Gary Cmty. Sch. Corp. v. Ind. Dep't of Local Gov't Fin.

15 N.E.3d 1141

GARY COMMUNITY SCHOOL CORPORATION, Petitioner

v.INDIANA DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Respondent.

No. 45T10–1104–TA–30.

Tax Court of Indiana.

Aug. 29, 2014.

James D. Shanahan, Shanahan & Shanahan LLP, Chicago, IL, Attorney for Petitioner.

Gregory F. Zoeller, Attorney General of Indiana, John D. Snethen, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

Opinion

WENTWORTH, J.

This case concerns the Indiana Department of Local Government Finance's (DLGF) reduction of the Gary Community School Corporation's exempt debt service fund levy for the 2011 budget year. The Court reverses.

BACKGROUND

The Gary Community School Corporation is a public school corporation located in Lake County, Indiana. Approximately eleven years ago, the School Corporation petitioned the DLGF to approve its lease rental agreement (Lease) with the Gary Community School Building Corporation. The Lease provided that the Building Corporation would build two new elementary schools and then lease them to the School Corporation for a 25–year period at an annual rental of $2,800,000. On May 1, 2003, the DLGF approved the Lease in Order No. 03–025 (the 2003 Order).

To pay its obligations under the Lease, the School Corporation issued a bond and secured two common school loans (collectively, “the rental obligations”). In the ensuing years, the School Corporation used surplus monies from its general fund to pay its rental obligations, but the surplus dwindled more rapidly than anticipated. Accordingly, on October 12, 2010, the School Corporation adopted its 2011 Budget that included an exempt debt service fund levy to pay, among other things, its continuing rental obligations. The School Corporation subsequently submitted the budget to the DLGF for review.

On March 23, 2011, the DLGF reduced the School Corporation's exempt debt service fund levy by removing all the amounts related to the payment of the rental obligations. The DLGF explained that it had done so because there was no indication that the School Corporation had used an exempt debt service fund levy to pay its rental obligations in the past. The DLGF also stated that “[t]he magnitude of the gen[era]l fund budget ($104M) and reliance on a past DLGF order and the schools['] avoidance of taxpayer remonstrance opportunities all require a high threshold of proof that there are insufficient funds in the gen[era]l fund to pay the debt.” (Cert. Admin. R. at 390.)

On March 24, 2011, the School Corporation filed a written protest with the DLGF. The DLGF denied the protest without explanation on March 31, 2011.

On April 19, 2011, the School Corporation initiated this original tax appeal. The Court heard oral argument on October 17, 2011. Additional facts will be supplied as necessary.

STANDARD OF REVIEW

The party seeking to overturn a DLGF final determination bears the burden of demonstrating that it is invalid. See Brown v. Dep't of Local Gov't Fin., 989 N.E.2d 386, 388 (Ind. Tax Ct.2013). Accordingly, the School Corporation must show to the Court that the DLGF's final determination is contrary to law, arbitrary, capricious, an abuse of discretion, or unsupported by substantial evidence. See id.

ANALYSIS

On appeal, the School Corporation asserts that the DLGF exceeded its authority in reducing its exempt debt service fund levy for the 2011 budget year because the statutory framework for reviewing such levies did not authorize the DLGF to consider other sources of funding (e.g., its general fund). (See Pet'r Br. at 7–16; Oral Arg. Tr. at 21 –24, 30 –37.) The DLGF, on the other hand, contends that it properly considered other funding sources given 1) the lack of a statutory prohibition, 2) the terms of the 2003 Order, and 3) the School Corporation's improper avoidance of the taxpayer remonstrance process. (See Resp't Br. at 7–13.) In addition, the DLGF contends that the Court must defer to its factual finding that the School Corporation's general fund has sufficient money available to pay its rental obligations because that finding is supported by substantial evidence. (See Resp't Br. at 10.)

Statutory Authority

On appeal, the School Corporation asks the Court to reverse the DLGF's reduction of its exempt debt service fund levy because the statutory framework for reviewing these levies limits the DLGF's authority to considering whether that fund alone is sufficient to pay its rental obligations. (See Pet'r Br. at 7–13; Pet'r Reply Br. at 9–11.) The DLGF, on the other hand, maintains that it properly considered amounts potentially available in the School Corporation's general fund in reviewing its exempt debt service fund levy because no statute prohibits it from doing so. (See Resp't Br. at 7, 10; Oral Arg. Tr. at 46.) The DLGF explains that given its expertise and the need for overall fiscal responsibility in school funding, the General Assembly could have intended that it consider other funding sources in its budget reviews. (See Resp't Br. at 7–9; Oral Arg. Tr. at 43.)

