ATTORNEYS FOR PETITIONERS: ATTORNEYS FOR RESPONDENTS:
PETER L. BENJAMIN JEFFREY A. MODISETT
Merrillville, Indiana Attorney General of Indiana Indianapolis, Indiana
GERALD M. BISHOP
GRECO PERA & BISHOP ANGELA L. MANSFIELD
Merrillville, Indiana Deputy Attorney General
JOHN S. DULL BETH H. HENKEL
Merrillville, IN Deputy Attorney General
TROY MONTGOMERY, LAKE COUNTY ) et al.,See footnote 1 ) ) Petitioners, ) ) v. ) Cause No. 45T10-9807-TA-00084 ) STATE BOARD OF TAX COMMISSIONERS, ) INDIANA FAMILY & SOCIAL SERVICES ) ADMINISTRATION, CONNIE NASS, ) Auditor, STATE OF INDIANA, )TIM BERRY,See footnote 2 Treasurer, )
NOT FOR PUBLICATION
motion in a published order. See Lake County Council v. State Bd. of Tax Comm'rs,
706 N.E.2d 270 (Ind. Tax Ct. 1999). In that order, the Court concluded that it had
subject matter jurisdiction over this case and therefore denied the respondents' motion
to dismiss. However, the Court dismissed all but one of the governmental petitioners
(Lake County) because they did not have standing to challenge the constitutionality of
the HCI property tax levy.See footnote
Although the Court found that Lake County did not have standing to challenge the propriety of the HCI property tax levy, Lake County did have an legally cognizable interest in the outcome of this case. If the HCI property tax levy is ultimately declared unconstitutional, Lake County could be liable for a large number of refunds. See id. at 281. This could potentially overwhelm the Lake County General Fund. Accordingly, the Court held that due to this possibility, Lake County could remain in this litigation to protect its interest in the integrity of the Lake County General Fund.
On February 10, 1999, the respondents, via motion, asked this Court to reconsider its order in light of a modification to an Indiana Supreme Court decision. The Court agreed to reconsider its order, and accordingly, stayed all proceedings in this case pending the Court's reconsideration of its order. On April 14, 1999, the Court issued an order denying the respondents' motion to reconsider. See Montgomery v. State Bd. of Tax Comm'rs, 708 N.E.2d 936 (Ind. Tax Ct. 1999). The Court lifted its stay of the proceedings. On April 29, 1999, the respondents filed a motion requesting that
the Court certify its denial of the respondents' motion to dismiss and motion to
reconsider for interlocutory review. On May 10, 1999, the Court certified its denial of
the respondents' motions for interlocutory review. On June 18, 1999, the Indiana
Supreme Court granted interlocutory review of the Court's denial of the respondents'
In the meantime, on April 20, 1999, the petitioners renewed their petition to enjoin collection of the HCI property tax pending the outcome of this original tax appeal. On that same day, Lake County, pursuant to Trial Rule 22, filed a petition seeking to interplead the funds it collected pursuant to the HCI property tax levy instead of forwarding those funds to the State. On May 28, 1999, the Court received evidence and heard argument on the renewed petition to enjoin and the petition to interplead.
monies placed into the county HCI fund are forwarded to the state HCI fund. See Lake
County Council, 706 N.E.2d at 273 (citing Ind. Code § 12-16-14-6 (1998)).
The property tax component of the HCI program is imposed by the fiscal body of each county and is collected like any other ad valorem property tax. See id. (citing Ind. Code § 12-16-14-2 (1998)). In imposing the property tax, the county fiscal body has no discretion as to the rate of the tax because the tax levy is determined by a statutory formula. See id. (citing Ind. Code § 12-16-14-3 (1998)). The State Board reviews a county's property tax levy for compliance with the statutory mandate. See id. (citing Ind. Code § 12-16-14-4 (1998)).
As it stands today, the HCI program is the product of an evolutionary process. It is therefore helpful to review how the HCI program has evolved over the years. Prior to 1987, county departments of public welfare were liable for reimbursements to providers of emergency medical care to the indigent under HCI program. See Ind. Code § 12-5- 6-6 (1982) (repealed 1992). In discharging this liability, counties were required to budget for anticipated HCI expenditures (and all other public welfare expenditures except poor relief) and were required to impose a property tax levy sufficient to meet these anticipated expenditures. See generally Ind. Code §§ 12-1-11-1 to -3 (Supp. 1986) (repealed 1992). This system led to widely varying levy rates for payment of HCI costs (which were, of course, a function of the value of the taxable property in the particular county and the anticipated HCI expenditures of that county) between the counties.
