ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEES
James P. Fenton INDIANA FINANCE AUTHORITY
Alan VerPlanck Phillip R. Scaletta
Kathryn A. Brogan Michael A. Wukmer
Fort Wayne, Indiana Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE ATTORNEYS FOR APPELLEES
WILLIAM N. STANT INDIANA DEPARTMENT OF TRANSPORTATION
James Alexander Tanford MITCHELL E. DANIELS, GOVERNOR OF
Bloomington, Indiana INDIANA, AND TIM BERRY, TREASURER OF
INDIANA
Rudolph Wm. Savich Steve Carter
Bloomington, Indiana Attorney General
Thomas M. Fisher
Solicitor General
Julie A. Hoffman
Deputy Attorney General
Indianapolis, Indiana
ATTORNEYS FOR APPELLEES
STATEWIDE MOBILITY PARTNERS AND
ITR CONCESSION
Jeffrey C. McDermott
Libby Y. Mote
Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE
INDIANA ASSOCIATION OF CITIES & TOWNS
Michael A. Howard
Noblesville, Indiana
______________________________________________________________________________
In the
Indiana Supreme Court
_________________________________
No. 71S00-0606-CV-204
STEVE BONNEY, JOHN GIBSON, ANITA
GIBSON, TOM PIETRZAK, RANDY NACE,
CLARINDA NACE, JUNE NACE , AND THE
CITIZENS ACTION COALITION OF INDIANA,
INC., AN INDIANA NOT FOR PROFIT CORP.,
Appellants (Plaintiffs below),
v.
INDIANA FINANCE AUTHORITY, STATEWIDE
MOBILITY PARTNERS, LLC, ITR CONCESSION
COMPANY, LLC, THE INDIANA DEPARTMENT OF
TRANSPORTATION, MITCHELL E. DANIELS,
GOVERNOR OF INDIANA, AND TIM BERRY,
TREASURER OF INDIANA,
Appellees (Defendants below).
_________________________________
Appeal from the St. Joseph Superior Court, No. 71D07-0604-PL-00144
The Honorable Michael P. Scopelitis, Judge
_________________________________
On Petition To Transfer Pursuant to Indiana Appellate Rule 56(A)
_________________________________
June 20, 2006
Boehm, Justice.
The plaintiffs contend that the 2006 law commonly referred to as the “Major Moves” leg-
islation violates several provisions of the Indiana Constitution. The trial court determined that:
1) the claims raised in most counts of the complaint in this case are governed by
the Public Lawsuit Statute;
2) the plaintiffs’ challenges presented no substantial issue, and therefore the
Public Lawsuit Statute requires that a bond be posted before the claims gov-
erned by that Statute may proceed;
3) the claims raised in Counts IV and VIII were severable from the remainder of
the complaint and were not governed by the Public Lawsuit Statute; and
4) the amount of the potential loss to the public from the pendency of this law-
suit was approximately $1.9 billion.
Accordingly, the trial court ordered that the Public Lawsuit portions of the complaint be dis-
missed unless the plaintiffs posted a bond in that amount.
The plaintiffs appeal that order, raising five issues. They contend that this lawsuit is not
subject to the Public Lawsuit Statute for two reasons:
1) the Indiana Finance Authority is not a “municipal corporation” as that term is
used in the statute; and
2) the statute applies only to acquisitions, not dispositions, of public works.
2
Plaintiffs also contend that even if the Public Lawsuit Statute applies to their claims, that statute
permits a lawsuit to go forward without a bond if the plaintiffs present substantial issues for trial.
Plaintiffs contend they have presented three substantial challenges to House Enrolled Act 1008
under the Indiana Constitution:
1) the provisions granting funding to seven counties constitute “special” legisla-
tion in violation of Article IV, Section 23;
2) the provisions for the proceeds of the lease of the Indiana Toll Road to be ap-
plied to purposes other than retirement of “public debt” violate Article X, Sec-
tion 2; and
3) the exemption of the Toll Road from property taxes violates the requirement
of Article X, Section 1 that the system of taxation be “uniform and equal”
subject only to exemptions for specified purposes.
The first two contentions turn solely on the language of the Public Lawsuit Statute, and
we conclude that the General Assembly intended the statute to apply to lawsuits such as this. We
also conclude that no substantial issue is raised by the plaintiffs’ three contentions that HEA
1008 violates the Indiana Constitution. The trial court’s decision as to the severability of counts
IV and VIII is not challenged on appeal. Accordingly, we affirm the order of the trial court.
Facts and Procedural History
The Indiana Toll Road runs through the seven Indiana counties along Michigan’s south-
ern border. The road is a major artery connecting Chicago and points west with destinations in
the Northeast. It was originally constructed in the 1950s by the Indiana Toll Road Commission,
which is a predecessor of one of several statutory entities that were consolidated to form the
Indiana Finance Authority (IFA) in 2005. As a result of that consolidation, IFA is the current
owner of the road.
