Lead Opinion
¶ 1. Following the deregulation of the electrical power markets, the Vermont General Assembly in 1998 and again in 1999 temporarily “froze” the grand list valuation of hydroelectric generating facilities for property tax purposes. The “freeze” set the valuation of these properties at the 1997 values for the tax years 1998, 1999, and 2000. Plaintiff USGen New England, Inc. (USGen), the owner of hydroelectric power plants affected by the freeze — including the Bellows Falls facility located in the Town of Rockingham — filed an appeal challenging the 1999 valuation of this property as well as the constitutionality of the freeze.
¶ 2. The freezing of the grand list valuation for all hydroelectric generating facilities was originally effected by the enactment of section 78 of Act 71 of 1998, see 1997, No. 71 (Adj. Sees.), § 78, eff. March 11,1998, which froze the listed values at
¶ 3. Although the 1998 act did not include an express statement of legislative purpose, the stated purpose for the 1999 extension was as follows:
[T]o provide additional time for the owners of hydroelectric generating facilities and the municipalities in which they are located to more accurately determine the fair market value of these special and unique utility assets in a changing and deregulated utility market, for greater coordination with and assistance from the Department of Taxes, to permit expert independent appraisals, and to facilitate and continue negotiations regarding determination of fair market values.
1999, No. 49, § 23(a), eff. June 2,1999.
¶ 4. In September 1998, six months after the initial freeze went into effect, USGen purchased from New England Power Company, Inc. (New England Power) several hydroelectric plants, including the Bellows Falls station in Rockingham. This purchase consisted primarily of the generation assets of these facilities, with New England Power retaining the transmission assets.
¶ 5. At the time of the initial freeze, the Bellows Falls hydroelectric facility was owned entirely by New England Power. The property — consisting of electric generation assets, transmission assets, and other land — was listed on the Rockingham grand list at a single value of $94,000,000 for the tax year 1997, as it had been for several years previous. As part of the sale of this facility, USGen and New England Power agreed to allocate the 1998 property taxes on the $94,000,000 grand list value by a ratio of 87% to USGen for the generation assets and other land, and 13% to New England Power for the transmission assets. This allocation was communicated to the Town of Rockingham (the Town). USGen and New England Power proceeded to pay the 1998 property taxes on the Bellows Falls facility based on this allocation.
¶ 6. Subsequently, in preparing its April 1,1999 grand list, the Town again applied the 87%/13% allocation ratio to the frozen value. According to the Town, it used the 87%/13% ratio based on (a) USGen’s and New England Power’s allocation of taxes in connection with the 1998 sale; (b) a statement by USGen’s representative; (c) a letter to the Town from New England Power; and (d) testimony under oath given on August 23,1999 by representatives of New England Power and USGen to the Rocking-ham Board of Civil Authority. The Town also used the 87%/13% allocation in preparing its April 1,2000 grand list. Thus, as a result of the freeze and its
¶ 7. In September 1999, three months after the General Assembly extended the freeze, USGen appealed the April 1, 1999 Rockingham grand list valuation of the Bellows Falls facility to the Windham Superior Court, pursuant to 32 V.S.A. § 4461.
¶ 8. As part of discovery, each of the parties hired experts to appraise the value of the generating facility and “other land” — land not associated with either the generating assets or the transmission assets — at the Bellows Falls property. Although USGen and the State now appear to disagree over the actual range of values arrived at by these experts,
¶ 9. On June 15, 2001, the Town filed a motion for judgment on the pleadings pursuant to V.R.C.P. 12(c), arguing that the legislative acts imposing the freeze were constitutional. USGen opposed the motion, and filed a motion of its own seeking relief from the court’s order staying all discovery in the declaratory judgment action. In that motion, USGen sought approval to conduct discovery respecting the appraisal of the other land at the Bellows Falls facility and the allocation of values between USGen and New England Power.
