Consolidated Rail Corp. v. Town of Hyde Park

• Decision Date: 31 January 1995
• Docket Number: Nos. 2025,s. 2025
• Citation: 47 F.3d 473
• Parties: CONSOLIDATED RAIL CORPORATION, Plaintiff-Appellee, v. TOWN OF HYDE PARK; Village of Cornwall, City of Buffalo; Onondaga County; Buffalo City School District; Rochester City School District; East Syracuse-Minoa Central School District; Chautauqua County; Orange County; Ravena-Coeymans-Selkirk Central School District; City of Binghamton; Central School District and Monroe County, Defendants, State Board of Equalization and Assessment of the State of New York; David Gaskell, in his official capacity as Executive Director of the Division of Equalization and Assessment and his successors in office; Erie County; City of Rochester and North Rockland Central School District, Defendants-Appellants. to 2029, Dockets 94-7226, 94-7228, 94-7234, 94-7238 and 94-7240.
• Court: U.S. Court of Appeals — Second Circuit

Page 473

47 F.3d 473

31 Fed.R.Serv.3d 1471

CONSOLIDATED RAIL CORPORATION, Plaintiff-Appellee, v. TOWN OF HYDE PARK; Village of Cornwall, City of Buffalo;

Onondaga County; Buffalo City School District; Rochester

City School District; East Syracuse-Minoa Central School

District; Chautauqua County; Orange County;

Ravena-Coeymans-Selkirk Central School District; City of

Binghamton; Central School District and Monroe County, Defendants,

State Board of Equalization and Assessment of the State of

New York; David Gaskell, in his official capacity as

Executive Director of the Division of Equalization and

Assessment and his successors in office; Erie County; City

of Rochester and North Rockland Central School District,

Defendants-Appellants.

Nos. 2025 to 2029, Dockets 94-7226, 94-7228, 94-7234,

94-7238 and 94-7240.

United States Court of Appeals, Second Circuit.

Argued June 3, 1994.

Decided Jan. 31, 1995.

Judith T. Kramer, Asst. Atty. Gen. of the State of N.Y. (G. Oliver Koppell, Atty. Gen. of the State of N.Y., of counsel), for defendants-appellants SBEA and David Gaskell.

Linda S. Kingsley, Corp. Counsel, City of Rochester (Susan L. Hauser, Municipal Atty., of counsel), for defendant-appellant City of Rochester.

James K. Riley, Pearl River, NY (O'Connell & Riley, of counsel), for defendant-appellant North Rockland Central School Dist.

Kenneth Schoetz, County Atty., County of Erie, Buffalo, NY, for defendant-appellant Erie County.

Gregory G. Fletcher, Memphis, TN (Heiskell, Donelson, Bearman, Adams, Williams & Caldwell; Loselle Greenawalt Kaplan Blair & Adler, James N. Blair, of counsel), for plaintiff-appellee.

Before: NEWMAN, Chief Judge, OAKES and PRATT, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

Consolidated Rail Corporation ("Conrail") is an interstate railroad that operates in New York State and elsewhere. Conrail filed this suit against the New York State Board of Equalization and Assessment and several tax-assessing and tax-collecting jurisdictions under Sec. 306 of the Railroad Revitalization Act and Regulatory Reform Act of 1976 ("4-R Act"), currently codified at 49 U.S.C. Sec. 11503. That section prohibits discriminatory taxation of railroads by states and their municipal subdivisions. Following substantial increases in its real-property tax assessments, triggered by the expiration of a law that provided an enhanced railroad ceiling, Conrail moved in the district court for a preliminary injunction against further assessment, levy, or collection of discriminatory ad valorem taxes in New York. The district court granted the preliminary injunction on conditions, and also granted Conrail's motion to certify a defendant class. For the reasons set forth below, we affirm both rulings.

BACKGROUND AND FACTS

Conrail is an interstate carrier by rail that owns taxable rail-transportation property subject to ad valorem taxation in New York State. Its New York property is scattered among the assessing jurisdictions of some 309 towns, villages, cities, and counties across the state. Upon assessment determinations made by these 309 assessing jurisdictions, over 700 collecting jurisdictions--cities, towns, villages, school districts, and special districts--levy real property taxes that Conrail is required to pay annually. The assessments of Conrail's property made by each assessing district are based on, or at least affected by, valuations determined by the New York State Board of Equalization and Assessments ("SBEA").

Conrail contends that the taxes levied against it for 1993, which are calculated under the New York Real Property Tax Law ("NYRPTL") and based primarily on evaluations made by the SBEA, violated the 4-R Act by discriminatorily overvaluing Conrail's rail-transportation properties throughout the state.

