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Delogu v. State of Maine
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	1998 ME 246
Docket:	Ken-98-342
Argued:	November 3, 1998
Decided:	November 23, 1998

PANEL: WATHEN, C.J. and CLIFFORD, RUDMAN, DANA, SAUFLEY, ALEXANDER, and
CALKINS, JJ.

ORLANDO E. DELOGU et al.{1} v. STATE OF MAINE et al.{2}

ALEXANDER, J.
 
	[¶1]	The plaintiffs appeal from the judgment entered for defendants, in
the Superior Court (Kennebec County, Studstrup, J.), on plaintiffs' challenge to
a three-part tax incentive package created to assist Bath Iron Works ("BIW") to
modernize and expand its Bath shipyard facility.{3}  We affirm the judgment for
defendants.  
	[¶2]	In early 1997, Bath Iron Works Corporation, a subsidiary of
General Dynamics Corporation, approached the City Council of the City of Bath
about participating in the expansion and modernization of BIW's shipyard
facility.  At that time BIW used the "incline method" to construct ships which,
BIW explained, created technical challenges and increased the costs of the
shipbuilding process.  BIW proposed to increase its competitiveness by building
a land-level facility adjacent to its existing facility and modernizing its
shipyard.  BIW estimated that the project would cost approximately $597
million.
	[¶3]	After considerable public discussion, the State, City, and BIW
agreed upon and the Legislature approved a package consisting of three
separate tax incentive programs with separate statutory bases.
	[¶4]	First, the Legislature enacted the Shipbuilding Facility Credit Act
to provide incentives to modernize and expand Maine shipyards.  P.L. 1997, ch.
449, codified as, 36 M.R.S.A. §§ 6850-6858.  BIW qualifies for the shipbuilding
facility credit because of its employment levels and proposed investment levels
in the project.  This legislation allows BIW to retain up to $60 million of the
employment taxes that it collects from its employees' wages over a twenty year
period.   
	[¶5]	Second, BIW qualifies for a "business and equipment tax
reimbursement," pursuant to 36 M.R.S.A. §§ 6651-6659 (1996 & Supp. 1997).
The State will reimburse BIW for taxes that BIW pays to the City of Bath on
certain business property.  The reimbursement would total approximately $53
million over a twelve year period. 
	[¶6]	Third, the City of Bath will use Municipal Tax Increment Financing
("TIF") to aid BIW.  30-A M.R.S.A. §§ 5251-5261 (1996 & Supp. 1997).  Using a
type of TIF known as a "credit enhancement" TIF, the City of Bath will return to
BIW the amount of the increase in property taxes that BIW will pay if the
expansion occurs.  The amount of return is calculated as the difference
between a determined base property valuation and the increased property
valuation resulting from the expansion improvements.  The agreement between
the City of Bath and BIW provides that starting in 1999, the City of Bath will
reimburse BIW a total of $85 million over a twenty­p;five year period.  
	[¶7] Thus, the incentive package would contribute $198 million to the
project over time, while guaranteeing some stability to employment and the
property tax base in the City of Bath.
	[¶8]	On September 19, 1997, the plaintiffs brought this action
challenging the constitutional and statutory validity of the three-part tax
incentive program and seeking a declaratory judgment and injunctive relief. 
They alleged that (1) the use of public funds for this project would violate the
public purpose requirement of Article IV, Part 3, Section 1 of the Maine
Constitution, (2) the credit enhancement structure of the tax increment
financing agreement violates the equal assessment requirement of Article IX,
Section 8 of the Maine Constitution, and (3) the tax increment financing
legislation ("TIF"), 30-A M.R.S.A. §§ 5251-5261 (1996 & Supp. 1997), does not
authorize credit enhancement tax increment financing agreements.  The
defendants objected that the TIF challenge was mounted too late, pursuant to 
Rule 80B of the Maine Rules of Civil Procedure.
	[¶9]	After a hearing on cross-motions for summary judgment, the
Superior Court determined that plaintiffs had standing to challenge the TIF
program; then, it entered judgment for the defendants.  
I. THE PUBLIC- PURPOSE DOCTRINE
	[¶10]  Article IV, part 3, section 1 of the Maine Constitution specifies that
the Legislature "shall have full power to make and establish all reasonable laws
and regulations for the defense and benefit of the people of this State, not
repugnant to this Constitution, nor to that of the United States."  We have
interpreted this section to require that taxation and spending at either the state
or local level be for a public purpose to be constitutionally valid.  Common
Cause v. State, 455 A.2d 1, 15 (Me. 1983); Crommett v. City of Portland, 150
Me. 217, 230, 107 A.2d 841, 849 (1954). 
	[¶11]  Although the courts determine whether a legislative action satisfies
the public purpose doctrine, a legislative finding of public purpose is given
great weight.  Common Cause, 455 A.2d at 16; Crommett, 150 Me. at 231, 107
A.2d at 849.  As we stated in Common Cause:
It is not for the Court to assess the wisdom or the efficacy [of the
expenditures] as a matter of economic or fiscal policy . . . If the
project has a rational basis, we may not strike it down merely
because, if we were acting in the role of voters or legislators, we
would deem it unwise.  (citations omitted).
Common Cause, 455 A.2d at 17; see also id. at 25 (stating a court should
"invalidate expenditures only when the Legislature's decision has no rational
basis").  A court must uphold expenditures unless a plaintiff clearly
demonstrates that they are not constitutional.  Common Cause, 455 A.2d at
17, 25.
	[¶12]  The State and the City of Bath approved this project to prevent the
loss of economic benefits provided by BIW, minimize employment loss, promote
economic development, and stabilize the local tax base.  We have recognized
that employment is one of the government's principal concerns, and that
indirect economic benefits, such as job creation and retention, may qualify as
valid public purposes.  Opinion of the Justices, 601 A.2d 610, 619 (Me. 1991)
(indicating that direct payment of excise tax revenues to dairy producers had
public purpose because it maintained employment levels that were essential to
the dairy industry's survival); Common Cause, 455 A.2d at 24 (holding that
increase of flow of commerce, enhancement of employment opportunities, and