¶ 10. After hearing arguments on the Town’s motion, the court issued a partial judgment on the pleadings on July 23,2001. The court ruled that the legislative acts were constitutional and that “they preclude the court from determining a value for the hydro-electric facilities for the April 1, 1999 listing other than that established
¶ 11. Four days later, USGen submitted an “offer of proof’ and request for evidentiary ruling, arguing that “[t]he only reasonable method” to allocate the frozen April 1999 grand list value between USGen and New England Power was to determine the fair market value of all the frozen assets as of April 1,1999, and use the relative values of the generation assets, transmission assets, and other land at that time to determine what percentage of the frozen 1997 grand list value is attributable to USGen. USGen asked the court to thereby allow it to present expert testimony relating to this method of calculation. The court denied USGen’s request in an August 8,2001 entry order, stating that “the Legislature has clearly precluded litigation of just this issue [i.e. the fair market value of the frozen assets].”
¶ 12. The parties subsequently entered into a stipulation confirming the 87%/13% allocation — “[without waiving any claims or defenses” — for the purpose of allowing the court to issue a final judgment order and thus allowing the case to be appealed. The parties also stipulated that the value of USGen’s lands not associated with the generation facilities was $645,000, leaving the value of USGen’s Bellow Falls generation facility affected by the freeze at $81,135,000. The trial court issued a final judgment order on August 27,2001 based upon these stipulations and its prior rulings. USGen then appealed the July23,2001 partial judgment on the- pleadings and the August 8, 2001 entry order to this Court. The declaratory judgment action and the tax appeal were later consolidated on appeal.
¶ 13. USGen’s first argument on appeal is that the trial court erred in dismissing on the pleadings the facial constitutional challenge to the legislative acts imposing the freeze. USGen contends that property owners in Vermont are entitled by the Common Benefits and Proportional Contribution Clauses of the Vermont Constitution, Vt. Const. Ch. I, Arts. 7 and 9, and the Fourteenth Amendment of the United States Constitution to have their property valued in the same way as all other property in the state is valued, i.e., based on fair market value. See 32 V.S.A. § 3481(1) (defining “appraisal value” as fair market value). The trial court rejected these challenges and held that the freeze was constitutional. We agree with the trial court that Acts 71 and 49 are constitutional on their face.
¶ 14. On review, this Court will affirm a judgment on the pleadings if the
¶ 15. The more appropriate analysis to apply here, where there is a constitutional challenge to a legislative act that temporarily alters the relative tax burden of a particular class of taxpayers, is the jurisprudence of the Proportional Contribution Clause, Vt. Const. Ch. I, Art. 9. Article 9 provides in relevant part: “That every member of society hath a right to be protected in the enjoyment of life, liberty, and property, and therefore is bound to contribute the member’s proportion towards the expence of that protection____” The Proportional Contribution Clause imposes no greater restriction on governmental action than the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. See Sckievella v. Dep’t of Taxes,
The limits are quite wide. Thus, reasonable schemes of taxation must have flexibility, and some difference of treatment between citizens is virtually inevitable.
Sckievella,
¶ 16. We find that our decision in Alexander v. Townof Barton controls here. That case involved a taxpayer challenge to a “rolling reappraisal” method of assessment in which every two years the town would reassess only that class of property determined by the State Tax Department to be “most in need” — i.e., where on average there was the greatest percentage discrepancy between the listed value of the properties in the class and their fair market value. The taxpayers argued, inter alia, that this “rolling reappraisal” method violated the Proportional Contribution Clause. Applying the standards set out above, we concluded that the town’s actions had a rational basis — “keeping appraisals as current as possible within the resources available by attacking the worst underassessment problem areas.” Alexander,
¶ 17. Decisions that have followed Alexander are entirely consistent with it. In Nordlinger v. Hahn,
The appropriate standard of review is whether the difference in treatment between newer and older owners rationally furthers a legitimate state interest. In general, the Equal Protection Clause is satisfied so long as there is a plausible policy reason for the classification, the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker, and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational. This standard is especially deferential in the context of classifications made by complex tax laws. [I]n structuring internal taxation schemes the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation.
