Meierhenry v. City of Huron, 14323

• Decision Date: 20 June 1984
• Docket Number: No. 14323,14323
• Citation: 354 N.W.2d 171
• Parties: Mark V. MEIERHENRY, Attorney General for the State of South Dakota, Richard R. Robinson, a resident and taxpayer of the City of Rapid City, South Dakota, and, Earl D. Nordby, a resident and taxpayer of the City of Huron, South Dakota, Plaintiffs, v. CITY OF HURON, a political subdivision of the State of South Dakota, and City of Rapid City, a political subdivision of the State of South Dakota, Defendants.
• Court: South Dakota Supreme Court

Page 171

354 N.W.2d 171

Mark V. MEIERHENRY, Attorney General for the State of South Dakota, Richard R. Robinson, a resident and taxpayer of the City of Rapid City, South Dakota, and, Earl D. Nordby, a resident and taxpayer of the City of Huron, South Dakota, Plaintiffs, v. CITY OF HURON, a political subdivision of the State of South Dakota, and City of Rapid City, a political subdivision of the State of South Dakota, Defendants.

No. 14323.

Supreme Court of South Dakota.

Submitted on Briefs Feb. 13, 1984.

Decided June 20, 1984.

Douglas E. Kludt, Mark A. Moreno, Asst. Attys. Gen., Pierre, for plaintiffs; Mark V. Meierhenry, Atty. Gen., Pierre, on the brief.

Glenn A. Severson, Huron, for defendant City of Huron.

Ray E. Woodsend, Rapid City, for defendant City of Rapid City.

WOLLMAN, Justice.

This is an original proceeding in which the Attorney General, joined by a resident and taxpayer of the city of Huron, and a resident and taxpayer of the city of Rapid City, seeks a declaratory judgment declaring SDCL ch. 11-9 (hereinafter referred to as "the Act") unconstitutional and a writ of prohibition restraining the cities of Huron and Rapid City from proceeding with the establishment of tax incremental districts and the issuance of bonds pursuant to the Act. We deny the relief requested. ¹

In 1978, the South Dakota Legislature authorized municipalities to create tax incremental districts, prepare and implement project plans, issue tax incremental bonds and notes, deposit money in a special fund, and enter into contracts and agreements to implement the provisions and effectuate the purposes of the project plans. 1978 S.D.Sess.Laws ch. 91, Sec. 6. This legislation was codified in the Act and was amended in 1983. 1983 S.D.Sess.Laws ch. 37.

The basic purpose of statutes authorizing the creation of tax incremental districts is to enable the increased tax revenues generated by community redevelopment projects to be placed in a special fund for the purpose of repaying the public costs of the projects.

After the planning commission or committee of a municipality provides notice and a hearing regarding the creation of a tax incremental district, it submits to the governing body a recommendation regarding the creation of such district. SDCL 11-9-3, 11-9-4. The aggregate assessed value of the taxable property in the district plus all other existing districts must not exceed a specified percentage of the taxable property of a municipality. SDCL 11-9-7. It must be found that at least twenty-five percent of the area of the real property qualifies as a blighted area and that the improvement of the area is likely to significantly enhance the value of substantially all the other realty in the district. SDCL 11-9-8. ² When these and other statutory requirements have been met, the governing body of a municipality may pass a resolution creating a tax incremental district. SDCL 11-9-5.

Once a tax incremental district is created, the State Department of Revenue (Department) must determine its tax incremental base. SDCL 11-9-20. The tax incremental base is the aggregate assessed value of all taxable property located within a tax incremental district on the date of its creation. SDCL 11-9-19. Department thereafter gives annual notice of both the assessed value of property within a district and the assessed value of the tax increment base, as well as an explanation that the tax increment will be paid to the municipality. SDCL 11-9-24.

The tax increment is computed in accordance with the following formula set forth in SDCL 11-9-26:

Current Assessed Value

Total taxes levied on all Less

taxable property within X Tax Incremental Base

the tax incremental ----------------------

district Current Assessed Value

The positive tax increments are paid to the municipality and deposited in a special fund, SDCL 11-9-31, until all project costs are paid or until fifteen years after making the last expenditure in the project plan. SDCL 11-9-25.

Once determined, the tax incremental base constitutes a cap on the assessed valuation of property within the tax incremental district for school and local government purposes by virtue of SDCL 11-9-27, which provides:

With respect to the county, school districts, and any other local governmental body having the power to levy taxes on property located within a tax increment district, the calculation of the assessed valuation of taxable property in a tax incremental district may not exceed the tax incremental base of the district until the district is terminated.