improvement of State's economy qualified as public purposes).  
	[¶13]  Contrary to the plaintiffs' contention, the public purpose is not
determined by the existence or lack of voter approval for a project, Common
Cause, 455 A.2d at 16; public ownership of the facilities that are the subject of
the project, id. at 19-21; or by the economic need of the recipient of the aid, id.
at 19 n. 23. 
	[¶14]  Further, while the plaintiffs' arguments may raise policy doubts
about the effectiveness of the tax incentive package, they do not clearly
demonstrate that the package is unreasonable, as a matter of law, as a means
for achieving its stated purpose.  There was extensive debate, both in the State
Legislature and in the Bath City Council, concerning the benefits and costs of
the project before the decisions were made to assist BIW through tax
incentives.  The information that the State and the City of Bath considered
includes information that:  BIW is Maine's largest private employer and one of
the major shipbuilders in the world; BIW's survival without modernization is
uncertain; as many as 7,000 jobs and millions of dollars of State and
municipal taxes would be lost if BIW does not modernize; the payroll for BIW
operations for the next 20 years will be over $4 billion and generate $245-290
million in net Maine taxes; and the payroll from the new construction will be
approximately $50 million and provide additional State tax revenues of $9
million.  See, e.g., Sen. Jour. 1395-1414 (118th Legis., 1st Spec. Sess. 1997);
House Jour. 23-49 (117th Legis. 1997); Report of the Task Force on Tax
Increment Financing (Jan. 31, 1996); Bath City Council Minutes of
September 3, 1997.
	[¶15]  In addition, the Shipbuilding Facility Credit Act requires BIW to
invest $200 million in the project over the next ten years and maintain an
employment level of at least 3,500.  36 M.R.S.A. § 6851 (1997).  The business
and equipment tax reimbursement requires BIW to purchase the equipment
and pay taxes.  36 M.R.S.A. §§ 6651-6659 (1989).
	[¶16]  The State and the City of Bath concluded that without assistance,
BIW would close its facility, which would result in a substantial loss of jobs. 
They also concluded that with assistance, BIW would keep its facility operating,
many jobs would be protected, the project construction would create additional 
employment opportunities, and the State and City would continue to receive
the economic benefits brought by BIW.  After considering all the facts of the
record in this case, plaintiffs have not demonstrated, as a matter of law, that
the legislative choice was irrational.
II. THE CONSTITUTIONALITY OF THE CREDIT ENHANCEMENT TIF
	[¶17]  Article IX, section 8 of the Maine Constitution requires that "all
taxes upon real and personal estate, assessed by authority of this State, shall
be apportioned and assessed equally according to the just value thereof."  
Thus, all property taxes assessed must be assessed on an equal basis. 
McBreairty v. Commissioner of Admin. & Fin. Serv., 663 A.2d 50, 54 (Me.
1995). The trial court held that the City of Bath's reimbursement to BIW of
property taxes directly attributable to the project does not violate this
requirement.   
	[¶18]  BIW will be assessed and pay property taxes on equal terms with
all other taxpayers in the City of Bath.  The reimbursement to BIW is a
distribution of tax revenues.  A critical distinction exists between the
assessment of taxes and the spending of tax revenues.  As we held in
McBreairty:
Although Article IX, Section 8 requires equal assessment of
property taxes, it does not apply to the manner in which the
government chooses to spend its tax revenues.  There is no
requirement that the Legislature distribute tax revenues equally.  
McBreairty, 663 A.2d at 55 (citation omitted).  Consequently, the
reimbursement of the taxes to BIW by the City of Bath does not violate
article IX, section 8.  
III. STATUTORY AUTHORITY TO GRANT A CREDIT ENHANCEMENT TIF
	[¶19]  The structure of the TIF at issue in this case differs from the
traditional TIF structure.  Oftentimes a municipality provides the up-front
financing for projects that it solicits, through bonds for example.  The
municipality then uses the increase in property taxes assessed as a result of
the improvements ("tax increment") to repay the financing.  In this case, the
City of Bath structured a so-called, "credit enhancement" TIF.  BIW will make
the improvements and BIW will receive, by way of refund, a portion of the tax
increment that the municipality collects from increased valuation of the
improvements. 
	[¶20]  The plaintiffs argue that the trial court erred by finding that the
TIF enabling legislation, 30-A M.R.S.A. §§ 5251-5261 (1996 & Supp. 1997),
authorizes the use of a credit enhancement TIF.  
	[¶21]	The Department of Economic and Community Development
(DECD) has interpreted the TIF enabling legislation to allow the credit
enhancement TIF.  The DECD is the agency responsible for the administration
of the TIF statute.  30 M.R.S.A. § 5253 (1996).  This Court gives deference to
construction of a statute by the agency responsible for its administration
absent an indication of legislative intent to the contrary.  Berube v. Rust Eng'g,
668 A.2d 875, 877 (Me. 1995); Porter v. Maine State Retirement Sys., 609 A.2d
1146, 1149 (Me. 1992).  
	[¶22]  The record before us includes other examples of TIF plans that
include direct repayments to developers, rather than bond repayments to
implement the program. 
	[¶23]  Within TIF districts, section 5253, subsection 3 authorizes
municipalities to "maintain or promote development intended to meet the
objectives of the development program."  30-A M.R.S.A. § 5253(3) (1996). 
Nothing mandates the specific type of financing to be provided to accomplish
the program objectives.  Section 5254, subsection 3 addresses bond repayment
financing "if a municipality has elected to retain all or a percentage of the
retained captured assessed value . . . ."   30-A M.R.S.A. § 5254(3) (1996).  The
necessary implication of "if" is that the municipality has a choice to retain
funds to repay bonds or, as here, directly pay out the funds to reimburse the
taxpayer for its investment.
	[¶24]  The Superior Court correctly determined that the TIF enabling
legislation of 30-A M.R.S.A. §§ 5251-5261 permits the use of the credit
enhancement TIF at issue in this case.  
	The entry is:
			Judgment affirmed.

