Divided High Court Backs City on Refund Refusal

WASHINGTON (CN) - Indianapolis did not violate the Constitution by changing how it funds public improvement projects, and then refusing to refund those who had already complied with the old system, the Supreme Court ruled.

The majority decision authored by Justice Stephen Breyer inspired a stinging dissent from Chief Justice John Roberts Jr., who said the city's grossly unfair action caused some citizens to pay 10 to 30 times more than their neighbors for the same benefit.

"Worse still, I]t has done so in order to avoid administrative hassle and save a bit of money," Roberts wrote. "To paraphrase A Man for All Seasons: 'It profits a city nothing to give up treating its citizens equally for the whole world' ... but for $300,000?"

For decades, Indianapolis funded sewer projects relying on Indiana's Barrett Law, which permitted the apportionment of the cost of a public improvement project on the owners of abutting lots. Under the regime, the city would divide the total cost of the project by the number of abutting lots, then issue a lot-by-lot assessment.

Lot owners could then elect to pay the assessment in a lump sum or over time in installments.

In 2004, the city completed an improvement known as the Brisbane/Manning Sanitary Sewers Project, and sent the affected property owners formal notice of their payment obligations. Of the 180 homeowners who were affected, 38 elected to pay the lump sum.

The following year, the city abandoned Barrett Law financing, and adopted a new methodology through which future projects would be financed in part through bonds, lowering individual owner's sewer-connection costs. In adopting this new financing system, the city also enacted a resolution forgiving all assessment amounts still owned under the Barrett Law regime.

Under the adopted resolution, homeowners who paid the Brisbane/Manning assessment in a lump sum received no refund, while homeowners who had elected to pa in installments under no obligation to make further payments.

The 38 homeowners who paid the lump sum asked the city for a refund, but the city denied the request.

Thirty-one of those homeowners, led by Christine Armour, brought suit in Indiana state court claiming that the city's refusal violated the federal Equal Protection Clause. The trial court granted summary judgment to the homeowners, and the state court of appeals affirmed.

However, the Indiana Supreme Court reversed, holding the city's distinction between those who had already paid and those who had not was rationally related to its legitimate interests in reducing administrative costs, providing financial hardship relief to homeowners, and preserving its limited resources.

A majority on the high court agreed, finding the city's classification does not involve a fundamental right or suspect classification, that administrative concerns can ordinarily justify a tax-related distinction

Writing for a majority that included Justices Anthony M. Kennedy, Clarence Thomas, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, Justice Breyer found that any decision to continue debt collection for projects performed under the Barrett Law after the city changed financing systems would have proved complex and expensive.

Further, he said, the rationality of the city's distinction draws support from the nature of the line-drawing choices that confronted it.

To have added refunds to forgiveness of debts owed for the Brisbane/Manning project, would have led to complaints of unfairness by property owners abutting other Barrett-era projects, dramatically increasing he city's administrative burden.

But Roberts, who was joined in his dissent by Justices Antonin Scalia and Samuel A. Alito, Jr., said the majority's rationale flew in the face of the unanimous decision the court made 23 years ago in Allegheny Pittsburgh Coal Co. v. Commission of Webster Cty., 488 U. S. 336 (1989).

He noted that in that case, "We found... a 'gross disparit[y]' in tax levels could not be justified in a state system that demanded that 'taxation... be equal and uniform.' The case affirmed the common-sense proposition that the Equal Protection Clause is violated by state action that deprives a citizen of even 'rough equality in tax treatment,' when state law itself specifically provides that all the affected taxpayers are in the same category for tax purposes."

In this case, those who paid for their sewer hookups in full paid $9,278, while more than half of their neighbors paid less that $500 for the same improvement.

Faced with alternatives that he contends would have been fairer to all, Roberts found that Indianapolis chose the least of all possible options out of "the desire to avoid administrative hassle and the 'fiscal challeng[e]' of giving back money it wanted to keep."

"The Court reminds us that Allegheny Pittsburgh is a 'rare case.' It is and should be; we give great leeway to taxing authorities in this area, for good and sufficient reasons. But every generation or so a case comes along when this Court needs to say enough is enough, if the Equal Protection Clause is to retain any force in this context," Roberts wrote.

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