Effective 1987, the Indiana General Assembly substantially changed the HCI
system. County and state HCI funds were created. The county HCI funds received the
monies generated by bank taxes, motor vehicle taxes and a dedicated property tax
levy. See Ind. Code § 12-5-6-16(a) (Supp. 1986) (repealed 1992). The monies in the
county HCI fund were required to be forwarded to the state HCI fund on a monthly
basis. See Ind. Code § 12-5-6-16(h) (Supp. 1986) (repealed 1992). Payments to
providers of emergency medical care to the indigent became the responsibility of the
state department of public welfare and were made from the state HCI fund. See Ind.
Code § 12-5-6-6 (Supp. 1986).
Because payment to providers was now a state responsibility,See footnote 5 the method of calculating the HCI property tax levy changed as well. No longer did the counties have to anticipate how much they would be obligated to spend under the system. Instead, the property tax levy for each county was to be calculated by a formula that took into account historical HCI expenditures in the particular county and the average statewide assessed value growth quotient.See footnote 6 See id.; see also Lake County Council, 706 N.E.2d at 273 n.2. This formula for calculating the property tax levy preserved the differences in property tax rates for payment of HCI costs between the counties. For the taxes first due and payable in 1987 and 1988, the formula was adjusted based on actual HCI expenditures within each county, see Ind. Code § 12-5-6-16(e) (Supp. 1986) (repealed
1992); however, for the subsequent years, the HCI property tax levy was calculated by
multiplying the previous year's levy by the statewide average assessed value growth
quotient. See Ind. Code § 12-5-6-16(d) (Supp. 1986) (repealed 1992). This statutory
formula, though recodified, continues until the present day. See Ind. Code § 12-16-14-
3 (1998); Lake County Council, 706 N.E.2d at 273 n.2. Thus, from the 1989 tax year
until the present tax year the HCI property tax levy for each county has not been
updated based on actual HCI expenditures in the particular county. Moreover, the
county fiscal bodies in imposing the HCI property tax have absolutely no discretion in
determining the HCI property tax levy. See Lake County Council, 706 N.E.2d at 273,
In 1993, one year after the General Assembly recodified the HCI program, see Act of Feb. 4, 1992, No. 2, § 10, 1992 Ind. Acts 177, 396-410, the General Assembly substantially changed the HCI program to allow $35,000,000 of the state HCI fund to be used to procure federal Medicaid matching funds, or in the language of the appropriations bill, special Medicaid revenue. See Act of June 30, 1993, No. 277, § 8, 1993 Ind. Acts 4555, 4642-43. This money was appropriated before any payments to providers were made from the state HCI fund. ID. Once the federal Medicaid matching funds were received, the budget director was required to return any funds received in excess of $45,000,000 to a maximum of $18,000,000 to the state HCI fund. This money was then used to pay HCI providers under Ind. Code § 12-16-7-4 (1998). The special Medicaid revenue generated by using state HCI monies was used to
make payments to disproportionate share hospitalsSee footnote
in lieu of HCI payments. See Ind.
Code Ann. § 12-15-16-1 to 19-10 (West 1994 & Supp. 1998); Memorandum From Alan
Gossard, Senior Fiscal Analyst to Rep. Thomas Alevizos 2-3 (July 13, 1998); see also
Ind. Code § 12-15-15-8 (1998) (repealed 1998).
In 1995, the General Assembly once again changed the HCI program. See Act of May 1, 1995, No. 156, § 1, 1995 Ind. Acts 3120, 3120-21. This change eliminated the return of monies used to procure federal Medicaid matching funds to the state HCI fund, for payment of HCI claims. Instead, the $35,000,000 appropriated from the state HCI fund, see Act of May 11, 1995, No. 340, § 8, 1995 Ind. Acts 4292, 4388-89, was used to make Medicaid payments to hospitals in lieu of HCI payments. See Ind. Code § 12-15-15-8 (as amended 1995) (repealed 1998). Under the 1995 amendment, the hospitals received lump sum payments in addition to their base inpatient payment rate. This payment was based on HCI payments during fiscal year 1992 divided by the total Medicaid patient days during that period. See id.