In 2005 IFA began to explore leasing the Toll Road to a private entity and ultimately it
solicited bids from potential lessees through an auction process. The ITR Concession Company
LLC (ITR) submitted the highest bid of $3.8 billion. The transaction was contingent upon au-
thorizing legislation, and Governor Daniels signed House Enrolled Act 1008 (HEA 1008), popu-
larly known as “Major Moves,” into law in late March 2006. On April 12, 2006, ITR and IFA
executed the “Indiana Toll Road Concession and Lease Agreement.” Pursuant to its terms, IFA
agreed to terminate the current lease to the Indiana Department of Transportation (INDOT) and
3
to lease the toll road lands and facilities to ITR for a term of seventy-five years. ITR agreed to
pay rent in the amount of $3.8 billion to be paid in full on the date of closing.
HEA 1008 includes a number of provisions addressing the use of the lease proceeds. The
Act directs that any lease proceeds first be applied to retire IFA’s existing bond debt and to pay
any expenses incurred by IFA in connection with the execution and performance of the lease.
After payment of these obligations, IFA is to allocate $500 million to a “Next Generation Trust
Fund” and the remainder to a “Major Moves Construction Fund.” The Next Generation Trust
Fund is a charitable trust created by the Act to fund long-term road, highway, and bridge pro-
jects. Money in the Major Moves Construction Fund is allocated first in specific amounts to the
seven counties that the Toll Road traverses. The five counties at the eastern end of the Toll Road
(Steuben, LaGrange, Elkhart, Saint Joseph, and LaPorte) are each to receive $40 million. Lake
and Porter counties each would receive a smaller allocation because these two counties are
members of the Northwest Indiana Regional Developmental Authority, which receives separate
distributions totaling $120 million. The Act also provides that total distributions from the Major
Moves Fund for projects or purposes benefiting the seven northern counties may not be less than
34% of the lease proceeds after two adjustments. The Act allocates $179 million to the state
highway fund for preliminary engineering, purchase of right-of-ways, or construction of high-
ways and bridges, and $150 million to the motor vehicle highway account. In addition to these
specific required allocations, the Act authorizes additional distributions from the Major Moves
Fund to the state highway fund for funding any project in INDOT’s transportation plan. Based
on testimonial evidence presented by the defendants, the trial court made a factual finding that
the largest portion of the Major Moves money is allocated to INDOT to complete its ten-year
plan, which includes upgrades to U.S. Highway 31, and construction of the Ports to Ports Road,
the Hoosier Heartland Highway, and the Interstate 69 extension into southern Indiana.
On April 12, 2006 the plaintiffs filed their complaint in St. Joseph Superior Court seeking
a declaratory judgment and a permanent injunction invalidating HEA 1008 on a variety of state
constitutional grounds. The complaint named as defendants the IFA, Mitch Daniels, in his offi-
cial capacity as Governor of Indiana, Tim Berry, in his official capacity as Treasurer of Indiana,
4
INDOT, ITR, and Statewide Mobility Partners, LLC (SMP). 1 Under section 9.1(g) of the Lease
Agreement IFA made the following representation and warranty to ITR:
There is no action, suit or proceeding, at law or in equity, or before or by any
Governmental Authority, pending nor, to the best of IFA’s knowledge, threatened
against the IFA, which would have a Material Adverse Effect on (i) the operations
of the Toll Road or (ii) the validity or enforceability of this Agreement.
If there is any such litigation pending on June 30, 2006, the date of closing, and the failure to
close is not attributable to ITR, the Lease Agreement authorizes ITR to terminate the Agreement
and seek indemnification from IFA for any losses occasioned by IFA’s breach of this warranty.
Expressing concern that the plaintiffs’ complaint might trigger section 9.1(g) of the Lease
Agreement, the defendants petitioned the court to certify the plaintiffs’ complaint as a public
lawsuit under Indiana’s Public Lawsuit Statute or alternatively to dismiss the complaint. After a
hearing held May 11 and 15, 2006, the court issued an order certifying as a public lawsuit Counts
I, II, III, V, VI, and VII and the portion of Count IV challenging the establishment of local con-
struction funds and the transfer of highway operations. The court required plaintiffs to post a
bond to cover anticipated damages and costs of the public lawsuit to the defendants if the defen-
dants ultimately prevail. The amount of the bond was set at $1.9 billion, 2 and the plaintiffs were
required to post the bond within ten days of the order or risk dismissal with prejudice of their
certified counts. The court concluded that the portion of Count IV challenging provisions of
HEA 1008 related to the proposed construction of Interstate 69 and Count VIII were severable
from the remaining claims and therefore did not threaten the validity of the Act or Lease Agree-
ment. These were permitted to proceed without bond.
Plaintiffs appealed the order to the Court of Appeals on June 5, 2006. The same day, on
defendants’ motion, this Court accepted jurisdiction over the appeal under Indiana Appellate
Rule 56(A).
1
ITR made its bid on behalf of SMP. SMP is a joint venture for Cintra Concesiones de Infraestructuras
de Transporte, SA and Macquarie Infrastructure Group.
2
The trial court determined defendants’ anticipated damages and losses to be the difference between the
$3.8 billion rental payment under the proposed Lease Agreement and the estimated value of the Toll Road
for the next seventy-five years if operated by IFA. Defendants’ expert testified that the value of the Toll
Road for the next seventy-five years if operated by IFA would be $1.92 billion. The court used this figure
to calculate defendants’ anticipated damages and losses and rejected the alternative $5.35 billion figure
offered by plaintiffs’ expert.
