Allen County annexation, tax dispute back at COA

An annexation dispute over allocation of tax dollars is back before the Indiana Court of Appeals, which this time could resolve the merits question of whether a city or a fire district is entitled to the disputed tax revenues.

Chief Judge Nancy Vaidik and judges Cale Bradford and Patricia Riley heard arguments Wednesday in Southwest Allen County Fire Protection district, et al. v. City of Fort Wayne, 19A-PL-510. Bradford, Riley and Judge Edward Najam previously issued an opinion in the case in August 2017, when the parties were disputing whether the litigation was within the purview of the Indiana Tax Court.

The case centers on portions of land within the Southwest Allen County Fire Protection District that were annexed by the city of Fort Wayne beginning in 1987. Both the city and the fire protection district have provided fire services to the annexed areas since then, but all of the property tax revenues have been allocated to the district.

The original appellate panel remanded the case to the Allen Superior Court,  which it determined did have subject matter jurisdiction to consider the declaratory judgment action brought by the city. The Indiana Supreme Court denied transfer, and the trial court on remand entered partial summary judgment for the city, which is seeking all future tax revenues from the annexed areas, as well as revenues dating back to when the case was filed in 2016.

Back before the COA this week, fire district attorney Maggie Smith presented two central arguments for why the summary judgment ruling should be reversed.

First, the Frost Brown Todd lawyer pointed the appellate panel to the tenets of statutory construction. The case centers on Public Law 341, she said, specifically sections 1 and 4.

Section 4, found at Indiana Code § 36-8-11-22 (1987), holds that “(a)ny area that is part of a fire protection district and is annexed by a municipality that is not a part of the district ceases to be a part of the fire protection district when the municipality begins to provide fire protection services to the area.” Section 1, I.C. 36-4-3-7 (1987), provides that a municipality that annexes territory within a fire protection district becomes liable for the debts related to fire protection, which are paid out of tax revenues.

But the crucial point, Smith said, is that Section 1 does not apply to fire protection districts created before June 14, 1987, which would include Southwest Allen. Thus, she said, the financial protections of that section would not apply to Southwest Allen.

“Therefore, if the date restriction in §36-4-3-7 is not read in conjunction with §36-8-11-22, then a municipality could use piecemeal annexation – like the City did here – to unilaterally remove all of the significant concentrated revenue sources from the Fire District, leaving insufficient resources to fund the Fire District’s continuing obligation to provide fire services to the remainder of the Fire District,” Southwest Allen argued in its appellants’ brief.

But James Fenton, arguing on behalf of Fort Wayne, told the court there is no ambiguity requiring statutory interpretation. Instead, he said the case turns on Section 4.

That statute, Fenton said, unambiguously holds that the annexation means the annexed areas are no longer part of the fire protection district. That change came about, he said, when the city annexed the territory and began providing fire services, per the statutory language.

But the court’s questions turned much of Fenton’s argument on Smith’s second point: The city is not entitled to reallocation of unchallenged tax levies because it failed to exhaust its administrative remedies. Specifically, Smith said the city should have appealed the levies first to the Department of Local Government Finance before pursuing judicial relief.

Bradford’s questions focused on this point, with the judge repeatedly asking Fenton why the city could bypass the DLGF in favor of seeking declaratory judgment. In response, the attorney said the law of the case is that the trial court has jurisdiction over the litigation.

“… (I)n its prior opinion this Court held that the trial court could ‘declare whether the City is entitled to property tax revenue derived from the Annexed Territories,’” the city’s brief says. “… Since review at the DLGF and the trial court presupposes action by the Auditor adverse to the City, and since the Auditor has not taken such action, there is simply no basis upon which the City could or should seek administrative review.”

Smith, however, said the fact that the auditor was invoked in the case means the administrative review process is likewise invoked.

Vaidik questioned Smith on the ambiguity issue, repeatedly asking her where the ambiguity is found in the statutes. The fire district’s argument seemed to focus more on absurdity than ambiguity, the chief judge said.

Smith acknowledged that absurdity is part of the case, but she repeatedly pointed to the date limitation in Section 1 as the ambiguity. If that limit is not read into Section 4, then she said municipalities could annex revenue-profitable areas and leave fire districts such as Southwest Allen to cover debts. She said the court should look to the context of the specific statutory language, as well as the broader context of the effect of the statute.

Fenton, however, maintained that there is no ambiguity and that Section 4 requires the tax revenues from the annexed areas within the fire district to be allocated to the municipality.

The full arguments can be watched here.