Id. at 11 (internal citations omitted). Based on this deferential standard, we have no problem concluding that the freeze is constitutional. See also Regan v. Taxation with Representation of Washington,
¶ 18. More directly on point is the Connecticut Supreme Court case of Stafford Higgins Indus., Inc. v. City of Norwalk,
¶ 19. The court applied the rational basis test set out in Nordlinger and found the city’s action to be constitutional. According to the court, the rational basis for the city’s action “was to implement, in an orderly manner, the changes to the existing property taxation system anticipated to be enacted in the next legislative session as a result of the recommendations of the property tax reform commission.” Id. The court also agreed with the trial court’s finding that the purpose of the city’s action was “not to burden commercial property owners but to alleviate the burden on single-family homeowners, that is, ‘in spite of, not ‘because of the burden which would be assumed by nonsingle-family property owners.” Id. Since the legislation had a rational basis and the taxpayer had not demonstrated any discrimination
f 20. Here, the State argues that the freeze has a rational basis: ensuring temporary stability of tax revenues in a number of small Vermont towns, in the face of difficulties in determining the fair market value of hydroelectric facilities brought about by the “changing and deregulated utility market.” 1999, No. 49, § 23(a), eff. June 2,1999. We agree with the trial court that this purpose “is certainly legitimate and important, and is arguably compelling.”
¶ 21. Probably because utility property tends to be unique, or close to it, and the methods for valuing it are complicated and frequently contested, see, e.g., New England Power Co. v. Town of Barnet,
We do not here attempt to outline all the elements and appraisal approaches which may be utilized in arriving at fair market valuation. They are appropriate subjects for expert testimony to be properly evaluated by the trial court. The court has noted that the cost approach, the income approach, and the market data approach offer the parties means of determining fair market value. Original cost less depreciation may be a method of arriving at fair market value if it reflects present costs. These original costs, however, must be trended, usually by some reliable index, so that they will in effect become present reproduction costs. Such costs less appropriate depreciation then become an element of valuation to be considered by the court in its appraisal.
The production capacity of the facility, as limited by size or applicable regulation, and the market value of the power it produces, would be limiting factors on valuation, since no one would buy or construct a facility whose product could not be sold at the price dictated by its cost. Similarly, if the site is unique and the demand for the power produced is high, the market value to a hypothetical buyer (hypothetical because of the monopoly enjoyed by the owner) might well be enhanced beyond reproduction costs. Distance from market, with resulting transmission costs, could also be a factor.So could the nature of the taxing community itself. A very rural, perhaps unorganized, community with few fiscal demands could be expected to produce lower tax demands than a more urban community. This could well affect fair market value.
There is no rigid formula which can be used to arrive at the correct valuation of NEPCO’s property, situated as it is in two states and being a part of a large integrated system. Nor is specific weight required to be allocated to the several appraisal approaches or a combination of them which may be utilized in arriving at fair market value. Judgment is the keystone. If the court has considered and assigned such weight to each value indicator as appears to be fair, just and equitable according to the evidence presented, this Court will not disturb its conclusions on appeal absent errors of law.
Town of Barnet,
¶ 22. Against this background, we consider the circumstances of this case. Although the record contains limited detail, a subject we address below, we understand that hydroelectric facilities of the size and location of those owned by USGen formerly operated under price regulation so that their income was quite predictable. The price was deregulated so that the owners were free to sell the power on the market for the highest price available. Exactly what that price might be over the long term is apparently a subject of much debate among the experts in the field. It is possible that as a result of deregulation a hydroelectric facility became more or less valuable than it was under price regulation.
¶ 23. The large discrepancies in the several appraisals of the Bellows Falls facility mentioned above, see n.5, supra, demonstrates the uncertainty of the valuations of these plants following deregulation. Without the freeze, the small Vermont towns where such plants were located would have been forced to undertake a lengthy, expensive and unpredictable appraisal process, with a significant portion of their tax revenues at risk. Faced with revenue uncertainty, they could not effectively plan their budgets and set their tax rates. The freeze removed this instability by allowing towns ample time to accurately assess these properties and to plan for potential changes in valuations and any resulting budget impacts. As we found in Alexander, Vermont municipalities cannot be expected to reappraise all property in the town every year.