5
Complaints challenging the Act and the Lease Agreement were filed by other plaintiffs in
LaPorte and Brown counties. The LaPorte County complaint was dismissed with prejudice on
June 8, 2006. After we accepted jurisdiction over this case, William Stant, the Brown County
plaintiff, moved for leave to appear as an amicus curiae. That motion was granted, as was the
motion of the Indiana Association of Cities and Towns.
I. Application of the Public Lawsuit Statute
The Public Lawsuit Statute, Indiana Code sections 34-13-5-1 through 34-13-5-12 (2004),
has been in place since 1967. It reflects the General Assembly’s recognition that the mere pend-
ency of a lawsuit can frustrate a project even if the claims are eventually found to be without
merit. The statute acknowledges that litigation can be deployed to delay and sometimes even
defeat public projects, and can be driven by a variety of motivations, some of which may have
little to do with the merits of the project from the perspective of the general public. 3 Indeed the
testimony of these plaintiffs offers interesting anecdotal evidence on that point. The trial court
found that one plaintiff opposed HEA 1008 because he owns a farm in Greene County (pre-
sumably approximately 200 miles from the Toll Road) and does not want the proposed extension
of Interstate 69 from Indianapolis to Evansville to go forward through his land. Of course these
plaintiffs, and all citizens, have every right to deploy whatever tools the law gives them to chal-
lenge legislation with which they disagree for whatever reason. But the General Assembly has
prudently provided for a means of quickly separating the legal wheat from the chaff to prevent
opponents of a public project from achieving by the passage of time more than the law would
give them.
The statute imposes a number of procedural rules governing public lawsuits, including
provisions that are designed to consolidate all litigation in one forum and the requirement that a
3
The purpose of the statute “is to protect the public against a ‘flood of harassing litigation’ which ob-
structs and delays public improvement at prohibitive costs and from the ‘financial damage of completely
non-meritorious litigation.’” Johnson v. Tipton Comty. Sch. Corp., 253 Ind. 460, 464, 255 N.E.2d 92, 94
(1970) (quoting State ex rel. Haberkorn v. DeKalb Circuit Court, 251 Ind. 283, 288, 241 N.E.2d 62, 65
(1968)). See also Jay M. Zitter, Annotation, Constitutionality, Construction, & Application of Statutes
Requiring Bond or Other Security In Taxpayers’ Action, 41 A.L.R. 5th 47, 2a (1996).
6
bond be posted if, as occurred in this case, the trial court determines that the claims do not meet
the statutory requirements to avoid the bond request.
“Public lawsuit” is defined by statute as:
(1) any action in which the validity, location, wisdom, feasibility, extent, or char-
acter of construction, financing, or leasing of a public improvement by a mu-
nicipal corporation is questioned directly or indirectly, including but not lim-
ited to suits for declaratory judgments or injunctions to declare invalid or to
enjoin the construction, financing, or leasing; and
(2) any action to declare invalid or enjoin the creation, organization, or formation
of any municipal corporation.
Ind. Code § 34-6-2-124(a).
The plaintiffs contend that their case is not a public lawsuit because the IFA is not a mu-
nicipal corporation and also because only challenges to the acquisition, not disposition, of public
improvements constitute public lawsuits. For the reasons explained below, we disagree with
both contentions. Accordingly, we affirm the trial court’s certification of the complaint as a pub-
lic lawsuit.
A. IFA as a Municipal Corporation
The plaintiffs argue that their complaint was erroneously certified as a public lawsuit sub-
ject to the provisions of the Public Lawsuit Statute because the IFA, as a statewide body, is not a
municipal corporation. They point to a number of authorities in which the term “municipal cor-
poration” is used to describe a unit of local government. For purposes of the Public Lawsuit
Statute, however, the General Assembly has provided a specific definition:
“Municipal corporation” for purposes of Indiana Code chapter 34-13-5, means a:
(A) local subdivision of the state; or
(B) public instrumentality or public corporate body created by state law;
including but not limited to cities, towns, townships, counties, school corpora-
tions, special taxing districts, conservancy districts, and any other local public in-
strumentality or corporation that has the right to sue and be sued;
I.C. § 34-6-2-86(1).
7
The IFA is clearly a “municipal corporation” within subsection (B) of this definition be-
cause it is created by state law and is both a “public instrumentality” and a “public corporate
body.” The statute creating IFA so states in plain terms:
There is created a body politic and corporate, not a state agency but an independ-
ent instrumentality exercising essential public functions, to be known as the Indi-
ana finance authority.
I.C. § 4-4-11-4(a) (emphasis added). 4 And, of course, this statute is a “state law” as that term is
used in the definition of “municipal corporation.” Where we have an unambiguous statutory
definition it is irrelevant how the term may be customarily used in other contexts. See St. Vin-
cent Hosp. & Health Care Ctr., Inc. v. Steele, 766 N.E.2d 699, 704 (Ind. 2002). Indeed, the Gen-
eral Assembly has defined the term “municipal corporation” differently for different purposes, 5
demonstrating that the only relevant definition for our purposes is the one provided specifically
for the Public Lawsuit Statute. Moreover, the definition seems appropriate. We can see no rea-
son, and none is offered, why the General Assembly would choose to provide greater freedom
from the risk of extended but ultimately unsuccessful lawsuits to projects of local governments
than it affords to projects it specifically authorizes.
