Luebke v. Ind. Dep't of Local Gov't Fin.

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ALICE LUEBKE, TINA HUGHES, AMANDA SCHEITLIN, and ANN CORNEWELL, Petitioners, v. INDIANA DEPARTMENT OF LOCAL GOVERNMENT FINANCE, ALLEN COUNTY, INDIANA (an Indiana municipality), ALLEN COUNTY BOARD OF COMMISSIONERS, being F. NELSON PETERS, THERESE M. BROWN, and RICHARD BECK, in their official capacities only, and the ALLEN COUNTY, INDIANA BUILDING CORPORATION, Respondents.

No. 24T-TA-00007

Tax Court of Indiana

September 13, 2024

ON APPEAL FROM A FINAL DETERMINATION OF THE DEPARTMENT OF LOCAL GOVERNMENT FINANCE

ATTORNEY FOR PETITIONERS: JAMES P. FENTON ATTORNEY AT LAW Fort Wayne, IN

ATTORNEYS FOR RESPONDENTS: THEODORE E. ROKITA ATTORNEY GENERAL OF INDIANA J. DEREK ATWOOD TRENT D. BENNETT DEPUTY ATTORNEYS GENERAL Indianapolis, IN

MARK J. CRANDLEY BARNES & THORNBURG LLP Indianapolis, IN

WELCH SPECIAL J.

A coalition of Allen County taxpayers is objecting to the Allen County Board of Commissioners' plan to build a new jail challenging the legality of a lease approved by the Department of Local Government Finance (the "DLGF").^[1] These taxpayers contend that the lease is unlawful because the statutory framework for county leases does not permit the sale-leaseback of historical buildings long owned by the county, such as the venerable Allen County Courthouse. They further argue that the jail's construction cannot proceed because a resolution lacks the statutorily required determination of need for the Courthouse sale-leaseback. The Commissioners, however, assert that their plan to build the new jail must move forward, arguing that the taxpayers lack standing to challenge it and that the lease and resolution comply with the law. Finding no merit in the Commissioners' standing claim or the taxpayers' challenge to the lease and the resolution, the Court holds the lease is legally valid for purposes of the disputed statutory framework and affirms the final determination of the DLGF.

FACTS AND PROCEDURAL HISTORY

The Allen County Jail, which started operations in 1981, has undergone several renovations and currently has 732 permanent beds. (See Cert. Admin. R. at 446.) In recent years its occupancy has ranged from 700 to 900 inmates, regularly exceeding its maximum occupancy of just 586 beds.^[2] (See Cert. Admin. R. at 390, 448.) The overcrowding issue, along with concerns about understaffing and safety threats, led to legal action, resulting in the United States District Court for the Northern District of Indiana holding in 2022 that the conditions at the Jail violated inmates' constitutional rights. See Morris v. Sheriff of Allen Cnty., No. 1:20-CV-34 DRL, 2022 WL 971098, at *1 (N.D. Ind. Mar. 31, 2022). The court mandated corrective measures and ordered the Commissioners to propose a long-term solution. Id. at *16-17.

In response to the court's ruling, the Commissioners engaged Elevatus, a local architectural firm, to evaluate options for addressing the Jail's issues. (See Cert. Admin. R. at 388.) Elevatus's report analyzed several solutions, including expanding the current Jail, establishing a regional facility, outsourcing inmates to nearby county jails, and constructing a new jail at a different location. (See Cert. Admin. R. at 384-421.) The Commissioners ultimately determined that building a new jail was the best course of action. (See, e.g., Cert. Admin. R. at 204-73.)

The new jail was projected to take at least three years to build, with an estimated cost of roughly $320 million. (See Cert. Admin. R. at 379, 408.) The Commissioners undertook several steps to move this project forward. For instance, they established the "Allen County, Indiana Building Corporation" to assist the County in financing its facilities by acquiring, owning, constructing, renovating, and leasing both existing and new county buildings. (See Cert. Admin. R. at 284-96.) In addition, they planned to convey the historic Courthouse to this newly formed entity, which would then lease the property back to the County during the new jail's construction. (See Cert. Admin. R. at 284-89.) The sale-leaseback plan for the Courthouse sought to reduce overall costs by avoiding approximately $28 million in capitalized interest expenses during the initial construction period, thereby lowering the lease payments for the new jail. (See Cert. Admin. R. at 195-96, 506-07 ¶ 67, 516 ¶ 104.) The Building Corporation and the Commissioners executed a lease-purchase agreement ("the Lease") to implement the sale-leaseback plan and formalize the terms for leasing the new jail. (See Cert. Admin. R. at 21-44.) Furthermore, the Commissioners reviewed two reports that analyzed additional financing options for the new jail, primarily through either an adjusted gross income tax (the "Jail LIT") or an ad valorem property tax. (See Cert. Admin. R. 24-25, 368-83, 512-13 ¶¶ 91-94.)