¶ 24. USGen contests the trial court’s determination that the legislative purpose behind the freeze was to ensure budgetary stability in the face of an uncertain power market is undermined by the situations that the legislative acts specifically exempted from the freeze. As an example, USGen points to the exception for a town-wide reassessment and argues that such a reassessment does nothing to overcome
¶ 25. A closer analysis of the three exceptions, however, reveals that they are entirely consistent with the legislative purpose found by the trial court. The first two exceptions — where a tax stabilization agreement existed that predated the legislation and where the owner of the hydroelectric facility entered into an agreement with the municipality not to reduce the grand list value — were allowed by the Legislature because such agreements avoid the complicated and uncertain reappraisals of the hydroelectric facilities and thus ensured budgetary stability. As for a town-wide reassessment, the legislative expectation was likely that such a comprehensive appraisal would be conducted not by volunteer listers, but instead by retained experts who would be capable of valuing the hydroelectric facilities along with other unique properties in the town. Moreover, a comprehensive reappraisal allows the town to look at the tax burdens of all taxpayers and not just a few.
¶ 26. Under rational basis review, USGen has the burden of establishing that the freeze legislation “[cannot] be reconciled with any conceivable state of facts that might lend it rationality.” In re Property of One Church St.,
¶ 27. USGen argues that even if the freeze is valid under the Proportional Contribution Clause of the Vermont Constitution, it violates the Common Benefits Clause, Ch. I, Art. 7, under the standard recently approved in Baker v. State,
¶ 28. As we held in Baker, the Common Benefits Clause “is intended to insure that the benefits and protections conferred by the state are for the common benefit of the community and not for the advantage of persons “who are a part only of that community.’ ” Id. at 212,
Though it may be an oversimplification, the goal of the Proportional Contribution Clause is protection of the individual from unfair government action, while the aim of the Common Benefit Clause is to protect the state from favoritism to individuals and to remind citizens of the sense of compact that lies at the heart of constitutional government.
The amended Burlington Charter stands on a different footing. Though it creates classifications of taxpayers, its goal is to raise total City revenues and benefit the City’s inhabitants as a whole____It surely will benefit some taxpayers more than others, but “[s]o long as the public purpose is paramount and the enactment reasonably related to that purpose, the statute is not made invalid thereby.” Vermont Woolen Corp. v. Wackerman,122 Vt. 219 , 226,167 A.2d 533 , 538 (1961).
One Church St.,
¶ 29. Although we have occasionally decided taxpayer challenges under the Common Benefits Clause, in doing so we have never deviated from the rational basis standard we apply under the Proportional Contribution Clause. See, e.g., Oxx v. Dep’t of Taxes,
¶ 30. The challenge here is of the type we refused to consider in One Church Street under the Common Benefits Clause. The purpose of the freeze is not to benefit a particular part of the community. Instead its purpose is to allow an opportunity for accurate appraisal of hydroelectric properties in light of fundamentally changing economic conditions and to maintain the revenue streams of towns hosting hydroelectric facilities while the reappraisal goes on. There is no “preferential benefit to any class of persons.”
¶ 31. USGen also argues that the trial court, in arriving at what it believed to be the legislative purpose behind the freeze, engaged in legislative fact-finding that was improper on a motion for judgment on the pleadings since there was no record in the case to support the assertions made by the court. We note again in analyzing this argument that the trial court was not constrained by the facts presented by the parties when determining whether there is a rational basis behind a legislative act; instead, “we must look at any of the purposes that are conceivably behind the statute.” Smith v. Town of St. Johnsbury,
¶ 32. Although the initial freeze provision did not contain a statement of intent, the extension provision, set out at the beginning of the opinion, did explain its purpose, and that explanation served as much of the basis for the court’s decision. Moreover, many of the “facts” considered
¶ 33. For the reasons stated above, we reject the facial challenge to the constitutionality of the freeze legislation. We consider next USGen’s argument that the legislation is unconstitutional as applied to it, or at least that the superior court erred in rejecting this challenge without factual development. USGen challenges the freeze in two respects: (1) USGen has been unconstitutionally singled out because only its hydroelectric plants were affected by the freeze and (2) because the legislative acts effecting the freeze contain no language specifying how the allocation of the frozen value between USGen and New England Power was to occur and USGen was not allowed to show fair market value of the frozen assets to determine their allocation, the listers were given unconstitutionally broad and standardless discretion in making such an allocation.