The plaintiffs argue that the list of organizations following subsection (B) limits those
public instrumentalities and public corporations that are municipal corporations to local public
instrumentalities and local public corporate bodies because the list does not include any bodies
that operate on a statewide level. But the phrase “including but not limited to” is very familiar to
lawyers and undeniably means that what follows is inclusive, not exclusive. Moreover, the use
of the term “local” in subsection (A) indicates that subsection (B) is not restricted to “local” enti-
ties. We conclude that subsection (B) means what it says: IFA as a “public corporation” and
“public instrumentality” is a “municipal corporation.”
4
In 2005 section 4(a) was amended to add the following language:
The authority is separate and apart from the state in its corporate and sovereign capacity,
and though separate from the state, the exercise by the authority of its powers constitutes
an essential governmental, public, and corporate function.
See P.L. 235-2005 § 10.
5
See I.C. § 5-1-12-1 (“The term ‘municipal corporation’ means a county, township, city, town, or school
corporation.”); I.C. § 36-1-2-10 (“‘Municipal corporation’ means unit, school corporation, library district,
local housing authority, fire protection district, public transportation corporation, local building authority,
local hospital authority or corporation, local airport authority, special service district, or other separate
local governmental entity that may sue and be sued. The term does not include special taxing district.”).
8
B. Challenges to Public Improvements
The plaintiffs argue that the definition of “public lawsuit” in Indiana Code section 34-6-
2-124 limits the applicability of the Public Lawsuit Statute to lawsuits challenging the acquisi-
tion of public improvements. They contend that “construction” and “financing” are steps in the
creation of a public improvement, and therefore the term “leasing” should be interpreted as lim-
ited to situations where the municipal corporation is the lessee, and does not include transactions
in which the municipal corporation is the lessor disposing of the asset. As plaintiffs contend,
“leasing” is ambiguous and may apply to acts of either the lessor or lessee. We think it is unnec-
essary to resolve that issue because the plaintiffs’ argument fails to recognize that the plaintiffs’
complaint challenges much more than the “leasing” of the Toll Road. The lawsuit attacks the
“validity . . . wisdom, feasibility . . . [and] character” of all of the projects completed by HEA
1008, including the use of the lease proceeds to provide “financing” for a variety of “public im-
provements” across the state. Thus, even if the Public Lawsuit Statute applies only to the initia-
tion of public improvements as the plaintiffs argue, this lawsuit remains a “public lawsuit.”
II. Constitutional Claims
In order to avoid the bond requirement the Public Lawsuit Statute provides that the plain-
tiffs must “establish facts that would entitle the plaintiff to a temporary injunction.” I.C. § 34-
13-5-7(b). The term “temporary injunction” has been in the statute since 1967, and predates the
current Trial Rules’ reference to “temporary restraining order” and “preliminary injunction.”
Ind. Trial Rule 65. We have consistently held that the statute requires the plaintiff in a public
lawsuit to demonstrate that there is a “substantial issue to be tried.” Marshall County Tax
Awareness Comm. v. Quivey, 780 N.E.2d 380, 382 n.4 (Ind. 2002) (citing Hughes v. City of
Gary, 741 N.E.2d 1168, 1171 (Ind. 2001); Boaz v. Bartholomew Consol. Sch. Corp., 654 N.E.2d
320, 322-23 (Ind. Tax Ct. 1995); Johnson v. Tipton Cmty. Sch. Corp., 253 Ind. 460, 464-65, 255
N.E.2d 92, 94 (1970)). The trial court determined that none of the several issues raised by the
public lawsuit complaint met this test. Plaintiffs appeal, challenging three of those rulings.
A. Special Legislation
9
The largest portion of the proceeds from the lease is allocated to INDOT. The plaintiffs
do not challenge the provisions allocating money to INDOT, which is an agency of the State, and
will determine the amount and purpose of distributions for local projects. Sections 5 and 7, codi-
fied at Indiana Code sections 8-14-14-6(a)(3), and 8-14-16-1, create a “Local Major Moves Con-
struction Fund” and allocate some of the lease proceeds to the seven northern counties through
which the Toll Road runs. The plaintiffs argue that the General Assembly’s decision to appro-
priate funds to these seven counties constitutes special legislation in violation of Article IV, Sec-
tion 23 of the Indiana Constitution.
The trial court first held that HEA 1008 is not special legislation because it “is designed
to allow the completion of road construction and other projects throughout the entire state.” The
trial court next held that because the “General Assembly routinely appropriates money to local
governments throughout the state based on its policy determinations with regard to local need,
including specific designations for highways and local roads,” sections 5 and 7 of HEA 1008 are
not special legislation. The trial court also held that even if sections 5 and 7 could be character-
ized as special legislation the circumstances unique to the seven northern counties justify the leg-
islature’s choice in apportionment. We think the statute is not special legislation, and do not ad-
dress the need for justification.