By 1998, the state HCI fund had grown to approximately $17,000,000, and in that year, the General Assembly once again tinkered with the HCI program. The $17,000,000 balance was used to leverage more federal Medicaid matching funds. In addition, the General Assembly mandated certain intergovernmental transfers from hospitals to the Medicaid indigent trust fund created under Ind. Code § 12-15-20-2 (1998) (amended 1998), to procure additional federal Medicaid matching funds and to
pay the state's share of disproportionate share payments. See Ind. Code Ann. § 12-15-
1-1.1 (West Supp. 1998); see also Letter from Frank J. Sabatine. Chairman, State
Board of Tax Commissioners, to Troy Montgomery, President, Lake County Council
and Ms. Frances S. DuPey 3 (June 5, 1998) (discussing intergovernmental transfers in
fiscal year 1995). Furthermore, the General Assembly provided that under Ind. Code
Ann. § 12-15-15-9(c), increased payments will be made to hospitals located in counties
that have a higher HCI property tax levy.See footnote
Finally, the General Assembly disqualified
providers eligible for payment under section 12-15-15-9 for payments from the state
HCI fund. See Ind. Code Ann. § 12-16-7-11 (West Supp. 1998).
As can be seen, the HCI program has evolved over the past thirteen years. What was once a means for counties to pay for emergency medical care for indigent persons within those counties, is now a critical part of Indiana's system of publicly funded health care. Though the HCI program has undergone significant changes, the property tax levy formula has not. As noted above, because the HCI property tax levy formula is based on an extrapolation of historical HCI costs in each particular county, there is a disparity between the HCI property tax rates of Indiana's ninety-two counties. The effect that this disparity has on Lake County taxpayers is demonstrated by the fact that in 1997, Lake County taxpayers, who owned property totaling 6.46% percent of the total assessed value in Indiana paid 41% of the HCI property taxes collected. (Aff'd of William Washienko, Ex. D). The petitioners have filed an original tax appeal to change
this. They believe that Lake County taxpayers are entitled to have an HCI property tax
levy that is uniform throughout Indiana.
(1) the issues raised by the original tax appeal are substantial;
(2) the petitioner has a reasonable opportunity to prevail in the original tax
(3) the equitable considerations favoring enjoining the collection of the tax outweigh the state's interest in collecting the tax pending the original tax appeal.
All three conditions must be satisfied before the Court may enjoin the collection of a tax. Therefore, the Court, if it finds that one of these conditions is not present in this case, must deny the petition to enjoin the collection of a tax. In this case, the Court finds that the petitioners have not demonstrated that the equitable considerations
favoring enjoining the collection of the HCI property tax in Lake County outweigh the
state's interest in the collection of that tax pending the outcome of this original tax
appeal. Consequently, the Court must deny the petitioners' petition.
In evaluating the equitable considerations surrounding a petition to enjoin the collection of a tax, this Court has drawn on the general body of case law concerning preliminary injunctions. American Trucking Ass'ns v. State, 512 N.E.2d 920, 923 (Ind. Tax Ct. 1987). Under that body of case law, the Court must consider whether the petitioners will suffer irreparable harm if the injunction is not granted, balance the harm to the petitioners if the petition is not granted with the harm to respondents if the relief is granted, determine whether the public interest will be adversely affected, and determine whether the petitioners can post sufficient security to cover costs and damages that the respondent may suffer if the respondent is wrongfully enjoined. See American Trucking Ass'ns, 512 N.E.2d at 923.
As a starting point for its analysis, the Court notes, as have the respondents, that at this moment, this case only involves a few taxpayers. Therefore, assuming arguendo that the petitioners are indeed correct in their assertions that the HCI property tax levy is unconstitutional, vindication of their claims will only involve a small amount of money. They therefore cannot be heard to complain about how much money Lake County taxpayers will lose if the HCI property tax levy continues without an injunction from this Court.
In making this determination, the Court is aware of the fact that this case has the potential to become a class action and that the petitioners may become class
representatives. However, the petitioners have not cited any authority requiring the
Court, in evaluating a petition for a preliminary injunction, to consider the possibility of
harm to putative members of a class that has not yet been certified. Moreover, the
Court notes that certification of this case as a class action is not a foregone conclusion.
