ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
STEVE CARTER GERALD M. BISHOP
Attorney General of Indiana Merrillville, Indiana
FRANCES BARROW JOHN S. DULL
Deputy Attorney General Merrillville, Indiana
EDWARD R. HALL
ATTORNEYS FOR AMICUS CURIAE:
JULIA BLACKWELL GELINAS
TIMOTHY KENNEDY Indianapolis, Indiana
Hall, Render, Killian, THOMAS WHEELER, II
Heath & Lyman, P.S.C. Indianapolis, Indiana
DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, ) ) Appellant (Respondent Below ), ) ) v. ) No. 49S10-0209-TA-489 ) MICHAEL GRIFFIN and ) LAKE COUNTY, ) ) Appellees (Petitioners Below ). )
March 5, 2003
Michael Griffin requested a tax refund of the real property taxes he paid toward Hospital Care for the Indigent for the 1996-1998 tax years. It was denied. Griffin appealed to the Indiana Tax Court, claiming among other things that the tax violates Article 10, §1 of the Indiana Constitution. The Tax Court agreed. It is apparent that the system devised by the legislature protects local taxpayers from open-ended liability for indigent care and also apportions local costs with local benefits. We conclude that the tax is constitutional, and thus reverse.
In his refund claim, Griffin asserted that disparity between counties rendered the HCI
tax illegal and unconstitutional. Therefore, he requested a review of his taxes
by the Department of Local Government Finance pursuant to Ind. Code. § 6-1.1-26-2.
The Department held a hearing in which Griffin claimed that the HCI tax violated Ind. Const. art. 10, §1. The Department did not pass on the constitutionality of the tax, saying this was outside of its authority; it denied Griffins refund claim. Griffin appealed the Departments determination to the Indiana Tax Court, asking the court to declare the HCI tax unconstitutional, illegal, and in excess of statutory authority. Griffin also sought an injunction preventing collection of the tax. Lake County joined in the petition as an interested party.
Following cross-motions for summary judgment, the Tax Court ruled (1) that the HCI
tax is a state tax, not a local tax, (2) that the HCI
rate formula is not limited by other code provisions limiting property tax rates
generally, and (3) that because the HCI tax rates vary from county to
county, that variance results in property not being taxed in a uniform or
equal manner as required under Article 10, § 1. Griffin, 765 N.E.2d
at 722-24. Consequently, the Tax Court granted Griffin partial summary judgment and
reversed the Departments final determination. Id. at 724.
Having decided to apply its holding prospectively only, the Tax Court denied Griffins
request for a refund. Griffin v. Dept of Local Govt Fin., 770
N.E.2d 957, 960 (Ind. Tax Ct. 2002). It also enjoined assessment or
collection of the HCI tax but stayed its injunction until January 1, 2003,
to allow the State reasonable time to revise the HCI tax rate or
consider other solutions. Id. Accordingly, a taxpayer was not entitled to
a refund of the HCI taxes due and payable before January 1, 2003.
Both sides petitioned for review. The Department challenges the ruling that the
HCI tax is unconstitutional. (Department Br. at 10-11.) Griffin and Lake
County request a review of the limited remedy the Tax Court afforded.
(Petr Br. at 2.) Griffin also challenged the HCI tax as violating
Ind. Const. art. 1, § 23, and the Equal Protection and Due Process
Clauses of the Fourteenth Amendment. The Tax Court did not address these
other claims, presumably because it viewed the Article 10 claim as dispositive.
Having granted review, we deem the issues to be: (1) whether Ind. Code
§ 12-16-14-1 et seq., which establishes the HCI tax, violates Article 10, §1;
(2) whether the Tax Court erred in refusing to order a refund; and
(3) whether the Tax Court erred in staying its injunction against collection of
the HCI tax. Our decision on the first of these resolves the
other two. We begin with a brief review of Hospital Care for
Under the present arrangement, the Department must review each countys property tax levy
under this chapter and
enforce the requirements of this chapter with respect
to that levy. Id. (citing Ind. Code § 12-16-14-4 (1998)). Each
county annually imposes the levy as a property tax for that county and
collects it like other state and county ad valorem property taxes. Ind.