In Municipal City of South Bend v. Kimsey, 781 N.E.2d 683, 685 (Ind. 2003), we noted
that the purpose of a constitutional provision against “special legislation” “is ‘to prevent state
legislatures from granting preferences to some local units or areas within the state, and thus cre-
ating an irregular system of laws, lacking state-wide uniformity.”’ (quoting Osborne M. Rey-
nolds, Local Government Law 86 (1982)). Article IV, Section 23 reads: “[I]n all other cases
where a general law can be made applicable, all laws shall be general, and of uniform operation
throughout the State.”
The General Assembly’s decision to build a road in one part of the state or provide addi-
tional funding because the Toll Road runs through a given county does not make the law special
legislation. The threshold question is whether a law is special or general. Kimsey, 781 N.E.2d at
692. If it is “special,” the next issue is whether a general law “can be made applicable.” Id. A
general law cannot “be made applicable” where the law’s objective is to support a given project.
10
For example, a law providing for construction of a facility of a state university necessarily has an
impact in a single locale, and cannot “be made general.” Nor does a law that includes a number
of provisions relating to education become special legislation because it also funds a new library
at one of the state universities and thereby expends funds in the community where that library is
to be located. Similarly, in the present case, the Major Moves legislation that includes allocation
of lease proceeds for construction projects throughout the state does not become special legisla-
tion because it also makes lump sum allocations to seven Indiana counties. To the extent Article
IV of the Indiana Constitution places any constraints on individual projects contained within a
larger statewide statute, they are imposed by the single-subject requirement of Article IV, Sec-
tion 19, not the special legislation provision found in Article IV, Section 23. And plaintiffs cor-
rectly do not challenge HEA 1008 under Section 19. Provisions for raising public funds and di-
recting their use are properly contained in the same bill. Bayh v. Ind. State Bldg. & Constr.
Trades Council, 674 N.E.2d 176, 179 (Ind. 1996) (Section 19 is “designed to promote fair prac-
tice in legislating without much judicial intervention.”); Hoovler v. State, 689 N.E.2d 738, 742
(Ind. Ct. App. 1997), trans. denied, 698 N.E.2d 1186, cert. denied, 524 U.S. 905 (specifically ap-
proving tax and provisions for spending it).
The determination to fund one project and not another does not violate Article IV, Sec-
tion 23 for a more fundamental reason. Article X, Section 3 of the Indiana Constitution provides
the General Assembly with the power to make appropriations by law. Virtually every appropria-
tion is to some extent arbitrary because there is no principled basis for a court to evaluate the de-
cision of the General Assembly to allocate funds to one purpose over another. For that reason
appropriation of funds is a central legislative function unusually unsuitable to judicial review as a
matter of separation of powers. See State ex rel. Ind. State Bd. of Fin. v. Marion County Supe-
rior Court, 272 Ind. 47, 51, 396 N.E.2d 340, 344 (1979) (“The judicial branch is not at liberty to
substitute its judgment for that of the General Assembly in making appropriations and cannot
interfere with the clearly expressed appropriations of the legislative branch.”); Carr v. State, 127
Ind. 204, 208, 26 N.E. 778, 779 (1891) (“Whether an appropriation shall or shall not be made is a
legislative question, and over purely legislative questions the courts have no supervision or con-
trol.”). This is consistent with the views from other states. As the Supreme Court of Washington
put it:
11
The separation of powers doctrine ensures that the fundamental functions of each
branch of government remain inviolate. The legislative branch generally has con-
trol over appropriations. While we may find [the legislature’s appropriations de-
cision] to be intolerable, we would find it even more intolerable for the judicial
branch of government to invade the power of the legislative branch. . . . While
there are special situations when the courts can and should order the expenditure
of funds, specific appropriation to fund a statutory right, not involving constitu-
tional rights or judicial functions, is normally beyond our powers to order.
Hillis v. Dept. of Ecology, 932 P.2d 139, 148 (Wash. 1997) (internal citation omitted); accord
Bowsher v. Synar, 478 U.S. 714, 763 (1986) (White, J., dissenting) (“[A]ppropriating funds is a
peculiarly legislative function, and one expressly committed to Congress by Art. I, § 9.”); Cal.
Ass’n. of Retail Tobacconists v. State, 135 Cal. Rptr. 2d 224, 246 (Cal. Ct. App. 2003) (finding
legislature’s policy decisions when appropriating funds and setting spending priorities from its
tobacco tax revenue did not violate state constitution); State ex rel. Harrell v. Cone, 177 So. 854,
873 (Fla. 1938) (holding legislature’s allocation of road funds did not violate state constitution
because the wisdom, economy and policy of statutes are for legislative decision); Bilyk v. Chi-
cago Transit Auth., 531 N.E.2d 1, 4 (Ill. 1988) (refusing to question the legislature’s decision as
to how to best allocate the funds available to subsidize public transportation); Burnham v. Bever-
ly, 35 N.E.2d 242, 243 (Mass. 1941) (“The necessity or expediency of the exercise of eminent
domain is a legislative function, but whether the purpose is a public one is subject to judicial re-
view.”); Claremont Sch. Dist. v. Governor, 703 A.2d 1353, 1361 (N.H. 1997) (Horton, J., dis-
senting) (judges are not “social engineers”); Mt. Horeb Cmty. Alert v. Vill. Bd. of Mt. Horeb,
665 N.W.2d 229, 238 (Wis. 2003) (“The appropriation of funds for municipal construction pro-
jects is a central legislative function.”).