¶ 34. USGen’s first “as applied” challenge is apparently based solely on its claim that only its hydroelectric generating facilities were frozen in value as a result of the legislation. This challenge was not specifically set out in USGen’s complaint. Although USGen has reiterated this claim on a number of occasions in the trial court and in this Court, it has not explained why that fact is significant. Moreover, it has not contested the purpose of the freeze legislation as contained in the extension provision, and, in fact, has explained its purpose in similar terms. Thus we fail to see how this fact alone changes our constitutional analysis.
¶ 35. USGen’s second “as applied” challenge is centrally linked to the decision of the superior court to restrict the evidence USGen could offer to determine the allocation of the value of the frozen assets between it and New England Power. USGen has been somewhat schizophrenic about this decision. On the one hand, it has criticized it as wrong. On the other hand, it has not challenged it directly. Instead, it has relied upon the decision as showing that the freeze statute is irrational and that the allocation process is standardless. Although the evidentiary decision cannot now be reviewed directly because USGen has stipulated to an allocation for 1999, we address it because of its relationship to the constitutional challenges.
¶ 36. Following its decision dismissing the constitutional claims based on USGen’s complaint, the court ruled that it would take evidence on the allocation of the frozen value between USGen and New England Power. The court ruled on what type of evidence that it would accept:
With respect to the issue of allocation of the grand list value between USGen and [New England Power], the parties should present evidence about the allocationof property rights between USGen and [New England Power], as well as about how the Towns have already allocated the grand list values between USGen and [New England Power] in their listings for fiscal year 1999-2000, what those allocations were based on, and why they are or are not accurate. Again, no revaluation of the power plants on April 1,1999 is necessary.
The court rejected USGen’s subsequent request to be allowed to present expert testimony on fair market value as of April 1,1999 for the purposes of allocating the grand list value, stating that “the Legislature has clearly precluded litigation of just this issue [i.e. the fair market value of the frozen assets]” and that “[t]o the extent the proportional division is subject to dispute, evidence as to the structure of the agreements between USGen and [New England Power], together with the representations made to the municipalities and the State, ought to be determinative.”
¶ 37. As USGen points out, nothing in the freeze legislation purports to deal with the allocation issue. Nor is it necessary to hold that the allocation was frozen along with the grand list value in order to make the freeze legislation effective. See Elkins v. Microsoft Corp.,
¶ 38. We now turn to USGen’s constitutional arguments and note at the outset that its argument has changed somewhat from that presented to the superior court. Its argument to that court was that the court had to determine the fair market value of USGen’s hydroelectric assets in order to allocate the frozen value between it and New England Power, which had retained some hydroelectric assets subject to the freeze. Since fair market value had to be determined for allocation
¶ 39. Because the court excluded the fair market value evidence, US-Gen has raised the new constitutional argument here that the statutory scheme is invalid because it contains no standard to determine the allocation of the value of the frozen assets. See In re Handy,
¶ 40. USGen’s final constitutional challenge is that the freeze legislation violates USGen’s right to a remedy under Chapter I, Article 4 of the Vermont Constitution by barring judicial review of appraisal value for three years. We disagree. Chapter I, Article 4, which provides that “[ejvery person within this state ought to find a certain remedy, by having recourse to the laws, for all injuries or wrongs which one may receive in person, property or character,” ensures that Vermonters have access to the judicial process. Shields v. Gerhart,
Affirmed.
Notes
USGen originally brought two separate challenges to the 1999 grand list valuations, one involving the Bellows Falls facility located in Rockingham and one involving the Harriman facility located in Whitingham. These two challenges, despite being separately docketed, were heard together in the Windham Superior Court, and the trial court’s orders pertained to both. However, although both cases were appealed to this Court at the same time, the case involving the Whitingham facility was settled before the appeal was heard, and the Whitingham facility appeal was thereby dismissed. Thus, we address here only the challenge to the grand list valuation of the Rockingham facility.
The extension legislation also provided that if the taxable value of the hydroelectric generating facilities is more or less than the frozen value after the freeze expired, “any resulting adjustments in the taxable value of such property shall be phased in over the following period of years, not to exceed ten, until the full taxable value is reached.” 1999, No. 49, § 39(c). USGen challenged this phase-in provision in its complaint, but the superior court ruled that the challenge was premature and did not address it on the merits. USGen has not appealed that ruling.