If on interlocutory appeal, the Indiana Supreme Court holds that the refund procedures
provide the petitioners with an adequate remedy, Lake County taxpayers, before they
can be a part of a class action, will be required to comply with all statutory procedures
for filing an original tax appeal. See Ind. Code § 6-1.1-15-15 (1998). As a result, the
certification of the putative class is not so inevitable that the Court must, in fairness,
consider the possibility of harm to Lake County taxpayers in general. Consequently,
the Court must reject the petitioners attempt to pick up the cudgel for Lake County
taxpayers. At this point, they are only fighting this battle for themselves.See footnote
Although the amount of money required to vindicate the petitioners' claims (if those claims are ultimately successful) is small, the impact of enjoining the collection the HCI property tax from the petitioners could be great. As discussed above, HCI property taxes are used to procure federal Medicaid matching funds. As pointed out by the respondents, the receipt of federal Medicaid matching funds is extremely important. The public interest (which, incidentally, includes the interest of Lake County hospitals) would be harmed by any action by the Court to jeopardize the ability of the state to
continue to procure federal Medicaid matching funds.See footnote 10 Moreover, the Court notes that Indiana receives federal Medicaid matching funds in excess of those used to procure those funds. At present, Indiana receives almost two federal dollars for each state HCI dollar. Therefore, if funds are unavailable, the state will irrevocably lose two dollars for
every dollar that is not collected.See footnote
In addition, the petitioners, if they are ultimately
successful, will receive an adequate remedy. See Lake County Council, 706 N.E.2d at
278 n.15. Thus, the harm to the state if the injunction is granted outweighs the harm to
the petitioners if it is not, and as a result, the equitable considerations do not favor the
issuance of an injunction. This is so notwithstanding the large budget surplus the state
is now fortunate enough to enjoy. Any loss in revenue is a harm whether there is a
surplus or not.
Consequently, the Court is forced to conclude that one of the statutory prerequisites for the enjoining of the collection of the HCI property tax is not present in this case. Thus, the Court is powerless to provide the relief the petitioners seek, and the Court DENIES the petitioners' petition.
seeks to deposit $14,194, 695See footnote
in HCI property tax revenue that is required to be
transferred to the state HCI fund today in an interest bearing account pending
resolution of this case. Lake County contends that this will protect Lake County's
ability to give refunds to Lake County taxpayers if the HCI property tax is declared
Historically, the purpose of interpleader was protect parties from double liability by allowing them to deposit a stake with a court and force all claimants to that stake to litigate their claims in one action. See Indianapolis Colts v. Mayor and City Council of Baltimore, 741 F.2d 954, 957 (7th Cir. 1984), cert. denied, 470 U.S 1052, 105 S.Ct. 1753, 84 L.Ed.2d 817 (1985). The remedy of interpleader is equitable in nature. See id.; 2 William F. Harvey, Indiana Practice, Rules of Procedure Annotated 273-74 (1987). As a result, general principles of equity will inform the Court in its determination of whether interpleading the HCI property tax revenues is proper in this case.
Lake County's argument is simple. Lake County points out that if a class of all Lake County taxpayers is certified that class will have claims to the approximately $14,000,000 that Lake County seeks to interplead. Lake County then points to the state's claim to those very same funds pursuant to the requirement that the funds be forwarded to the state. Lake County then states that it could be subject to double
liability, thus giving it the right to interpleader. See Ind. T. R. 22(A).
Lake County is correct in that payment of the HCI property tax revenues may not discharge its future liability for property tax refunds and that there are serious questions about how taxpayers, if the HCI property tax levy is declared unconstitutional, will be made whole. See Lake County Council, 706 N.E.2d at 277-79, 281. In addition, although the putative class has not been certified, Lake County can point to the possibility of certification of the class as justifying interpleader.
However, this is not the end of the inquiry. The Court notes that it is dealing with tax revenues, tax revenues that are to be forwarded to the state. This is not a typical interpleader action as where a life insurance company seeks to interplead two claimants to insurance proceeds. See, e.g., United Farm Bureau Family Life Ins. Co. v. Fultz, 176 Ind. App. 217, 375 N.E.2d 601 (1978). For the reasons described above, granting interpleader in this case would necessarily interfere with the administration and funding of the Indiana's public health care system. This, the Court will not do. As stated above, interpleader is an equitable remedy. In equity, the Court will not grant relief which is against the public interest. See Schwartz v. Holycross, 83 Ind. App. 658, 149 N.E. 699, 701 (1925); see also Wells v. Auberry, 429 N.E.2d 679, 683 (Ind. Ct. App. 1982) (Courts of equity may, and frequently do, go much further both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.) (quoting Yakus v. United States, 321 U.S. 414, 440-41, 64 S.Ct. 660, 675, 88 L.Ed. 834 (1944)) (emphasis added). For these reasons, the Court DENIES Lake County's petition for interpleader.
Thomas G. Fisher
Judge, Indiana Tax Court
Peter L. Benjamin
1000 East 80th Place, Suite 514S
Merrillville, IN 46410
Gerald M. Bishop
2115 West Lincoln Hwy.
Merrillville, IN 46410
John S. Dull
8300 Mississippi Street, Suite F
Merrillville, IN 46410
Jeffrey A. Modisett
Attorney General of Indiana
By: Angela L. Mansfield
Beth H. Henkel
Deputy Attorneys General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, IN 46204-2770
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