Attorneys for plaintiff: Orlando E. Delogu, pro se, (orally) William J. Milliken, Esq. Andrew M. Braceras, Esq. 239 Cumberland Avenue Portland, ME 04101 Attorneys for defendants: Andrew Ketterer, Attorney General Paul Stern, Deputy Atty. Gen., (orally) 6 State House Station Augusta, ME 04333-0006 (for State defendants) Roger R. Therriault, Esq., (orally) 48 Front Street Bath, ME 04530 (for City of Bath) Mark L. Haley, Esq., (orally) Tracey G. Burton, Esq. Conley, Haley & Champion P O Box 665 Bath, ME 04530 (for Bath Iron Works Corp.) Attorneys for amici curiae: Catherine R. Connors, Esq. Jonathan A. Block, Esq. Pierce Atwood 1 Monument Square Portland, ME 04101-1110 (for Maine Chamber & Business Alliance, Maine Municipal Ass'n, Maine Pulp & Paper Ass'n; the Cities of Auburn, Brewer, Lewiston, Portland, South Portland & Saco; and 22 corporations or other business entities)
FOOTNOTES******************************** {1} . Plaintiffs are sixteen individuals who are residents and taxpayers of the State of Maine. Twelve of the plaintiffs are residents and taxpayers of the City of Bath. Orlando Delogu is a resident and taxpayer of the City of Portland. {2} . Defendants are the State of Maine, Department of Administration & Finance, State Tax Assessor, Department of Economic & Community Development, City of Bath, and Bath Iron Works Corporation. {3} . The defendants cross-appeal the court's decision that the plaintiffs' challenge to the tax increment financing part of the tax incentive package is timely under Rule 80B of the Maine Rules of Civil Procedure. We reach the merits of the appeal, as the complaint was timely filed within the period when a properly formulated complaint could have been drafted.