Policy Issue: Who Should Pay for Neighborhood Improvements? Related Accounting Issues Facts: Pursuant to its capital improvement plan, the City of Kirkland decided to make certain improvements to Oak Ridge Street, a residential thoroughfare located in the northern part of the city. Specifically, the project entailed purchasing 20 feet at the front of all private properties fronting the street to facilitate widening of the street from two to four lanes and adding sidewalks. The project was expected to cost $5 million. After extensive and often contentious hearing presentations involving property osiers, the public works director, city planners, and the city attorney, the city council decided that property owners fronting on Oak Ridge Street would be the primary beneficiaries of the street-widening project. Accordingly, as permitted by state law, the city council formed the Oak Ridge Special Improvement District and approved the issuance of $5 million in special assessment bonds to be repaid from special assessment levies on the Oak Ridge Street property owners. To reduce interest rates on the debt, the city agreed to make the bonds general obligations of the city should property owners default on debt service payments. After the bonds had been issued and the project was well under way, all Oak Ridge Street property owners retained a local law firm and sued the City of Kirk land to make the street-widening project a publicly funded project of the city rather than a special assessment project. Attorneys for property owners argued in briefs filed with the court that (1) the property owners will not benefit from the street improvements and, in fact, had fought the project for years since they would lose valuable property and the street would be transformed from a quiet, low-density mainly local traffic street to a noisy, high-density public thoroughfare, and (2) the property owners were not adequately informed about the special assessment financing for the project before the financing was approved and the bonds were issued. The city attorney filed a brief with the court laying out the city’s reasoning for financing the street-widening project with special assessment bonds, essentially arguing that the Oak Ridge Street Project is no different from many past city neighborhood improvement projects that have been financed with special assessments. According to the city attorney, there is strong legal precedent for requiring property owners who receive private benefit to pay for such improvements.
Required
a. Assume you are the judge in this case. After analyzing the facts of this case, decide what remedies, if any, you will order for the plaintiffs (the property owners). Prepare a written brief explaining your reasoning and verdict.
b. How would accounting for the bond issuance, street construction, and debt service differ if you (the judge) were to rule for the plaintiffs and thus require the city to repay the project bonds from tax revenues rather than from special assessments? How would accounting differ if you were to rule against the plaintiffs (assuming the city had not pledged to be secondarily liable for the bonds)?