosion, floodwater and sediment damages." It is under this authority that the Plum Creek Watershed Conservancy District ("District") was established.

Located in Spencer, Shelby, Bullitt, and Jefferson Counties and covering about 24,000 acres, the District includes eleven flood prevention structures intended to protect cropland and residential structures. The Energy and Environment Cabinet has informed the District that because of recently built houses downstream from one of the dams in the District, the dam has been upgraded to a "high hazard." Based on that determination, the District is now faced with the need to upgrade its flood retarding structure. That need prompts the District's question: whether it may levy its assessment on real property within the district in a manner that includes or accounts for the value of any improvements to the real property within the district, or whether it may assess only the value of the acreage (i.e., not including improvements) within the district.

Our analysis begins with the text. To raise sufficient funds to achieve its purposes, a watershed conservancy district is authorized to "[l]evy an annual tax on the real property within the district within the limitations provided in KRS 262.760 for administration, construction, operation and maintenance of works of improvement within the district." KRS 262.745(1). KRS 262.760 provides that the watershed conservancy district must prepare an annual budget and thereafter assess the real property within the district an amount necessary to meet the budget. In addition, KRS 262.760(2) directs each district's board of directors to levy its "tax" in a manner sufficient to meet the district's annual budget, "either by millage rate or per acre rate." [A millage rate is an amount per every $1,000 of a property's assessed value.] KRS 262.765 expressly provides that "the county clerk shall compute the tax due the district from each landowner in accordance with the rate fixed by the board of directors and the value or acreage of the real property indicated on the tax roll." KRS 262.765(2). [The "computation" is "made on the regular tax bills in such manner as may be directed by regulation of the Department of Revenue." KRS 262.765(2).]

[Although the statute speaks of "taxing" real property, see, e.g., KRS 262.765, Kentucky courts have determined that watershed conservancy district assessments are not taxes. See, e.g., Webster Cnty. Soil Conservation Dist. v. Shelton, 437 S.W. 2d 934, 938 (Ky. 1969) (holding that, based on "legislative intent, the language of the statute, and the incidents of the imposition," the assessments levied under KRS Chapter 262 are special assessments rather than taxes); see also KRS 262.748 (referring to the levies as "annual special assessments").]

According to the text of the statute, a conservancy district may assess "real property" within the district on one of two bases: on the value of the real property (i.e., the millage rate) or on its acreage. KRS 262.765. Because we must give "words their plain and ordinary meaning," Kentucky Unemployment Ins. Comm'n v. Wilson, 528 S.W.3d 336, 340 (Ky. 2017), we read this construction by the General Assembly as a recognition of the fundamental nature of real property. By any definition, the plain and ordinary meaning of "real property" includes the land and everything permanently attached to it. See, e.g., Black's Law Dictionary, 7th ed. 1999 (defining "real property" as "land and anything growing on, attached to, or erected on it, excluding anything that may be severed without injury to the land"); Merriam-Webster.com, 2021 (defining "real property" as "consisting of land, buildings, crops . . . or improvements or fixtures permanently attached to the land or a structure on it"); see also KRS 132.010(3) (defining "real property" to include "all lands within this state and improvements thereon"); see also Grise v. Finley Commercial Enterprises, 2019 WL 645913 (Ky. App. 2019) ("[F]or purposes of real property taxation, land and improvements are ordinarily considered a singular unit of taxation.").

When the county clerk computes the tax due the conservancy district from each landowner, the county clerk does so in accordance with the rate fixed by the board of directors and the value or acreage of the real property indicated on the tax roll. KRS 262.765(2). For the reasons set forth above, when the assessment is based on the value of the real property, that value may include the value of the improvements to the real estate within the District. See KRS 262.760 (providing for assessment "either by millage rate or per acre rate") (emphasis added). On the other hand, a "per acre rate" is simply that: an assessment based on the assigned value of each acre within the district without regard to improvements.

For these reasons, it is this Office's opinion that the annual assessments levied on real property in a water conservancy district, like the Plum Creek Watershed District here, may be made by millage rate on the value of the real property, including the value of any improvements, or on a per acre basis without regard to any improvements. KRS 262.760.

Daniel Cameron
ATTORNEY GENERAL
Carmine G. Iaccarino
General Counsel
Lindsey R. Keiser
Assistant Attorney General