Payment by the municipality of project costs may be made from the special fund of the tax incremental district, the municipality's general fund, proceeds of sale of municipal improvement bonds under SDCL ch. 9-44, proceeds of the sale of revenue bonds issued under SDCL ch. 9-54, proceeds of the sale of tax incremental bonds or notes issued pursuant to the Act, or any combination of the above. SDCL 11-9-30.

The city of Huron created a tax incremental district by resolution dated March 7, 1983. Both the city of Huron and the city of Rapid City have indicated an intention to issue bonds pursuant to the Act.

In addressing the many constitutional claims raised by plaintiffs, we begin with the premise that legislative action is accorded a presumption in favor of validity and propriety and should not be held unconstitutional by the judiciary unless its infringement of constitutional restrictions is so plain and palpable as to admit of no reasonable doubt. See, e.g., Independent Community Bankers Ass'n of South Dakota, Inc. v. State, 346 N.W.2d 737 (S.D.1984); Clem v. City of Yankton, 83 S.D. 386, 160 N.W.2d 125 (1968).

I.

Plaintiffs contend that by authorizing the expenditure of public funds for a private purpose, the effect of which may be to confer a substantial benefit to the private developer, the Act violates Art. XI, Sec. 2, of the South Dakota Constitution, which provides in part that "[t]axes shall ... be levied and collected for public purposes only."

The legislature is given a large discretion in determining whether a statutory purpose is public or private, a discretion that the courts should not interfere with unless the action taken by the legislature is clearly evasive. Clem v. City of Yankton, supra; Dean v. Coddington, 81 S.D. 140, 131 N.W.2d 700 (1964). That legislation may amount to public subsidy does not destroy the public purpose of the legislation. Clem v. City of Yankton, supra.

As a general principle, the acquisition of land in blighted areas and the sale or leasing of this land for private redevelopment is deemed a legitimate public purpose. Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27 (1954); see generally Annot., 44 A.L.R.2d 1414 (1955). Several We agree with those decisions and likewise conclude that the Act does not violate the public purpose doctrine contained in Art. XI, Sec. 2 of our state constitution.

                courts in other jurisdictions have concluded that the expenditure of tax increments or the proceeds of tax incremental bonds for community redevelopment projects are not violative of the public purpose doctrines in their state constitutions.   See, e.g., Denver Urban Renewal Auth. v. Byrne, 618 P.2d 1374 (Colo.1980);   State v. Miami Beach Redev.  Agency, 392 So.2d 875 (Fla.1980);   People ex rel. City of Canton v. Crouch, 79 Ill.2d 356, 38 Ill.Dec. 154, 403 N.E.2d 242 (1980);   Richards v. City of Muscatine, 237 N.W.2d 48 (Iowa 1975);   Tribe v. Salt Lake City Corp., 540 P.2d 499 (Utah 1975);   Sigma Tau Gamma Frat.  House Corp. v. City of Menomonie, 93 Wis.2d 392, 288 N.W.2d 85 (1980)
                

II.

Plaintiffs contend that by providing for a non-uniform tax, the Act violates Art. VI, Secs. 17 and 18, and Art. XI, Secs. 2 and 10 of the South Dakota Constitution and the state and federal constitutional guarantees of due process and equal protection. We disagree.

South Dakota Constitution Art. VI, Secs. 17 and 18 provide as follows:

Section 17:

No tax or duty shall be imposed without the consent of the people or their representatives in the Legislature, and all taxation shall be equal and uniform.

Section 18:

No law shall be passed granting to any citizen, class of citizens or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations.

South Dakota Constitution Art. XI, Sec. 2 provides in part that "[t]axes shall be uniform on all property of the same class ...." South Dakota Constitution Art. XI, Sec. 10 provides in part that "[f]or all corporate purposes, all municipal corporations may be vested with authority to assess and collect taxes; but such tax shall be uniform in respect to persons and property within the jurisdiction of the body levying the same."

Plaintiffs concede that taxable property located within tax incremental districts is assessed in the same manner and at the same rates as taxable property outside such districts.

Plaintiffs contend that taxpayers within a taxing jurisdiction levying property taxes within a tax incremental district pay higher property taxes than they otherwise would were the assessed valuation of taxable property within the district not frozen at the tax incremental base for the purposes of taxation for general municipal purposes. As a result, those property owners are required to carry more than their fair share of the general costs of government, which has the effect of constituting a non-uniform scheme of taxation in violation of the above-quoted constitutional provisions.

Although it is true that under the Act the additional tax revenues derived from the increase in the assessed valuation of the property within the tax incremental district is earmarked for the repayment of the project costs, SDCL 11-9-31, and thus is not available to defray the costs of school and local governmental operations, this fact does not necessarily render the Act unconstitutional. Constitutional requirements of equality and...