Moreover, appropriation bills have a statewide effect because the funds are available for
allocation by the General Assembly on a statewide basis. The laws we have found to be “spe-
cial” operated in only one area, typically a county, and the constituents of most legislators who
supported those had no interest in the passage or failure of those bills. An appropriation does
not suffer from that defect because legislators who support an appropriation are accountable to
their own voters for the effect on the public purse. Article IV reflects concern for bad policy
choices that result from local laws passed by legislators whose constituents are indifferent to a
bill that affects only others. Kimsey, 781 N.E.2d at 686; Reynolds, supra at 86; 1 Charles Ket-
tleborough, Constitution Making in Indiana 195 (Ind. Historical Bureau ed. 1971) (1916). Spe-
12
cial legislation was also condemned on the ground that attention to local issues diverted the leg-
islature from matters of concern to the general public. 2 Report of the Debates and Proceedings
of the Convention for the Revision of the Constitution of the State of Indiana, 1768-72, 1813-16
(1850). HEA 1008 suffers from neither of these defects. Its impact is statewide, and inclusion of
some local effects in a bill of general statewide significance does not render the bill a special
law.
The plaintiffs also complain that there is no rational basis for the selection of the counties
to which direct appropriations are made. Because the law is not “special” there is no need to jus-
tify the classification. To the extent, however, that this is in substance an equal privileges claim,
and not a special legislation claim, no claim is raised in this appeal based on Article I, as opposed
to Article IV. In any event, the trial court found that the added burden on local traffic from in-
creased tolls was a sufficient justification for additional funding to the seven counties. It would
seem that the potential financial burden on the citizens of these counties would also suffice.
Plaintiffs argue that there is no showing that the use of the Toll Road is disproportionately higher
by residents of the northern counties. It may be true that there is no hard data on this point, but
we cannot say that it is irrational for the General Assembly to make that assumption. See Lake
County Clerk’s Office v. Smith, 766 N.E.2d 707, 713 (Ind. 2002) (“In determining whether a
statute complies with or violates Article I, Section 23, courts must exercise substantial deference
to legislative discretion.”); see also Ledbetter v. Hunter, 842 N.E.2d 810, 813 (Ind. 2006); Martin
v. Richey, 711 N.E.2d 1273, 1280 (Ind. 1999); Collins v. Day, 644 N.E.2d 72, 79-80 (Ind. 1994).
The plaintiffs also argue that the money given to the seven counties can be used “for eco-
nomic development projects,” which could include construction of improvements other than
highways, roads and bridges. This permits a different prioritization than that imposed as to other
counties. With respect to funding, HEA 1008 provides for general road improvements. The al-
locations to the seven counties in view of their unique relationship to the Toll Road is in addition
to, not in lieu of, the INDOT allocation function. It raises no constitutional issue that this fund-
ing may be handled differently, given that the basis for the allocation is different.
B. Retirement of “Public Debt”
13
Article X, Section 2 of the Indiana Constitution provides that “the revenues derived from
the sale of any of the public works belonging to the State, and from the net annual income
thereof, . . . shall be annually applied, under the direction of the General Assembly, to the pay-
ment of the principal of the Public Debt.” Plaintiffs contend that HEA 1008 violates this Section
because the statute does not apply the proceeds of the lease to the retirement of a variety of obli-
gations that it contends are “public debt” within the meaning of that Section. We conclude that
the trial court correctly ruled that there is no longer outstanding any “Public Debt” to which that
Section refers. 6
All parties agree that at the time of the 1850 Constitutional Convention, the State was still
reeling from the fallout of the financial collapse of a number of major public works that had been
financed with debt that remained the obligation of the State of Indiana and was estimated to re-
quire decades to pay off. 1 Debates, supra at 228; Donald F. Carmony, Historical Background of
the Restrictions Against State Debt in the Indiana Constitution of 1851, 47 Ind. Mag. of Hist.
129, 310 (June 1951). The State argues that a number of steps were taken in Article X to address
this. Among them was Section 2, which was adopted in order to prioritize retirement of this state
obligation by requiring available funds to be dedicated to that purpose. In addition, Article X,
Section 5 of the Constitution was among several provisions designed to prevent the State from
ever again incurring the sort of burdensome debt that it faced at mid-nineteenth century. That
Section provides that “No law shall authorize any debt to be contracted, on behalf of the State”
with exceptions such as repelling invasion not relevant here. The State argues that the “public
debt” to which Section 2 refers is the outstanding debt as of the adoption of the 1851 Constitu-
tion. That debt has long since been retired and, by virtue of Section 5, no new “state debt” has
been incurred. So, the State argues, since 1915 there has not been any “public debt” to which
Section 2 refers, and in particular the debt the plaintiffs cite is not subject to Section 2.
We agree with the defendants that the “public debt” subject to Section 2 is only debt of
the State itself. Because there is no longer any such debt to retire, Section 2 presents no constitu-
6
The parties also debated at length in the trial court whether the transaction between IFA and ITC was a
“sale” for purposes of Article X, Section 2. At the time this provision in the Constitution was written, the
state had a number of revenue generating projects. Section 2 requires “net income” from public works as
well as the proceeds of sales of public works to be applied to retire “public debt.” For that reason, we do
not believe whether the transaction is a sale or a lease to be dispositive of plaintiffs’ contention that the
statute violates Section 2.
