Town of Killington v. State

• Decision Date: 20 April 2001
• Docket Number: No. 99-286.,99-286.
• Citation: 776 A.2d 395
• Parties: TOWN OF KILLINGTON v. STATE of Vermont, Edward D. Haase, Commissioner of Taxes and Marc Hull, Commissioner of Education.
• Court: Vermont Supreme Court

776 A.2d 395

TOWN OF KILLINGTON v. STATE of Vermont, Edward D. Haase, Commissioner of Taxes and Marc Hull, Commissioner of Education.

No. 99-286.

Supreme Court of Vermont.

April 20, 2001.

Mark L. Sperry and Devin McLaughlin of Langrock Sperry & Wool, Middlebury, for Plaintiff-Appellee.

William H. Sorrell, Attorney General, William E. Griffin, Chief Assistant Attorney General, and Mary L. Bachman, Special Assistant Attorney General, Montpelier, for Defendants-Appellants.

Present: AMESTOY, C.J., DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

JOHNSON, J.

In this appeal concerning a transition provision of Vermont's school funding law, we confront a familiar dispute in which one side claims the benefit of the common and ordinary meaning of the statutory language, while the other side relies primarily on the legislative purpose of the statute to give meaning to the term at issue. The provision in question capped for a two-year period the anticipated rapid rise in property taxes in the so-called "gold" towns resulting from the passage of the Equal Educational Property Act of 1997 (hereinafter "Act 60"). The statute saved appellee Town of Killington¹ approximately $1,200,000 in taxes for the first transition year after Act 60 became law. Killington claimed, however, that it was entitled to roughly $500,000 in additional tax savings because the State applied an incorrect methodology in calculating Killington's increase in municipal expenditure growth during the first transition year. The superior court agreed, ruling that the commonly understood meaning of the statutory term "municipal budget" required the State to calculate Killington's municipal expenditure growth in terms of the increase in gross expenditures rather than the increase in expenditures funded by taxes.

The State of Vermont and the Commissioners of the Departments of Education and Taxes ("the State") appeal the superior court's grant of summary judgment in favor of Killington. We reverse and enter summary judgment in favor of the State based on our conclusion that the court's construction of the statutory provision at issue leads to an irrational result that is inconsistent with the spirit of the law and the legislative intent underlying the provision.

The fundamental purpose of Act 60 is "to make educational opportunity available to each pupil in each town on substantially equal terms." 16 V.S.A. § 4000(a). The Legislature sought to attain equal access to similar revenues per pupil through a combination of state block grants and local education spending that would allow each school district to "have substantially equal capacity to raise and provide the same amount per pupil on the local tax base." 16 V.S.A. § 4000(b). Act 60 represented the Legislature's response to Brigham v. State, 166 Vt. 246, 692 A.2d 384 (1997), in which we held that Vermont's educational financing system, with its wide disparities in per pupil spending and property tax burdens necessary to fund that spending, violated the common benefits clause, Chapter I, Article 7, of the Vermont Constitution. The Legislature chose to respond, in large part, by redistributing property tax revenues so that an equivalent tax rate in any town in Vermont produced the same per pupil resources for educational spending. In some towns, the maintenance of the historic level of educational spending would require substantial, even dramatic, increases in property tax rates to fund education. To reduce the shock of property tax increases in the property-rich towns, the Legislature chose to phase in these increases over time. This litigation is about one of those phase-in provisions.

To produce equality, a fully implemented Act 60 imposes a statewide education property tax on all nonresidential and homestead property in every town in the state at a rate of $1.10 per $100 of equalized education property value. 32 V.S.A. § 5402(a). The law, however, contains a phase-in provision aimed at easing the transition in fiscal years 1999 and 2000 to the $1.10 rate for towns that enjoy relatively low property tax rates. See 1997, No. 60, § 50(a) (amended by 1997, No. 71 (Adj.Sess.), § 67(a)). The first component of that provision, which provides a three-year phase-in toward the uniform state-wide rate, is not at issue in this appeal.

The second component, the one at issue here, caps at forty percent any increase in a town's combined municipal, school district, and statewide property tax rate from fiscal year 1998 to fiscal year 1999.² The forty percent cap provision assured that no town's combined tax rate would increase by more than forty percent in the first transition year following the passage of the new education funding law.