The laws governing the DLGF's responsibilities with respect to school corporation funding are contained in both the property tax provisions of Title 6 and the school funding provisions of Title 20 of the Indiana Code. See generally Ind.Code § 6–1.1–17–1 et seq. (2014) (regarding the fixing and reviewing of budgets, tax rates, and tax levies); Ind.Code § 20–46–7–1 et seq. (2014) (regarding debt service levies);¹ Ind.Code § 20–48–1–1 et seq. (2014) (regarding borrowing and bonds). Together, this statutory framework establishes the parameters of the DLGF's annual review of a school corporation's budget.

For instance, Indiana's property tax provisions authorize the DLGF to change a school corporation's budget when 1) it reviews a budget under Indiana Code §§ 6–1.1–17–8 or 6–1.1–17–10 ; 2) a political subdivision's tax rate constitutes the aggregate tax rate; 3) circumstances require a public hearing; or 4) notice was incorrectly published. See Ind.Code § 6–1.1–17–16(a) –(d) (2010) (amended 2012). Moreover, Indiana's school funding provisions provide that if a school corporation's “advertised levy is insufficient to produce revenue to meet all obligations² for any calendar year, the [DLGF] may establish a levy greater than advertised if necessary to meet the school corporation's obligations.” Ind.Code § 20–46–7–5 (2010) (footnote added). Indiana Code § 20–48–1–11 similarly provides that

[b]efore the end of each calendar year, the [DLGF] shall review the bond and lease rental levies, or any levies that replace bond and lease rental levies, of each school corporation that are payable in the next succeeding year and the appropriations from the levies from which the school corporation is to pay the amount, if any, of the school corporation's debt service obligations.³ If the levies and appropriations of the school corporation are not sufficient to pay the debt service obligations, the [DLGF] shall establish for each school corporation:

(1) bond or lease rental levies, or any levies that replace the bond and lease rental levies; and

(2) appropriations;

that are sufficient to pay the debt service obligations.

Ind.Code § 20–48–1–11(b) (2010) (footnote added); see also Ind.Code § 20–48–1–6 (2010) (stating the DLGF must determine whether a school corporation's bond and lease rental levies are sufficient to pay these debts).

The DLGF is correct that no express statutory language prohibits it from determining the sufficiency of the School Corporation's requested levy by considering amounts that may be available from its other funds. The absence of this prohibition, however, does not imply that the DLGF has the authority to do so. Indeed, if the General Assembly had intended for the DLGF to consider other funding sources, it could have affirmatively stated that the DLGF could, but it did not. See Haas Pub. Co. v. Indiana Dep't of State Revenue, 835 N.E.2d 235, 238 (Ind. Tax Ct.2005) (explaining that “what a statute does not say is just as important as what it does say” (citation omitted)), review denied; Caylor–Nickel Clinic, P.C. v. Indiana Dep't of State Revenue, 569 N.E.2d 765, 769 (Ind. Tax Ct.1991) (providing that statutory language is deemed intentionally chosen by the legislature and the Court will not read in any purportedly omitted language), aff'd, 587 N.E.2d 1311 (Ind.1992). Accordingly, the Court cannot construe the lack of a statutory prohibition as authorizing the DLGF to consider other funding sources without express language to that effect.

In addition, the statutory framework for school corporation funding is organized into distinct funds that serve different purposes, have different requirements, and provide different benefits. See, e.g., Ind.Code § 20–46–4–1 et seq. (2014) (regarding school transportation levies); Ind.Code § 20–46–5–1 et seq. (2014) (regarding school bus replacement levies); I.C. § 20–46–7–4 (regarding debt service levies); Ind.Code §§ 20–46–7–6, –7(2) (2010) (regarding common school loan levies); I.C. § 20–48–1–11 (regarding bond and lease rental levies or their equivalents); Ind.Code § 20–49–4–21 (2010) (regarding common school loan levies). Thus, to allow the DLGF to consider other funding sources when determining the sufficiency of an exempt debt service fund levy would be inconsistent with the General Assembly's trenchant segregation of the School Corporation's funds. See Mynsberge v. Dep't of State Revenue, 716 N.E.2d 629, 633 (Ind. Tax Ct.1999) (explaining that the Court endeavors to apply statutes in a manner that will not render other statutes meaningless, superfluous, or a nullity).

The DLGF is an administrative agency that has no common law or inherent powers, and thus, it cannot exercise power beyond that expressly or impliedly given by the General Assembly. See Ind.Code § 6–1.1–30–1.1 (2010) ; Auburn Foundry, Inc. v. State Bd. of Tax Commr's, 628 N.E.2d 1260, 1263 (Ind. Tax Ct.1994). In fact, any ambiguous grants of power generally must be resolved against the agency. See ...