City Tax Flexibility Backed by U.S. Supreme Court in Ruling

The U.S. Supreme Court buttressed the flexibility cities and states have to make changes in their financing systems, ruling in favor of Indianapolis in a tax fight with a group of homeowners.

The justices, voting 6-3, said the city didn’t violate the Constitution when it forgave sewer-system debt owed by some homeowners while refusing to give refunds to those who had already paid.

“The Constitution does not require the city to draw the perfect line nor even to draw a line superior to some other line it might have drawn,” Justice Stephen Breyer wrote for the court. “It requires only that the line actually draw be a rational line.”

The fight stemmed from the city’s effort to end its system of funding sewer projects through taxes on properties that benefit. The city used those rules to pay for the so-called Brisbane/Manning project in 2002, assessing the owners of 180 parcels $9,278 each. The city said the property owners could pay either upfront or in monthly installments.

In 2005, the city switched to a system that charged residents only $2,500 for new connections and made up the difference by increasing usage fees on all city residents. As part of that change, the city said property owners who were paying the Brisbane/Manning assessment in installments didn’t have to pay off their balances.

The owners of 31 parcels sued, saying they had paid their assessments in full and were being treated unfairly. The suit said the differing treatment violated the Constitution’s guarantee of equal protection.

The case is Armour v. Indianapolis, 11-161.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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