The cap provision was intended to protect towns against immediate and large tax increases created by Act 60. It was not intended, however, to protect against tax increases brought about by extraordinary spending increases. Indeed, if the cap provision allowed extraordinary spending, a town facing a forty percent property tax increase resulting from Act 60 could increase spending by forty percent, thereby retaining the benefit of the entire tax increase while avoiding a gradual increase in its burden under the statewide property tax rate. Rather than use the phase-in period, as intended, to gradually ratchet up its increased tax burden under the statewide rate, a town could increase its spending to a level that would allow it to avoid any increased payment under the statewide rate and Act 60's phase-in provisions.

To prevent such a scenario but still allow towns a reasonable increase in spending during the phase-in period, the cap provision included two spending control provisions, one on education spending and one on municipal spending. The former is not involved here. The latter provides that any increase in the "municipal budget" from fiscal years 1998 to 1999 that exceeds ten percent may not be applied in calculating the forty percent cap on the increase in the combined tax rate for fiscal year 1999. In sum, the increase in the combined tax rate of towns from fiscal year 1998 to fiscal year 1999 was capped at forty percent, except that, in relevant part, any growth in the municipal budget exceeding ten percent would not be included in the calculation of the combined tax rate for that year.

Looking at the specifics of this case, Killington is a property-rich town that faces significant property tax increases under Act 60. Thus, its increase in property tax rates during the phase-in period is limited by the forty percent cap, however it is construed. The gist of the State's claims is that Killington has improperly drawn from its forty percent property tax increase for the first interim year by increasing funds for municipal spending well above the ten percent limit and intentionally generating a large surplus that can be spent in future years. Killington responds that it is simply following the letter of the phase-in provision, and that the State is distorting its clear language in pursuit of a claimed legislative intent that it has invented.

The facts giving rise to the claims are these. Killington had a municipal budget in fiscal year 1998 of $1,951,000. In fiscal year 1999, Killington voted a municipal budget of $2,146,100, precisely ten percent above the fiscal year 1998 budget. Because of different revenue assumptions underlying the two budgets,³ however, Killington voted a thirty-eight percent increase in the municipal property tax rate to fund the fiscal year 1999 budget. The ostensible reason for the large tax increase was the assumption that the entire fiscal year 1999 budget would be funded by property tax payments for current year billing; whereas, the assumption in fiscal year 1998 and all prior years was that a substantial part of the budget would be funded by delinquent tax payments and other income not generated by current-year tax payments.

Not surprisingly, in determining how much Killington was required to send to the education fund, the State noted the discrepancy between the ten percent budget increase claimed by Killington and the apparent thirty-eight percent property tax increase. It determined that the budget figures from fiscal years 1998 and 1999 used by Killington to calculate the ten percent increase were not comparable because they resulted from different revenue assumptions. In the State's view, Killington simply overtaxed itself in fiscal year 1999, thereby lowering its obligation to the statewide education fund and, at the same time, allowing itself to enjoy a surplus of municipal funds that could be used for future expenditures.

In resolving the discrepancy resulting from the inconsistent revenue assumptions in Killington's fiscal year 1998 and 1999 budgets, the State chose to accept the assumptions made in the fiscal year 1999 budget and contest the asserted fiscal year 1998 budget. To allow the municipal budgets from fiscal years 1998 and 1999 to be compared so that the ten-percent growth could be calculated, the State considered only that part of those expenditures from the fiscal year 1998 budget covered by current-year taxes.⁴ The State might well have chosen instead to contest the fiscal year 1999 budget on the ground that it did not include nonrevenue income and thus was incomparable to the previous year's budget. In any event, either contest would have reached the same result.

In July 1998, Killington filed a declaratory judgment action in superior court. The parties submitted competing motions for summary judgment, and the superior court ruled in favor of Killington. The court concluded that the common and ordinary meaning of the term "municipal budget," as defined in the forty percent cap provision, comported with Killington's position, which construed the term to encompass the expected expenditures and revenues projected for the coming year. As for the intent of the Legislature, the court opined that if the Legislature had...