Code § 12-16-14-2 (1998). Unlike the general property tax levy,
See footnote the Indiana
Code prescribes the amount of the HCI levy for each county; it is
the previous years levy increased by the percentage of growth in assessed value
of all property in the state.
Montgomery, 730 N.E.2d at 681
See footnote .
Certain statutory limits on property tax rates may be exceeded [t]o meet the
requirements of the county hospital care for the indigent fund.
Ind. Code § 6-1.1-18-3(7) (1998)).
The act establishes an HCI fund in each county. Montgomery, 730 N.E.2d
at 681. The balance of each countys HCI fund is transferred to
the state HCI fund. Id. The State administers the HCI program
and reimburses providers of emergency medical care to the indigent for their expenses
from the state HCI fund. Griffin, 765 N.E.2d at 720-21 (citing Ind.
Code § 12-16-14-8 (1998)). In 1993, the legislature modified the HCI program
to secure additional federal Medicaid funds by using $35 million of the state
HCI fund as matching money. Id. at 721.
The initial HCI levy for each county had been set at the average
of its indigent hospital care expenditures over 1984-86, with certain adjustments. Montgomery,
730 N.E.2d at 681. The HCI tax rate thus varies from county
to county because of the difference in the counties historical expenditures on hospital
services for the indigent during the years immediately before the HCI program was
Taxation is a power purely within the province of the legislature. Board
v. Holliday, 150 Ind. 216, 49 N.E. 14 (1898); Board of Commrs v.
Adler, 77 Ind. App. 296, 133 N.E. 602 (1922). As the Department
notes, the legislature has wide discretion in taxing for the general welfare.
See Yarger v. Raver, 237 Ind. 88, 143 N.E.2d 662 (1957); Morgan County
v. Seaton, 122 Ind. 521, 24 N.E. 213 (1890). The power of
the legislature regarding matters of taxation is unlimited, except as restricted by the
Constitution. Brown v. Baltimore, 186 Ind. 81, 115 N.E. 86 (1917).
One constitutional restriction on this legislative power is Article 10, § 1, which
provides, The General Assembly shall provide, by law, for a uniform and equal
rate of property assessment and taxation and shall prescribe regulations to secure a
just valuation for taxation of all property, both real and personal. (Emphasis
added.) These provisions seek to distribute the burden of taxation upon the
principles of uniformity, equality, and justice. Davis v. Sexton, 210 Ind. 138,
200 N.E. 233 (1936).
Uniformity in rate, as required by the Constitution, means that the same rate
shall apply alike to all in any given taxing district. Henderson v.
London & Lancashire Ins. Co., 135 Ind. 23, 34 N.E. 565, 568 (1893).
This means that as a general proposition, Article 10 requires that a
tax for a state purpose must be uniform and equal throughout the state,
a tax for a county purpose must be uniform and equal throughout the
county, and so forth. Board of Commrs of Jackson County v. State,
155 Ind. 604, 58 N.E. 1037, 1039 (1900); Bright v. McCullough, 27 Ind.
223, 230 (1866).
What shall constitute a taxing district, and whether it may be confined to,
or disregard, boundary lines of counties, townships, or municipalities, is a matter wholly
within the discretion of the General Assembly. Brown, 115 N.E. at 86.
The subjects and methods of taxation are legislative matters, and cannot be
disturbed so long as the method prescribed is applicable alike to all within
the prescribed class. Davis, 200 N.E. at 241. What is important
is that there be uniformity and equality of rate as to those of
the same class. Id.
