City attorney has strong doubts special tax on Lake Mitchell residents would hold up in court

May 17—MITCHELL — As debate around the Lake Mitchell dredging project continues, talks of a special assessment tax on lake property owners and other project funding mechanisms have emerged.

During Tuesday's debate at the candidate forum, lake dredging project supporter Mark Puetz debated longtime resident Scott Houwman. Puetz and Houwman fielded questions from a media panel about the city's proposed Lake Mitchell dredging project.

The two former Mitchell City Council members were asked if lake residents should be on the hook to pay a special assessment for lake improvements.

Houwman was in support of some sort of funding mechanism that makes lake residents "have more skin in the game," such as a boat dock fee. While Puetz said he thinks a lot of people would be open to the idea of lake residents paying some sort of additional fee to help fund the project, he claimed state law prohibits a special assessment tax and lake improvement district.

Although there isn't a specific state law prohibiting the city from attempting to impose a special assessment tax on lake residents, Mitchell City Attorney Justin Johnson said he doesn't see any feasible formula for a lake-related special assessment that could hold up in court.

According to Johnson, state law stipulates a municipality must show how specific properties being assessed for an improvement project will benefit from a respective project.

Not all residents who live on the lake utilize the city-owned body of water. The city would have to prove all lake residents, including those who don't use the lake, would benefit from a lake improvement project.

"For those to be valid under state law, you have to be able to show with reasonable certainty what the actual special benefit of the project is doing to a particular property. The problem with doing that on something like the lake is, 'How do you really calculate that?'" Johnson said. "I don't know you will ever be able to come up with a formula that's going to hold up in court."

The city typically utilizes special assessments to fund the installation of new roads and sidewalks. A property owner is assessed based on the square footage of the property they own that will have a new sidewalk or a road installed directly next to their properties.

Each property owner who is assessed is then responsible for paying the amount on which they are assessed over a multi-year period.

Although Lake Mitchell is owned by the city, a special assessment related to lake improvements hasn't been attempted since the body of water was built in 1928.

City officials said past discussions about the lake that included talks of a special assessment tax were met with strong pushback among some lake residents. Some of the arguments against a special assessment on lake property owners is that the lake is free for the public to use at any time, regarless of whether a lake user owns lake property. The city owns roughly 70% of the shoreline that's publicly accessible.

Another funding mechanism lake dredging project supporters have explored to help finance the proposed $25 million dredging project is creating a lake improvement district.

In neighboring Minnesota, there are established lake improvement districts that counties with a public lake can use to impose service fees and levy taxes to improve the body of water. A lake improvement district can be established in Minnesota through a citizen-led petition with enough votes and a county governing body creating one.

In South Dakota, a lake improvement district for a city-owned, publicly accessible body of water cannot be established due to the lack of state laws or regulations defining and authorizing the creation of a lake improvement district.

City Administrator Stephanie Ellwein said municipalities must govern in accordance with state laws. Creating a lake improvement district for Lake Mitchell would be a local overstep of state law, she explained.

"We have no framework and legal authority to create something like a lake improvement district without it being clearly outlined by state law, which it is not," Ellwein said.

The lack of funding opportunities available for the city to finance the proposed lake dredging project ultimately led the city to pursue a state loan. On June 4, voters will decide whether the city can submit its application for a $16.8 million state loan that would be used to fund the Lake Mitchell dredging project.

A local nonprofit organization called Friends of Firesteel is aiming to raise $3 million for the dredging project. The organization has organized $1 million in pledges, with about two-thirds of that coming from lake residents, according to Puetz.