City of Dayton v. Cloud

• Decision Date: 28 June 1972
• Docket Number: No. 71-739,71-739
• Citation: 285 N.E.2d 42,59 O.O.2d 370,30 Ohio St.2d 295
• Parties: , 59 O.O.2d 370 CITY OF DAYTON, Appellee, v. CLOUD, Auditor, et al.; Miami Conservancy District, Appellant.
• Court: Ohio Supreme Court

Page 295

30 Ohio St.2d 295

285 N.E.2d 42, 59 O.O.2d 370

CITY OF DAYTON, Appellee, v. CLOUD, Auditor, et al.; Miami Conservancy District, Appellant.

No. 71-739.

Supreme Court of Ohio.

June 28, 1972.

Syllabus by

the Court

1. The General Assembly has plenary power to determine exemptions from taxation, limited only by the provisions of Article I of the Constitution of Ohio, and, therefore, Section 2, Article XII of the Ohio Constitution, is not a constitutional prohibition against the issuance of urban renewal bonds in accordance with R.C. Chapter 725.

2. The partial exemption from real property taxation of that portion of a total assessment made in accordance with R.C. Chapter 725 by relating the prior assessed value to the total assessed value after the improvements have been made is neither arbitrary nor unreasonable, and is not violative of Section 2, Article I of the Ohio Constitution.

On February 12, 1958, by Resolution No. 1858, the city of Dayton formulated a plan for the renewal of the East Dayton area of the city, an area determined to be a blighted area appropriate for urban renewal. Pursuant to that plan, designated the East Dayton Urban Renewal Plan, the city proposes to finance a portion of the cost of the project by the method provided for in R.C. Chapter 725 R.C. § 725.05 empowers a municipal corporation to issue unvoted urban renewal bonds, payable solely from revenues provided for in other sections of R.C. Chapter 725. R.C. § 725.03 requires a municipal corporation, at the time it issues the bonds, to establish an urban renewal debt retirement fund, from which the principal and interest on the bonds are paid. R.C. § 725.02 provides that all improvements to real property in an urban renewal area are a public purpose and exempt from real property taxation by all political subdivisions and taxing districts, commencing with the date of issuance of the bonds or acquisition of the property by the municipality. The exemption continues for as long as the urban renewal bonds are outstanding. This section imposes a condition to the exemption, wherein the municipality must certify that an exemption period be specified and that the agreement for service payments, provided for by R.C. § 725.04, has been entered into and is in effect.

'Improvements,' so exempted, are defined by R.C. § 725.01(G) as 'the increase in assessed valuation after the date of the adoption of an urban renewal plan of each parcel of real property or part thereof included within the boundaries of such urban renewal plan and owned in fee by the municipality on such date or acquired by the municipality after such date.'

R.C. §§ 725.04 and 725.05 authorize the municipality to require each purchaser from it of real property in the urban renewal area to enter into an agreement, as a condition of purchase, to make semiannual urban renewal service payments, in lieu of taxes, upon the improvements made during the period of exemption. Such payments are to be equal to the amount of real property taxes which the purchaser would have paid on the improvements had there been no exemption, and are to be paid into the urban renewal debt retirement fund.

To finance the project by the method provided by R.C. Chapter 725, the city enacted Ordinance No. 23065 on August 7, 1968, to become effective on September 7, 1968. This ordinance provided for the issuance of $2,500,000 in principal amount of East Dayton Urban Renewal Bonds, payable solely from urban renewal debt retirement funds.

Section 4(c) of the ordinance, in accordance with R.C. § 725.09, provides that the urban renewal bonds are not an obligation of the city.

This action under R.C. § 133.71 et seq., the Validation of Securities Act, was instituted by the city of Dayton in order to determine the legality of the East Dayton Urban Renewal Bonds. Among the parties defendant named therein was The Miami Conservancy District which is the appellant in this court. The essential issue is the constitutionality of R.C. Chapter 725.

The Court of Common Pleas held R.C. Chapter 725 constitutional, in all respects but one. The court held R.C. § 725.02 to be unconstitutional for the reason that the provision therein for partial exemption of real property, 'when there exists no physically exempt use' was violative of Section 2, Article XII of the Ohio Constitution. The court also held that it could not determine, on the evidence before it, that there would be a contractually-binding obligation on the purchaser of affected property to make the payments to the city required to support the bonds, and therefore declined to issue an order validating the bonds.

