South Bend Public Transp. Corp. v. City of South Bend

• Citation: 428 N.E.2d 217
• Decision Date: 01 December 1981
• Docket Number: No. 681S174,681S174
• Parties: SOUTH BEND PUBLIC TRANSPORTATION CORPORATION, Paul J. Schwertley, and Joseph T. Helling, Appellants (Plaintiffs below), v. CITY OF SOUTH BEND, and City of South Bend, on Behalf of its Department of Redevelopment, Appellees (Defendants below).
• Court: Supreme Court of Indiana

Page 217

428 N.E.2d 217

SOUTH BEND PUBLIC TRANSPORTATION CORPORATION, Paul J.

Schwertley, and Joseph T. Helling, Appellants (Plaintiffs below), v. CITY OF SOUTH BEND, and City of South Bend, on Behalf of its

Department of Redevelopment, Appellees (Defendants below).

No. 681S174.

Supreme Court of Indiana.

Dec. 1, 1981.

Richard D. Doyle, Harold E. Brueseke, South Bend, for appellants South Bend Public Transp. Corp. and Paul J. Schwertley.

Harold E. Brueseke, South Bend, for intervening plaintiff-appellant Joseph T. Helling.

Richard L. Hill, City Atty., Thomas J. Brunner, Jr., Parker, Brunner & Hamilton, South Bend, for appellee City of South Bend; Robert D. McCord, Jr., Ice, Miller, Donadio & Ryan, Indianapolis, of counsel.

Kevin J. Butler, Sweeney, Butler & Simeri, South Bend, for appellee City of South Bend, on behalf of its Dept. of Redevelopment; Michael Borge, Borge & Pitt, Chicago, Ill., of counsel.

HUNTER, Justice.

This is an appeal from a declaratory judgment of the St. Joseph Circuit Court in which the court held that two Indiana statutes permitting tax allocation financing, Ind.Code §§ 18-7-7-23 and 18-7-7-39.1 (Burns 1980 Supp.) (now recodified as Ind.Code §§ 36-7-14-25 and 36-7-14-39 (Burns 1981 Repl.)), were constitutional. The case began as an action brought by the South Bend Public Transportation Corporation (Transpo) and two individual taxpayers Paul J. Schwertley and Joseph T. Helling, who asserted the invalidity of the use of tax allocation financing by the City of South Bend and its Department of Redevelopment (Department) to finance certain urban redevelopment projects.

The facts which gave rise to this appeal are as follows. The Department adopted certain resolutions in June and July of 1980 which created a Central Downtown Urban Renewal "Allocation Area No. 1" as part of the planning and development of a $36 million multi-use downtown project called Century Mall. This proposed project to revitalize the city's central business district consists of an enclosed two-level retail shopping mall, two office building structures, a public park and pedestrian bridges. The Allocation Area is a specific area within the corporate limits of Transpo, the City and the Department. The Department is a special taxing district encompassing all of the territory of the City.

Under the tax allocation statutes, an impetus towards redevelopment of blighted urban areas is achieved by the reallocation of local tax money in such a fashion that overlapping taxing jurisdictions which benefit from improvements in the renewal areas also share in their cost. The overlapping taxing bodies are all beneficiaries of any post-development revenue increases due to increased assessed values in the development area. Prior to the legislative amendments authorizing tax allocation procedures, the Department alone bore the costs of land acquisition, clearance, and improvements associated with any redevelopment and the overlapping taxing bodies did not share in the public costs of the redevelopment. The tax allocation legislation requires a sharing of those costs by all public bodies benefiting from the redevelopment by requiring all post-development tax revenues attributable to increased assessed values to be paid to the Department until all costs of public improvements associated with the redevelopment have been paid. The taxing bodies remain entitled to all property tax revenues not attributable to the development within the Allocation Area. When the redevelopment costs have been paid, the tax allocation is discontinued and all public bodies share in tax revenues as they did prior to the redevelopment and enjoy the benefits of increased property tax values and revenues. The legislature passed the tax allocation financing statutes at this time to provide redevelopment commissions with a necessary means to promote development when local governments are facing massive cutbacks in federal assistance and increasingly tight fiscal constraints attributable to the propertry tax freeze.

The trial court found that although the tax allocation provisions would divert certain tax proceeds in the Allocation Area from Transpo for a period of time, the legislation was in all respects constitutional and valid. The court further found that the Allocation Resolution adopted by the Department is in all respects valid and enforceable and that the costs of the action shall be shared equally by Plaintiff Transpo and Defendants City and Department.