Opposition to the new jail project soon emerged from the Allen County Residents Against the Jail and others, proposing a vertical expansion of the existing Jail instead of building a new facility. (See, e.g., Cert. Admin. R. at 470-73.) Over ninety Allen County taxpayers filed a petition with the County Auditor, raising multiple objections to the Lease. (See Cert. Admin. R. at 1-20, 218.) The Auditor certified the petition to the DLGF on December 15, 2023, and a public hearing was held on January 4, 2024. (See Cert. Admin. R. at 490 ¶¶ 16-18, 520-664.) On February 22, 2024, the DLGF issued a final determination rejecting all the taxpayers' objections and denying their petition. (Cert. Admin. R. at 488-519.)

On March 21, 2024, Alice Luebke, Tina Hughes, Amanda Scheitlin, and Ann Cornewell (the "Objectors") initiated this original tax appeal, seeking to terminate the Lease and halt the construction of the new jail. (See Pet'rs' V. Pet. Jud. Rev. Final Determination of the Dep't Loc. Gov. Fin. Dated Feb. 22, 2024 ("Pet'rs' Pet."), ¶¶ 1838.) The Commissioners then moved to compel the Objectors to post a bond, arguing that delays in the new jail project due to this lawsuit could add over $91 million in costs for Allen County taxpayers. (See Resp'ts' Br. Supp. Mot. Require Pl. Post Bond Pursuant to Ind. Pub. Lawsuit Statute at 1-2.) The Objectors filed a brief in response to the Commissioners' motion for bond on May 8, 2024, followed by the Commissioners' reply brief on May 15, 2024. The Objectors then submitted additional documents regarding the motion on June 10, 2024. After an evidentiary hearing and oral argument on June 12, 2024, the Court denied the Commissioners' motion for bond on July 5, 2024. See Luebke v. Indiana Dep't of Loc. Gov't Fin., Case No. 24T-TA-00007, 2024 WL 3310423 (Ind. Tax Ct. July 5, 2024).

On June 28, 2024, the Objectors submitted a brief on the merits. The Commissioners and the DLGF filed separate response briefs on July 12, 2024, with the Objectors reply following on July 26, 2024. On August 9, 2024, the Court held an oral argument on the merits in Allen County. During the argument, the Objectors requested that the Court take judicial notice of the DLGF's final determination, the bond hearing transcript, and the related briefs. (See Oral Arg. Tr. at 9-10.) The Court granted this request. (See Oral Arg. Tr. at 15.)

In addition, the Objectors moved for the Court to admit or take judicial notice of the four exhibits previously admitted during the bond hearing. (Oral Arg. Tr. at 9-10.) These exhibits were (1) a lease dated December 1, 2023, between the Building Corporation and the Commissioners; (2) a letter dated January 18, 2024, written by Mark J. Crandley; (3) a letter dated September 23, 2023, written by the Honorable Frances C. Gull; and (4) a copy of the disputed resolution. (Notice, June 13, 2024.) The Commissioners promptly objected to the Court taking judicial notice of Judge Gull's letter, arguing that it was not part of the certified administrative record. (See Oral Arg. Tr. at 10-13.)

The Court sustained their objection, clarifying that, unlike the bond proceedings, it is now limited to considering only the evidence within the certified administrative record when reviewing the DLGF's final determination. (See Oral Arg. Tr. at 13-15.) See also, e.g., Bd. of Comm'rs of Clark Cnty. v. Indiana Dep't of Loc. Gov't Fin., 31 N.E.3d 552, 555 n.3 (Ind. Tax Ct. 2015); State Bd. of Tax Comm'rs v. Gatling Gun Club, Inc., 420 N.E.2d 1324, 1326-29 (Ind.Ct.App. 1981) (discussing the limited nature of the scope of judicial review of administrative agency decisions in general). While three of the four exhibits were part of the record, Judge Gull's letter was not. Consequently, the Court cannot consider Judge Gull's letter or any portion of it presented in the parties' briefs.^[3]

STANDARD OF REVIEW

The party seeking to overturn a final determination of the DLGF bears the burden of demonstrating its invalidity. See Indianapolis Pub. Transp. Corp. v. Indiana Dep't of Loc. Gov't Fin., 988 N.E.2d 1274, 1277 (Ind. Tax Ct. 2013). Accordingly, the Objectors must demonstrate to the Court that the DLGF's final determination is arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or in excess of statutory authority. See id.

DISCUSSION

The Objectors' challenge to the legality of the Lease centers on two alternative arguments based on Indiana Code section 36-1-10-7(c) ("Section 7"), which they contend should halt the new jail's construction. First, the Objectors claim that Section 7 does not permit the sale-leaseback of the Courthouse. (See Pet'rs' Br. Supp. [Pet'rs' Pet.] ("Pet'rs' Br.") at 2-6.) Alternatively, they argue that the County Council failed to determine in Resolution No. 2023-11-16-01 (the "Resolution") that the sale-leaseback of the Courthouse is "needed," as required by Section 7. (See Pet'rs' Br. at 3-5.) The Commissioners and the DLGF...