Article 10 has been largely aimed at assessments. The history surrounding the drafting and ratification of the Constitution suggests that while Article 10 applies to assessments and taxation, assessment was the central concern of its proponents. Delegate Daniel Read of Monroe County, in proposing Section 1, stated:
It appears to me, that no provisions are more proper for a Constitution, than those requiring equality of assessment for purposes of taxation. The duty of the Legislature to devise a system which will secure such equality and which will cause all the property of the State to be brought under taxation, should be held forth in the Constitution.
Comments of Delegate Read (Dec. 3, 1850), Debates in Indiana Convention, 1850, Vol.
1, p. 941 (emphasis added). Including the requirements of uniformity and equality
in assessments and taxation elevated and preserved their importance as fundamental principles.
Id.; see also, Boehm, 675 N.E.2d at 323.
We reiterated the thrust of Article 10 in Kerr v. Perry School Twp.,
162 Ind. 310, 70 N.E. 246, 247 (1904): This provision of our fundamental
law clearly applies to assessments and taxation, and does not profess to control
the expenditure of money arising out of any assessment or taxation of property.
It deals with the uniformity and equal rate of assessment and taxation
of property within the taxing district or locality in which the particular tax
is levied. Thus, when the rate of property assessment is uniform throughout
a taxing district, the constitutional mandate of uniform and equal taxation has been
fulfilled. South Bend Public Transportation Corp. v. City of South Bend, 428
N.E.2d 217, 223-24 (Ind. 1981).
Delegate Read stated: There is hardly a subject connected with our State government, which has attracted more general attention among the people, than the existing inequality in the assessment and taxation of property. Id. In proposing the inclusion of Article 10, § 1 in our Constitution, Delegate Read sought to rectify the manifest injustice that results in permitting property, in the hands of the wealthy, which ought to be taxed as other property, to escape taxation altogether, or to be taxed only on a very small part of its value. Id. at 946. Such comments illustrate that the mischief being addressed was chiefly unequal assessment of properties, not the rates between counties or governmental units once the assessment was done. See e.g., Boehm, 675 N.E.2d at 322-23 (quoting comments of Delegate Borden (Dec. 4, 1850), Debates in Indiana Convention, 1850, Vol. 1, p. 946, 950).
In the end, of course, the Convention chose language covering both assessment and
taxation. Legislative history suggests intent to apply a more muscular restraint on
Of course, Article 10 does not even use the words state or local.
Instead, it commands that assessment and taxation be uniform and equal.
Article 10 challenges have typically involved taxes levied and spent by a locality
or by the state government. The HCI tax is levied to fulfill
a responsibility shared by the state and the county. Indeed, this joint
effort produces additional funds from the federal government to be used also for
the general welfare of the people.
The nature of a tax is determined by its operation and incidence rather
than by legislative title or designation. See Wright v. Steers, 242 Ind.
582, 179 N.E.2d 721 (1962). On this basis, the HCI tax cannot
be simply classified as a local or state tax because the facts surrounding
the tax and its operation demonstrate that it is part of a combined
effort by local, state, and federal governments.
As the Department observes, financing health care for indigent persons has historically been
recognized as a local responsibility. (Department Br. at 15.) During the
early decades under our present Constitution, this Court noted, Every county shall relieve
and support all poor and indigent persons lawfully settled therein, whenever they shall
stand in need thereof. Seaton, 24 N.E. at 213.
It is each countys responsibility to establish an HCI fund consisting of a
property tax levy in each county. Ind. Code § 12-16-14-1. While
the state manages the fund, the county fiscal body imposes the tax annually
on all the taxable property of the county and collects it as other
state and county
ad valorem property taxes are collected. Ind. Code §
Finally, the HCI tax now plays a role in Medicaid, itself a joint
activity of the federal and state governments. Essentially, the federal government reimburses
the states for Medicaid expenditures on the basis of a formula tied to
the per-capita income in each state. Ashley County Medical Center v. Thompson,
205 F. Supp.2d 1026, 1030 (E.D. Ark. 2002).
The federal share of Medicaid expenditures, known as Federal Financial Participation, or FFP,
varies from fifty to eighty-three percent of a states total Medicaid expenditures.