The 4-R Act prohibits state and local governments from assessing railroad property for property tax purposes at a value that bears a higher ratio to its true market value than the ratio of assessed value to true market value for all other commercial and industrial property in the same assessment jurisdiction. In order to obtain relief under the statute, the ratio for Conrail's rail transportation property must exceed, by at least 5%, the calculated ratio with respect to all other commercial and industrial property.

Under New York's statutory system, the real-property tax assessments for Conrail's properties are legally and technically determined by the assessors for the municipalities that have assessing functions where the Conrail The NYRPTL provides for railroads a partial tax exemption known as the railroad ceiling. Under this exemption, the SBEA, a state agency, establishes a ceiling for the assessment of a railroad's property in each individual assessing jurisdiction; above that ceiling the owner of the railroad property is exempt from real property taxes. Thus, if a local assessor assessed a particular Conrail property at $100,000 and the "railroad ceiling" for that property was determined by the SBEA to be $90,000, Conrail would be exempt from any taxes that were based on the excess $10,000 of assessment. This railroad-ceiling legislation is found in NYRPTL Secs. 489-dd(4) and 489-ee, et seq. The method for calculating the railroad ceilings is specified by statute. NYRPTL Secs. 489-ee through 489-jj. These calculations are made by the SBEA and are, in part, a function of local property values set in each assessing jurisdiction by local assessors. This is because one component of the ceiling is the state equalization rate for each assessing jurisdiction. NYRPTL Sec. 489-ee(3).

properties are located. NYRPTL Sec. 489-cc. In practical effect, however, the "railroad ceilings" that are determined by the SBEA become the actual assessments for Conrail's property in the vast majority of assessing jurisdictions in the state.

To determine state equalization rates, the SBEA selects sample parcels in each assessing jurisdiction, appraises them to determine their respective market values, and then divides those market values by the assessed values for the selected parcels. Those assessed values represent local assessment determinations made by the assessors in each assessing jurisdiction. The results provide the state equalization rate for each assessing district.

For most properties, values are determined by local assessors. Railroad properties, however, receive special treatment in New York. In order to determine the railroad ceiling--the maximum amount at which a local jurisdiction may assess its railroad properties--the SBEA undertakes to evaluate all rail-transportation properties throughout the state--assessing district by assessing district. To do this it determines the local reproduction cost, which is sum of the reproduction costs less depreciation, and then adds to it the value of the land. This figure the SBEA treats as the true market value.

Next the SBEA computes an "economic factor", which is determined by dividing Conrail's operating expenses by its revenues, averaged over the last five years, and comparing the result to figures in a statutory table that indicates the economic factor to be applied. The local reproduction cost is then multiplied by the economic factor to give the full taxable value of the property.

The SBEA next consults its previously determined state equalization rates for the assessing jurisdictions. These represent the ratios in each jurisdiction of the total assessed value of taxable property to its estimated market value, expressed as a percentage.

Finally, the railroad ceiling for each assessing jurisdiction is calculated by multiplying the full taxable value of Conrail's rail-transportation property in that jurisdiction by the state equalization rate for that jurisdiction. The railroad ceiling thus computed represents the highest assessed value that an assessing jurisdiction may apply to Conrail's property. NYRPTL Sec. 489dd(4).

In 1987 the New York State legislature established an enhanced railroad ceiling by altering the economic factor so that it provided additional tax relief for railroads. That relief continued until the Spring of 1993 when the legislature considered extending this additional property tax exemption for railroads for another year, but ultimately failed to continue the exemption. Thus, on March 1, 1993, the enhanced railroad ceiling expired, with the result that in the great majority of New York's assessing jurisdictions, Conrail's tax assessments increased by seventy percent. The increase did not represent any change in true market value, but resulted from changes in calculating depreciation and from the legislature's change in the economic factor.

Conrail asserts, and defendants do not disagree, that most of the assessing jurisdictions simply adopt the railroad ceiling, as calculated by the SBEA, in lieu of making For the 1993 tax year, the SBEA fixed the railroad ceilings on Conrail's rail-transportation property in all of New York State at a total of $580 million, based on an appraised true market value of $924 million. Conrail maintains, however, that the true market value of its taxable rail property is $451 million. If Conrail is correct, its state-wide ratio of assessed to market value would be 129% ($580 million divided by $451 million = 129%).

their own independent assessments of the railroad properties in their jurisdictions, and the record supports that assertion. In 1993, 248 of the 309 assessing jurisdictions (80%) assessed Conrail's transportation property at the railroad ceiling, and 17 others assessed within 3% of the ceiling. Twenty-one jurisdictions assessed at the lower 1992 ceiling applicable before lapse of the five-year-old enhanced railroad ceiling, but this presumably indicates that the assessment rolls in those jurisdictions had not been updated after the enhanced railroad ceiling expired.

In contrast, the same ratio for all other commercial and industrial property in the state is an average of 48%....