14
tional barrier to HEA 1008. The plaintiffs point to debt of local units of government and debt of
public instrumentalities such as IFA that they contend is required to be retired before any pro-
ceeds of the lease can be applied to the purposes specified by HEA 1008. Both are forms of
“public debt” in some lay sense of the term, but neither is an obligation of the State, and there-
fore neither is “public debt” as that term is used in Section 2. We first observe that a requirement
to retire debt seems of little use unless there is also a prohibition against issuing new debt, and
only the State itself is prohibited from issuing new debt. Depending on interest rates and a vari-
ety of other factors, it may be prudent to retire existing debt. Indeed, HEA 1008 requires that
IFA use the lease proceeds to retire its own debts. But, as explained below, the Constitution im-
poses no bar to IFA’s issuing new debt. And local units of government are subject to the re-
quirements of Article XIII that total debt not exceed “two per centum on the value of the taxable
property,” but are not prohibited from issuing new debt within that limitation.
A search for the terms “public debt” and “state debt” in the Debates of the Constitutional
Convention of 1850 reveals that each of these terms appears over one hundred times. 7 It is obvi-
ous that the precarious state of the State’s finances was at the forefront of the framers’ considera-
tions throughout the convention. And we think it equally obvious that they did not consider
“public debt” to be different from “state debt.” There are many examples of the interchangeable
use of the two terms. Here is one delegate’s version of what was to be accomplished in Article
X. The two terms appear in the same excerpt by Delegate Read, explaining both the problem
and the proposed solution:
We have before us just the old question of a public debt. For my own part
I am not of that school which believes a public debt a public blessing.
Sir, if there is any question settled by the people of Indiana, it is this, that
they will pay off the debt which now hangs over them, and by this new Constitu-
tion forever prohibit the contracting of a new one, except in the single case of in-
surrection or invasion by an enemy. This I believe to be distinctly the voice of the
people of Indiana, and until this evening I had not supposed that there were five
men in this Convention who would vote for the power of creating a State debt in
any manner, or under any form, or for any purpose.
Debates, supra at 659-60 (Delegate Read, Monroe).
7
Making of America Books, available at < http://name.umdl.umich.edu/AEW7738.0001.001>.
15
Some of the debt obligations that the plaintiffs cite are obligations of local units of gov-
ernment—cities, towns, conservancy districts, etc. Municipal debt is addressed in Article XIII,
which limits municipal corporations to two percent of the “taxable property within” the corpora-
tion. There is no suggestion in the debates that municipal debt was the subject of Article X of
the Indiana Constitution, and we think it inconceivable that the framers would wish to require
that a sale of a state asset would trigger a duty to repay a debt of a unit of local government.
Such a constitutional rule would encourage spendthrift borrowing at the local level in hopes that
a state sale would produce a bailout. Moreover, it plainly would shift the economic benefit of
the state’s asset from the citizens of the state as a whole to those residents in the local unit. In
short, we think the Indiana Association of Cities and Towns, as amicus curiae, is correct that
plaintiffs’ reading of Section 2 to require retiring of municipal debt cannot be supported.
The plaintiffs also point to outstanding debt of IFA and its predecessor instrumentalities
as “public debt” that Section 2 directs must be retired with the proceeds of the lease. This con-
tention presents a different issue. At the time of the 1850 debates, creatures such as IFA were
yet to walk the Hoosier landscape. Only a century later were bonds for capital improvements
sought to be issued by instrumentalities that were newly created by state law, and derived their
revenues from sources under control of the State, but were not “the State” for purposes of the
proscription found in Section 5 against the State’s contracting for debt. Beginning with the Toll
Road Commission, several of the entities that now compose IFA had issued bonds to finance
specific projects whose revenues were the source of payment of principal and interest on the
bonds. This method of financing public projects was initially challenged on the ground that it
amounted to the incurring of state debt in violation of Article X, Section 5. This contention was
rejected as to several of the predecessors of IFA including the Toll Road Commission. See Steup
v. Ind. Hous. Fin. Auth., 273 Ind. 72, 76, 402 N.E.2d 1215, 1218 (1980) (Housing Finance Au-
thority); Orbison v. Welsh, 242 Ind. 385, 418, 179 N.E.2d 727, 743-44 (1962) (Port Commis-
sion); Book v. State Office Bldg. Comm’n, 238 Ind. 120, 150, 149 N.E.2d 273, 289 (1958)
(State Office Bldg. Commission); Ennis v. State Highway Comm’n, 231 Ind. 311, 324, 108
N.E.2d 687, 693-95 (1952) (Toll Road Commission).
Most of these entities have now been consolidated into the IFA. It is now well settled,
and the plaintiffs agree, that debt secured by revenue from the projects the bonds finance (tolls,
16
lease rentals, port fees, etc.) does not violate the Indiana constitutional ban on debt of “the State.”
