School Corporations Lose Round In Charter School Takings Lawsuit

The Indiana Court of Appeals has ruled in favor of the State of Indiana and against several school corporations, Lake Ridge School Corporation, School City of Hammond, and West Lafayette, in their suit against the State. The suit challenges a statutory provision requiring them to sell school property not used for class room purposes to charter schools for $1. The Court of Appeals held that schools can’t sue the state for taking without just compensation because municipalities are just divisions of the State. Under this rationale, the State is just taking from itself.

The Court of Appeals opinion did not discuss the fact that these buildings were built with local tax dollars. In West Lafayette’s case, the citizens of the community invested in what has recently been appraised as a $6 million asset. Under this opinion, there is no recourse if the State commandeers that asset for the benefit of the State generally. The Court of Appeals only considered federal opinions that held that there was no claim under the Fifth and Fourteenth Amendments by a municipality against state government. It declined to conduct a separate analysis under the takings clause in the State Constitution: Article 1, section 21. The opinion does not grapple with Board of Commissioners of Tippecanoe County v. Lucas, 93 U.S. 108 (1876) ( “the legislature of a state possesses the power to direct a restitution to taxpayers of a county or other municipal corporation of property exacted from them by taxation, into whatever form the property may be changed, so long as it remains in possession of the municipality.” (emphasis added)

If there is no recourse under either takings clause, my position has been that this is a violation of Art. 10, §1 of the Indiana Constitution which provides requires the General Assembly provide a “uniform and equal rate of property assessment and taxation.” Happy Hollow was paid for by property taxes that were not “uniform” to those that you would find in, say, unincorporated Tippecanoe County. That non-uniform taxation is appropriate insofar as it is used to benefit the school district. It is inappropriate to use taxes peculiar to the District to benefit the State at large.  See City of Richmond v. Scott, 48 Ind. 568, 572-73 (Ind. 1874) (determining that unequal rates of municipal taxation do not violate Art. 10, §1 because “taxes for corporate purposes cannot be equal. The wants and necessities of towns and cities cannot be equal. Some require a higher and some a lower rate of taxation.) I don’t know that this issue was raised to the court. I assume this will be appealed to the Indiana Supreme Court. If the Justices say that there is no recourse under the takings clause because the State is merely taking from itself (because municipalities are merely subdivisions of the State), then perhaps subsequent litigation could challenge the $1 sale requirement based on the uniform taxation requirement.