Id. The Medicaid statute requires only that each State plan provide for
financial participation by the State equal to not less than 40 per centum
of the non-Federal share. Id., citing 42 U.S.C. § 1396a(a)(2).
As the Thompson court observed, local units of government are also allowed to
fund Medicaid. The portion of a States Medicaid expenditures not covered by
federal matching funds is properly referred to as the non-Federal share, and sixty
percent of the non-Federal share of a states Medicaid expenditures may be funded
by sources other than the State. Id.
The combined efforts of state, local, and federal governments to advance the welfare
of the indigent suggest to us that the HCI tax is not solely
for state or county purposes, but to satisfy a joint responsibility. It
seems inadequate to test the constitutionality of the HCI program simply by asking
whether the property tax portion is state or local.
Before HCI, a county was responsible for the necessary costs of care, but
there was no limitation on the amount of necessary costs a county might
have to bear. Ind. Code § 12-5-6-6 (1998). Taxpayers
who lived in a county with a higher percentage of indigent residents risked
responsibility for very significant expenses for medical care.
Because of this open-ended burden, the legislature made certain changes to the program
in 1986 so as to reduce the counties burdens. (Amicus Curiae Br.
at 5-6.) For the first time, the amount of a countys financial
obligation was capped.
Id. at 6.
The amount of a countys financial responsibility for indigent medical care was calculated
via a formula that took into account that countys actual HCI expenditures from
Id. By definition, the limit of a countys financial obligation
under the HCI program was not influenced by the HCI payment experience of
any other county. Id. This formula remains in place today.
Local Taxes Always Vary. The theory of every republican government is that
taxes should be levied equally, but this is impossible, even in the simplest
states of society. State ex rel. Lewis v. Smith, 158 Ind. 543,
547, 63 N.E. 25, 27 (1902). The difficulty becomes more and more
pronounced as civilization becomes more complex, because the circumstances and pursuits of the
people become more diversified. Id. A just and perfect system of
taxation, said Chancellor Kent, is yet a desideratum in civil government. Id.
(citing 2 Kent, Comm. 332). Perfectly equal taxation, it has again been
said, will remain an unattainable goal as long as laws and government and
men are imperfect. Id.
We recognized in Bright, 27 Ind. at 229-30, that the wants of towns
and cities cannot be equal. Some require a higher, and some a
lower, rate of taxation. Id.; see also, Robinson v. Schenck, 102 Ind.
307, 1 N.E. 698 (1885). Article 10 simply intended that the uniformity
and equality of rate should be co-extensive with the territory to which the
tax applies. Bright, 27 Ind. at 229-30. In like fashion, the
wants of counties cannot be equal either, thus requiring varying rates of taxation
Even Delegate Read acknowledged the aspirational nature of requiring uniformity and equality by
implying that he did not expect the full achievement of absolute and precise
exactitude: I do not suppose, sir, that these inequities can be corrected
by the Constitution, nor even wholly by the laws. But I would
lay down the rule in the Constitution. Comments of Delegate Read (Dec.
3, 1850), Debates in Indiana Convention, 1850, Vol. 1, p. 946.
Article 10 does not require that the rate of assessment shall be uniform
and equal for all purposes throughout the State; and we think its meaning
clearly is that the rate of assessment and taxation must be uniform and
equal throughout the locality in which the tax is to be levied.
Bright, 27 Ind. at 230. Based on this precept, we are
hard pressed to see the constitutional evil in a program involving money from
three levels of government that sets the rate of local contribution so that
it varies in harmony with expenses for indigent health care in the local
area. Pursuant to its broad discretion, the General Assembly properly decided that,
for purposes of financing indigent health care, the counties were not similarly situated
and varied the tax burden accordingly.