The Court of Appeals, on authority of this court's decision in Denison University v. Board of Tax Appeals (1965), 2 Ohio St.2d 17, 205 N.E.2d 896, reversed on the constitutional issue. However, it affirmed the judgment of the Court of Common Pleas, insofar as that court declined to issue an order validating the bonds.

The cause is now before this court pursuant to the allowance of a motion filed by The Miami Conservancy District to certify the record.

James W. Drake, City Atty., Squire, Sanders & Dempsey and Alan P. Buchmann, Cleveland, for appellee.

Brumbaugh, Corwin & McDonnell and Robert K. Corwin, Dayton, for appellant.

STERN, Justice.

The issue herein is the constitutionality of R.C. Chapter 725. The pertinent facts are not in dispute.

Appellant raises four questions of law, necessitating an examination by this court of Section 2 of Article XII, and Section 2 of Article I of the Ohio Constitution. Section 2 of Article XII, to which we address ourselves first, reads, in pertinent part:

'* * * Land and improvements thereon shall be taxed by uniform rule according to value * * * and without limiting the general power, subject to the provisions of article I of this constitution, to determine the subjects and methods of taxation or exemptions therefrom, general laws may be passed to exempt burying grounds, public school houses, houses used exclusively for public worship, institutions used exclusively for charitable purposes, and public property used exclusively for any public purpose, but all such laws shall be subject to alteration or repeal * * *.' (Emphasis added.)

Appellant contends that R.C. § 725.02, calling for a partial exemption of property from taxation where there is no physically severable exempt use, violates the 'uniform' taxation requirements of Section 2 of Article XII. Appellant also contends that the language of Section 2 of Article XII operates as a limitation upon the power of the General Assembly to authorize exemption of property from taxation, in that no exemptions may be granted to property not used for the specific purposes mentioned therein. We do not agree.

Paragraph three of the syllabus in Denison University v. Board of Tax Appeals, supra (2 Ohio St.2d 17, 205 N.E.2d 896), which we approve and follow, reads As follows:

'By reason of the amendment of Section 2 of Article XII of the Ohio Constitution effective in 1931 the General Assembly now has a power to determine exemptions from taxation that is limited only by the provisions of Article I (Bill of Rights) of the Ohio Constitution.' (Citations omitted.)

No further discussion being necessary on this issue, ¹ we hold that the General Assembly has plenary power to determine exemptions from taxation, limited only by the provisions of Article I of the Constitution of Ohio, and, therefore, that Section 2, Article XII of the Ohio Constitution, is not a constitutional prohibition against the issuance of urban renewal bonds in accordance with R.C. Chapter 725.

Appellant next contends that the partial exemption violates Section 2, Article I of the Ohio Constitution. This section, known as the 'equal protection clause,' provides substantially the same guaranty in that respect as does the Fourteenth Amendment to the United States Constitution.

By its terms, R.C. § 725.02 exempts only a part of the affected real property from taxation. There is no dispute that such exempt part is determined, not by its use but by relating the prior assessed value to the total assessed value after the improvements have been made.

The law is clear that a partial exemption from taxation can be granted upon the basis of the use of property without violating the equal protection clause. (See New Haven Church of Missionary Baptist v. Board of Tax Appeals (1967), 9 Ohio St.2d 53, 223 N.E.2d 366.) But appellant contends that a partial exemption based on value presents a different question. We find no constitutional prohibition against such partial exemption based upon value, so long as it does not otherwise violate the equal protection clause.

As stated in State, ex rel. Struble v. Davis (1937), 132 Ohio St. 555, 565, 9 N.E.2d 684, 688: 'The authorities are uniform upon the proposition that the determination of what classes of property shall be taxed and what shall be exempt is exclusively a legislative function and must be sustained by the courts unless clearly violative of some express state or federal constitutional provision.' A presumption of validity therefore attends the interpretation of R.C. Chapter 725. Benjamin v. Columbus (1957), 167 Ohio St. 103, 146 N.E.2d 854; Porter v. City of Oberlin (1965), 1 Ohio St.2d 143, 205 N.E.2d 363.

Further, the Supreme Court of the United States stated in Madden v. Kentucky (1940), 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590:

'* * * Since the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes. The burden is on the one attacking the legislative arrangement to negative every conceivable...