Court split on local government tax case

WASHINGTON -- The U.S. Supreme Court appeared split Wednesday over whether Indianapolis treated some homeowners fairly when it forgave the outstanding debt their neighbors owed for sewer hookups.

But how the court decides the case brought by a handful of residents could impact the ability of governments around the country to change the way they collect taxes to pay for services.

During oral arguments, the more liberal members of the court seemed to agree with the city that it chose a rational way of transitioning to a new method of paying for sewers — even if that meant some people in the neighborhood ended up paying more than their neighbors did under the old system.

Justice Stephen Breyer said the city didn't want to continue administering the old program and didn't want to go back in history and refund prior payments.

"Now that may not be perfect, but it sounds reasonable, doesn't it?" Breyer said.

Mark Stancil, the attorney for the homeowners, responded that it's not reasonable because it rests on the faulty premise that the city's other options would have been an administrative nightmare.

"You don't believe in the administrative nightmare exception to the equal protection clause?" conservative Justice Antonin Scalia said facetiously to Stancil.

Other conservative justices hammered away at the city's defense that it didn't want to continue to administer two systems — the old one and the new one. Paul Clement, the attorney representing the city, said it would cost $200,000 to upgrade and maintain the collection system for the funding method that was ended in 2005.

Justice Samuel Alito said that isn't a factor unless it would cost more to collect the outstanding debts than the amount that would be collected.

Clement responded that the administrative burden is legitimate because the city wanted to close the office that ran the old program and make a clean break.

But Alito said the decision sounded more like political expediency.

"What they have done is shift the cost of the sewers from a small interest group that is able to presumably exert some political power to everybody," Alito said. "And the ordinary person who has to pay a little bit more every month doesn't get all fired up about it."

Under the new system the city approved in 2005, homeowners pay a flat $2,500 fee to connect to a sewer line and monthly sewer rates and stormwater fees increased for all residents.

Under the old system, homeowners being connected to a sewer line were assessed an equal share of the project's cost. They could pay the full amount at once, or pay in installments with interest over 10, 15 or 30 years.

When the city decided to move to the new system and forgive outstanding debts under the old program, the Northern Estates owners were only about one year into the payment process. Those who'd paid up front had paid $9,278 versus the $309 paid by those who had chosen the 30-year installment plan.

If the Supreme Court sides with the homeowners, Clement said the city should be able to recharge the homeowners whose debt was forgiven, rather than issuing refunds to those who paid in full.

Justice Ruth Bader Ginsburg agreed that the city should have that option. But Scalia disagreed, arguing that people wouldn't file equal protection lawsuits if they weren't going to benefit personally.

If the court sides with the homeowners, that could restrict how local governments issue tax relief. If it sides with the city, that could give governments more leeway to issue tax relief without much judicial oversight.

But Steven Schwinn, a law professor who analyzed the case for the American Bar Association, said the case isn't likely to have a big impact other than resolving a split among state supreme courts. Because the issue is a narrow one, it's a poor vehicle for the court to say much new about the equal protection clause and about the basis for determining if local governments acted rationally, according to Schwinn.