We addressed the issue of varying taxes among towns and counties in Kent
v. Town of Kentland, 62 Ind. 291, 292 (1878). In that case,
we upheld statutes that authorized cities to collect a school tax of persons
who lived outside the city limits, if their children were sent to school
within the city. We held that this system did not conflict with
Article 10, because throughout the state it operated alike on all persons in
the same circumstances. Id. at 292. Justice Horace Biddle wrote:
We can see nothing unconstitutional in any of these acts. They are uniform and equal in the rate of assessment and taxation, operate throughout the State, and upon all persons in the same circumstances, alike. Of course, the facts upon which these laws act are not equal and uniform, but continually vary; and a municipal law can no more act without facts, than the law of gravitation can act without matter. The laws, by which counties and townships levy and collect taxes for their own use, are uniform and equal, yet the rates of assessment and taxation in one county or township, as compared with another county or township, are not uniform and equal, and may vary from year to year. Those changes in fact do not affect the uniformity and equality of the law.
Similarly, in Wright v. House, 188 Ind. 247, 121 N.E. 433 (1919), we
found no constitutional violation in a statute requiring the State and counties to
share the expense of highway improvements in those counties. There, we stated:
The fund to be provided in any county under the provision of the act to pay its part of the costs of the improvement of highways is raised by a general tax on the property of the county levied and collected as other taxes are levied and collected. The fact that the tax rate in counties where extensive improvements are made under the law may be greater than the tax rate in other counties where no improvements are made, or in counties where the improvements thereunder are less extensive, does not signify that the rates of taxation are not uniform within the meaning of the Constitution. Each county is a separate unit for the purpose of taxation, and it cannot be maintained that, within the county making the improvement, the tax levy is unequal.
Id. at 437.
By contrast to the present scheme of approximate balance between local tax burden
and local benefit, Griffin proposes a single state-wide rate the revenue from which
would be deployed wherever services were rendered. This would provide a mathematical
equality of burden, of course. In light of the historic rule of
local finance for local service in this field, we are not persuaded that
the Constitution prohibits the legislature from matching burden with benefit.
The legislatures 1993 decision to use some HCI revenue for this purpose is
illustrative. Some $35 million per state fiscal year of the state HCI
fund is now transferred to the Medicaid indigent care trust fund to be
used to leverage federal Medicaid dollars.
See footnote P.L. 277-1993 Section 82; (
R. 694). Allowing these funds to go through the Medicaid program generates
more money for medical care provided by Indiana hospitals by leveraging approximately two
additional federal dollars for every one local dollar contributed. (Department Br. at
8.) Undoubtedly, a portion of the additional Medicaid funds make their way
to Lake County hospitals. The General Assembly decided that if this Medicaid
revenue program generated more than $45 million in federal matching funds in a
fiscal year, then the excess fund, up to $18 million, would be returned
to the State HCI fund annually. P.L. 277-1993; (Department Br. at 8).
In 1995, the legislature revised the HCI program again eliminating the physical transfer
of monies used to procure federal Medicaid matching funds back to the state
HCI fund for payment of HCI hospital claims. Instead, it used the
$35 million appropriated from the state HCI fund,
See footnote to make lump-sum payments variously
referred to as Medicaid payments to hospitals in lieu of HCI payments or
HCI Add-On.See footnote
Amounts remaining in the state HCI fund were to be used to reimburse
non-hospital indigent care providers,
e.g., physicians. (Department Br. at 9.)
See footnote Under the
1995 amendments, the hospitals received lump sum payments in addition to their base
in-patient payment rate. This was based on HCI payments during fiscal year
1992 divided by the hospitals total Medicaid patient days during that period.
See Ind. Code § 12-15-15-8 (as amended 1995) (repealed 1998). Money in
the HCI fund at the end of the state fiscal year may not
revert to the state general fund. Ind. Code § 12-16-14-9. The
1995 changes caused the HCI fund balance to grow to approximately $17 million.