The general credit of the State is not on the line to discharge these revenue bonds, and a creditor
could not levy on the State House or a state park to recover its principal or interest. Ennis, 108
N.E.2d at 697. For that reason, the courts of this state and most others have consistently held
that the debt of these authorities is not debt of the State. It follows, therefore, that Section 2 im-
poses no requirement that the proceeds of the lease, or any sale of any public work, be applied to
discharge these obligations. Again, this is not merely a textual point. In practical terms, there is
no reason why the debt of IFA should be required to be retired because, unlike the State of Indi-
ana, IFA could immediately reissue debt if it chose to do so. Lawyers and investment bankers
would profit from such a rule, but it is hard to see who else would.
In summary, logic, the constitutional debates and judicial precedent all lead to the con-
clusion that Article X, Section 2 of the Indiana Constitution requires neither debt of units of local
government nor debt of IFA or similar entities to be retired with the proceeds of a sale or lease of
public works because neither is “public debt” as that term is used in Section 2.
C. Ad Valorem Taxation
The Toll Road and the land upon which it lies is not now, and has not been since its ac-
quisition by predecessors of IFA, required to pay taxes on that land. However, Indiana Code
section 6-1.1-10-37 provides that if tax-exempt property is leased to another whose property is
not exempt, then the leased property must be assessed and taxed as if owned by the lessee. By
its terms Indiana Code section 6-1.1-10-37 arguably requires the General Assembly to tax the
Concessionaire. This is a statutory provision, not one found in the Constitution. The legislature
is free to enact exemptions to its own rules, and that is what Section 39 of HEA 1008 does.
When the General Assembly authorized leasing the Toll Road to the Concessionaire, it specifi-
cally chose to exempt the private lessee from Indiana taxation. Section 39 of HEA 1008, codi-
fied at Indiana Code section 8-15.5-7-1, provides in pertinent part:
A toll road project and tangible personal property used exclusively in connection
with a toll road project that are:
(1) owned by the authority and leased, franchised, licensed, or otherwise con-
veyed to an operator; or
17
(2) acquired, constructed, or otherwise provided by an operator in connection
with the toll road project;
under the terms of a public-private agreement are considered to be public property
devoted to an essential public and governmental function and purpose and the
property, and an operator’s leasehold estate, franchise, license, and other interests
in the property, are exempt from all ad valorem property taxes and special as-
sessments levied against property by the state or any political subdivision of the
state.
Section 39 removes any ambiguity that Indiana Code section 6-1.1-10-37 may have created and
provides that the Concessionaire is “exempt from all ad valorem property taxes and special as-
sessments” levied against the Toll Road.
The plaintiffs argue that Article X, Section 1 forbids the General Assembly from provid-
ing the Concessionaire this tax exemption. Article X, Section 1 of the Indiana Constitution pro-
vides:
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. The General As-
sembly may exempt from property taxation any property in any of the following
classes: Property being used for municipal, educational, literary, scientific, reli-
gious or charitable purposes . . . .
In Chadwick v. City of Crawfordsville, 216 Ind. 399, 410, 24 N.E.2d 937, 942 (1940), we
distinguished between a private and public purpose for a utility and held that a utility in the
hands of a municipality is tax exempt. The trial court, relying on Chadwick and a case from the
Seventh Circuit along with two other cases from this Court, held that the constitutional limit on
exemptions turns on the character of the property, not its ownership. As a result, the Toll Road
would retain its “municipal purpose” after the lease and the fact that a private lessee will operate
the road is irrelevant. See City of Louisville v. Babb, 75 F.2d 162, 166 (7th Cir. 1935) (uphold-
ing a law that provided a tax exemption for a toll bridge operated by a municipal corporation of
another state because it remained “municipal property”); Steup, 402 N.E.2d at 1227 (finding law
providing tax exemption for Indiana Housing Finance Authority constitutional because the Au-
thority was not a private corporation, but a state instrumentality operating for a legitimate public
purpose); Orbison, 179 N.E.2d at 739 (upholding the tax exemption in the Indiana Port Commis-
sion Act because the Commission was not a private corporation). The trial court also noted that
18
the General Assembly “expressly found that the Toll Road serves a public purpose” and gave
“great deference” to this legislative finding. The plaintiffs argue that the trial court’s reasoning
as applied to private operators of the Toll Road would allow owners of airlines, railroads, bus
companies, and telecommunications companies to fall within the “public purposes” exception as
well.
The plaintiffs appear to be correct that cases upholding a tax exemption against a consti-
tutional attack have cited the ownership by a public entity as well as the use of the property. We
agree that public ownership is ordinarily sufficient for exemption, but do not agree that it is nec-
essary. Municipal ownership and municipal “use” are coupled in most examples that have here-
tofore been presented to the courts. But as the trial court noted, the “use” of the property is by
the language of Section 1 the controlling factor. The lease will continue the property in the same
use—a public highway—and as such is a permissible exemption. We also think the defendants
are correct in contending that the Constitution contemplates exemption for a public owner. If a
lease by the State requires that the property be taxed, the effect would be to lower the rent the
lessee would be willing to pay, or to subject the State to local property taxes. Neither would fur-
ther the object of Article X to protect and enhance public resources. We need not address this
issue because we conclude that the use continues to be a municipal one as it has been for over
fifty years.
Conclusion
The order of the trial court is affirmed.
Shepard, C.J., and Sullivan and Rucker, JJ., concur.
Dickson, J., not participating.
19