New England Power also appealed the April 1,1999 Rockingham grand list valuation of its assets at the Bellows Falls facility. The Town and New England Power subsequently agreed in a July 2000 settlement that the 1999-2000 grand list valuation of the New England Power assets at the Bellows Falls facility would equal 13% of the 1999 assessed valuation of the entire property owned by both USGen and New England Power. The settlement agreement also provided for a reduced assessment of the New England Power portion of the property in 2000-2001.
According to USGen, the expert valuations ranged from $42,259,499 (USGen’s experts) to around $63,000,000 (both the State and the Town of Rockingham’s experts). In contrast, the State claims that the valuations ranged from $28,865,356 (USGen’s low estimate) to $96,250,000 (the Town’s high estimate). While this appeal was pending in this Court, the Windham Superior Court tried the appeal of USGen’s 2001 listed value, the first year after the expiration of the freeze. The court found the value to be approximately $90,300,000.
The Town argued that USGen waived its right to challenge the allocation by failing to respond to the Town’s letter inviting USGen’s participation in the allocation process. The trial court ruled, however, that “this argument is fact-based and therefore cannot appropriately be decided on motion for judgment on the pleadings.”
USGen attempts to distinguish the Stafford Higgins ease on the grounds that the Connecticut statute provided a judicial remedy to the owner of any property who alleged that its out-of-state assessment was “manifestly excessive,” Stafford Higgins Indus.,
During a December 17,2000 status conference, counsel for USGen stated the following:
[A]s the Court may know from reading the papers, the price of energy is bouncing around quite a bit in the short-term. It’s an issue that a lot of people disagree on and the question of how these plants generate and dispatch power and what the revenue that will be generated by that power is really the central one that everyone’s got to deal with.
The court also based its denial of USGen’s request on its conclusion that USGen had “failed to satisfy the requirements of V.R.[E.] 103(a)(2) as respects a true offer of proof, due to insufficient specificity regarding the expert testimony to be proffered.” An offer of proof must be specific and concrete, showing what evidence will be introduced, the particular circumstances covered, and the purpose of the offer. R.E. Bean Constr. Co. v. Middlebury Assocs.,
Concurrence Opinion
¶ 41. concurring. There is wisdom in the rule that a court should be “quite certain of its ground before making a categorical finding that there is no permissible objective served by a state statute or that there is utterly no sensible or discernible relation between the legislature’s classification and a legitimate end.” In re Paris Air Crash,
¶ 42. This and other courts have consistently upheld the power of the state to divide different kinds of property into classes and assign them different tax burdens so long as the divisions and classifications are neither arbitrary nor capricious. See, e.g., Nordlinger v. Hahn,
¶ 43. The first task, therefore, is to discern the purpose of the legislation. In making this determination, we are naturally inclined to credit the Legislature’s own declaration of intent, if one is available. See, e.g., Anderson v. State,
¶ 44. As the Court notes, the 1999 act that extended the freeze on grand list values of hydroelectric generating facilities stated that its goals were to provide additional time for towns to accurately determine fair market value in the recently deregulated market; to allow for greater
¶ 45. Although the goal expressed by the Legislature is to ensure budgetary predictability in an uncertain utility market, the act’s exemptions suggest that its purpose is actually to prevent any reductions in the assessed value of hydroelectric facilities for the period of the freeze, to allow market values to catch-up with grand list values in the event of any short-term market depression. Surely if the primary goal was budgetary predictability the act would have exempted any stipulated hydroelectric grand list value instead of only those agreements not to reduce value. Similarly, the challenge of appraising a hydroelectric facility that sells below grand-list value during the freeze period would not seem any greater than appraising a hydroelectric facility as part of an overall townwide reassessment, yet only the latter is exempted from the freeze, again suggesting an underlying intent to prevent any reduction in grand list value.
¶ 46. While the law on its face thus exhibits a rather tenuous connection with its stated objective, a reviewing court’s inquiry is necessarily directed “toward the nexus between a classification and such purposes as it may serve____Thus, if any reasonable policy or purpose for the legislative classification may be conceived of, the enactment will be upheld.” Andrews v. Lathrop,
discern no constitutional infirmity in the law. Therefore, I concur in the judgment, but I do so on the real legislative policies underlying the statute.