Most subsequent legislative efforts have further ameliorated Griffins complaint about his countys disproportionate
share of HCI tax. The General Assembly reduced Lake Countys share of
the property tax levy by $4,000,000. Ind. Code § 12-16-14-3.4. It
also reduced St. Joseph Countys share by $1,000,000. Ind. Code § 12-16-14-3.7.
The legislature added Ind. Code § 12-15-15-9 specifically aimed to address concerns about
disparity in payments between some counties HCI contributions and the reimbursements of providers
within those counties. P.L. 126-1998 Section 5. This section, which is
retroactive to the 1997-98 fiscal year, required the Family and Social Services Administration
(FSSA) to prepare a formula that minimizes the difference between the aggregate amount
paid under this section to all hospitals in a county for a state
fiscal year and the amount of the countys HCI property tax levy for
that state fiscal year.
Id. Between the effects of federal leveraging
and the impact of this formula, an even greater amount of money was
returned to Lake County providers than to providers in other counties. Specifically,
in April 1999, by operation of the HCI county equity payment methodology developed
by FSSA, the State forwarded Lake County hospital providers HCI county equity payments
totaling $6,757,188 for the States 1998 fiscal year. (R. at 749.)
In its November 1992 report, the Indiana Commission on State Health Policy characterized
the HCI program as underdefined and misaligned. It noted:
Indiana spent approximately $33 million in total county funds for providing emergency services under the Hospital Care for Indigent (HCI) Program. The program is inadequate in addressing the health care needs of the uninsured in Indiana. If Indiana were to use this money under the Medicaid program, the state would have approximately $66 million more to serve the health care needs of Indianas uninsured .
Indiana Commission on State Health Policy, Hoosier Health Reform at 21-24 (Nov. 1992) (quoted in R.M. Haycox, A year of Change for our Health Care System, 1992 Survey of Recent Developments in Indiana Law, 26 Ind. L. Rev. 1003, 1012 (1993)). This is exactly what the legislature chose to do.
In the end, the question that is posed by the foregoing facts is:
Arent Griffin and his fellow property tax payers better off with the
Medicaid leveraging than without it?
See footnote The question answers itself, but we will
pause to lay out the answer anyway.
Lake County residents historically received much more HCI service than residents in other
Moreover, the HCI program cannot be examined in isolation because disproportionate share hospital (DSH) payments, a related part of Medicaid, are also relevant here. Through DSH, Lake County providers have received significantly more reimbursements than those in many other counties. (R. at 695-96.) When DSH is taken into account, the total benefits received outweigh the tax levy. For example, in state fiscal year 1995, Lake County hospitals and providers received $27,755,978 in DSH and HCI reimbursements compared with an HCI tax levy of $14,320,445. (R. at 699, 708.) For state fiscal year 1996, Lake county hospitals and providers received $26,928,506 in DSH and HCI reimbursements compared with an HCI tax levy of $15,242,100. Id.
Furthermore, during the fiscal year 1998, the total amount collected by the HCI
program statewide was $144,313,918. (R. at 148.) The total amount of
HCI and Medicaid reimbursements paid statewide during that fiscal year was $52,231,742.
Id. During that period, Lake County taxpayers paid $16,931,455 in HCI tax.
Of the reimbursements made during that year, however, $17,682,517 was allocated to
Lake County. Id. Thus, Lake County ended with a positive balance
for state fiscal year 1998 of $751,062.
In comparing the proportions of Lake Countys HCI contributions and reimbursements with the
statewide contributions and reimbursements, a differential of 4% exists. Nevertheless, as demonstrated
above, Lake County has received more than what it has contributed. The
HCI tax formula has thus been effective in allocating the tax burden according
to the costs it has incurred. Put another way, the tax is
proportionate to the expenses.