We granted transfer of this cause on June 30, 1981, pursuant to Appellate Rule 4(A)(10). In this opinion, we now affirm the judgment of the trial court finding these statutes are constitutionally valid.

The history of the contested legislation starts in 1953 when the Indiana General Assembly passed an act known as the Redevelopment of Cities and Towns Act (Act), Ind.Code § 18-7-7-1, et seq. This Court upheld the constitutionality of this Act and other similar legislation in McCoy et al. v. City of Evansville, (1958) 239 Ind. 98, 154 N.E.2d 804, and Alanel Corp. v. Indianapolis Redevelopment Commission, (1958) 239 Ind. 35, 154 N.E.2d 515. In those cases, we held that the redevelopment of blighted areas constitutes a local improvement, that redevelopment commissions constitute special taxing districts and are not independent municipal corporations subject to Indiana constitutional debt limitations, and that the redevelopment of blighted areas constitutes a public use and purpose. The Act has been amended a number of times with changes of a technical nature or otherwise not material to this suit. The sections providing for the tax allocation financing methods being questioned were added in 1977 with subsequent technical amendments. ¹

Appellants first contend that the tax allocation bonds issued under Ind.Code § 18-7-7-23, supra, will violate the two percent debt limitation provision of Article 13, § 1 of the Indiana Constitution. However, we find that it is well settled that our Indiana General Assembly has the power to create municipal corporations for proper purposes and also the power to create special taxing districts. The two percent debt limit is not applicable to entities which are special taxing districts. Lawson v. South Bend Public Transportation Corporation, (1971) 256 Ind. 552, 270 N.E.2d 746; McCoy v. City of Evansville, supra; Alanel Corp. v. Indianapolis Redevelopment Commission, supra; City of Indianapolis v. Buckner, (1954) 233 Ind. 32, 116 N.E.2d 507.

Appellants recognize that the legislature has expressly designated redevelopment commissions as "special taxing districts" and this Court has upheld this designation. McCoy, supra; Alanel, supra. However, they argue that the present statute has significantly expanded the powers of redevelopment commissions so that they should now be considered to be municipal corporations and not special taxing districts. Appellants give as examples of the expanded powers, the power to establish allocation areas and to freeze the assessed value of taxable property therein, the power to identify blighted areas, and the power to acquire property and issue tax allocation bonds payable from incremental taxes.

We find that none of these expanded powers are such as will change a redevelopment commission from a special taxing district into a separate and independent municipal corporation. The power to create allocation areas is similar to that of creating blighted areas (which was in the original enactment) and is subject to approval by the governing body of the city. The power to issue special tax allocation bonds is likewise only a change in form and not in substance as redevelopment commissions have always had the power to issue special taxing district bonds. The legislature has properly exercised its power to allocate and distribute incremental taxes in such a way that each benefiting public body will bear a share of the costs of public improvements. The legislature approved the tax allocation financing method, but it did not change the nature of the redevelopment commissions. It expressly did not change the designation of the redevelopment commissions as special taxing districts and we can see no significant change in the degree of independence of these commissions which would in fact convert them into municipal corporations. Archer v. City of Indianapolis, (1954) 233 Ind. 640, 122 N.E.2d 607; McCoy, supra; Alanel, supra.

Appellants further argue that the tax allocation bonds do constitute debt within the meaning of Article 13, Section 1 of the Indiana Constitution since they ultimately involve the general taxing power of the municipality. A careful study of the law negates this analysis. The Redevelopment Commission can only apply incremental tax revenues which are attributable to increases in the assessed value of taxable property in the Allocation Area to the repayment of the bonds. If the value of property does not increase, the bonds will not be repaid. Therefore, the original taxing power of the municipality will not be changed.

We have clearly held against appellant's position in Department of Public Sanitation of the City of Hammond v. Solan, (1951) 229 Ind. 228, 97 N.E.2d 495, where we carefully distinguished between the debt of a political or governmental subdivision and the debt of a special taxing district:

"It has long been the law that the funds essential to pay for a special public improvement may be raised either by an assessment on real estate specially benefited, or by a general tax on all the property, real and personal located in the taxing district, since personal property may be benefited as well as real estate. The method to be followed in securing the funds is for the legislature to determine. * * * The method it selects-whether a special assessment on real estate benefited or a general tax on all the property in the taxing district, is nevertheless in the nature of an assessment of benefits to the persons and property...