City of Carmel v. CERTAIN HOME PLACE

Citations: 874 N.E.2d 1045; 2007 Ind. App. LEXIS 2324; 2007 WL 3013265Docket: 29A04-0510-CV-578

Court: Indiana Court of Appeals; October 17, 2007; Indiana; State Appellate Court

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Certain Home Place Annexation Territory Landowners successfully contested the City of Carmel's annexation attempt, leading to Carmel's appeal. The trial court ruled that Carmel inadequately outlined the financing methods for services post-annexation, which Carmel argued was an improper audit of its fiscal plan. Citing a precedent case where the Indiana Supreme Court reversed a similar trial court decision, the appellate court determined that Carmel had sufficiently demonstrated the necessary financing methods through testimony from its accountant, Curtis Coonrod. 

Coonrod's fiscal analysis projected that Carmel's expenditures would exceed revenues for the first three years following annexation, resulting in deficits of $986,743.00 in 2006, $975,250.00 in 2007, and $1,476,590.00 in 2008. To address these shortfalls, Carmel planned to use 'Other available net revenue,' although the source of these funds was not specified in the fiscal documents. After the Remonstrators filed a petition against the annexation, the trial court's decision was deemed a judicial error, and the appellate court reversed the judgment, ruling that Carmel met the statutory requirements of its fiscal plan.

Mr. Coonrod asserted that the city possesses sufficient resources to cover the financial requirements for the annexation, indicating that 'other available net revenue' could be viewed as 'Carmel's cash.' During cross-examination, expert witness Eric Reedy, CPA, contested this by stating that Carmel lacked adequate 'other available net revenue' to finance the annexation costs for 2006 and subsequent years. He clarified, however, that while funds exist to pay for planned services, they would necessitate increased property taxes from residents of both Home Place and Carmel. 

In response, Mr. Coonrod challenged the reliability of the report on which Mr. Reedy based his conclusions, suggesting that the budgetary process and regulatory conservatism lead cities to underreport available balances. He referenced the Clerk-Treasurer's records as more reliable, explaining that the 2004 annual report's low balance of $2.5 million was atypical, as Carmel typically maintains balances closer to $5 or $6 million in normal years. Coonrod predicted that the available funds would increase due to past successful annexations, which initially incurred costs ahead of revenue inflow. He illustrated that Carmel had managed its finances by drawing down reserves during periods of increased costs and lagging income tax revenue. Coonrod concluded that while the Home Place annexation might initially show a revenue shortfall, he did not anticipate a future deficit in Carmel's overall fiscal structure.

On October 4, 2005, the trial court issued a ruling regarding the proposed annexation of Home Place into the City of Carmel, primarily evaluating Mr. Reedy's testimony that challenged the existence of Carmel's claimed 'other available net revenue.' Key findings included Mr. Coonrod's assertion that this revenue constituted 'Carmel's cash' and his belief that the most reliable source for assessing Carmel's available funds was the Clerk-Treasurer's records, rather than the formal budget document relied upon by Mr. Reedy. The court noted a lack of documentary evidence from Carmel to substantiate its claims about the 'other available net revenue.' Mr. Reedy, in contrast, maintained that there was no available operating balance for Carmel since 2006, corroborating his analysis with the same reliable records referenced by Mr. Coonrod. The trial court found Carmel’s evidence inadequate, describing it as a 'vague promise' that did not demonstrate a credible commitment to finance the annexation, as required by Indiana Code. Consequently, the court concluded that the Remonstrators' petition should be granted due to Carmel's failure to provide a compliant fiscal plan, emphasizing that Carmel's undocumented claims and the discrepancies in testimony further weakened its case.

Inconsistencies exist between Respondent's Exhibit J and Mr. Coonrod's testimony regarding the financial status of Carmel, as Exhibit J refers to 'other available net revenue,' while Mr. Coonrod describes a current supply of 'cash.' According to BLACK'S LAW DICTIONARY, 'revenues' denotes incoming funds rather than existing cash. Mr. Coonrod also indicated that Carmel is 'drawing down its operating balance,' which raises further questions about its financial health. Mr. Reedy's assessment that Carmel lacks an operating balance contradicts Mr. Coonrod's claims, as Reedy's evaluation relied on the Clerk-Treasurer's annual report, deemed by Coonrod as a reliable source for financial information. Carmel had opportunities to present credible evidence, such as sworn testimony from public officials or certified financial documents to substantiate its claims regarding 'other available net revenues.' Instead, the court is left with unsupported assertions from Carmel's accountant. Consequently, the court concludes that Carmel has not met the requirements of I.C. § 36-4-3-13(d)(2) for a credible fiscal plan for the annexed area, leading to the recommendation to grant the Remonstrators' petition. Following Carmel's appeal, the case faced delays due to the Indiana Supreme Court's review of Southwest Clay, which ultimately influenced the proceedings. Carmel argues that the trial court improperly scrutinized its fiscal plan, asserting that the trial court's findings of insufficient detail regarding financing methods for annexation services do not align with statutory requirements. The review process entails assessing the sufficiency of evidence for factual issues while maintaining that findings are not overturned unless clearly erroneous, with questions of law reviewed de novo. Indiana's annexation statutes have historically aimed to facilitate the annexation of adjacent urban territories.

The statutory framework for annexation consists of three stages: 1) legislative adoption of an ordinance to annex territory and commit to providing services within a specified timeframe; 2) a period for affected landowners to file a remonstrance; and 3) judicial review. Upon certification of a remonstrance, a trial court must hold a hearing to assess whether the annexation can proceed, with the city responsible for demonstrating compliance with statutory requirements. According to Indiana Code 36-4-3-13, for annexation to be ordered, the city must meet conditions outlined in subsections (b) or (c) and subsection (d). Subsection (b) requires the city to establish either a contiguity relationship or specific conditions regarding the territory's use, including a minimum resident population density, subdivision status, or zoning for commercial/industrial use. Subsection (c) mandates that at least one-fourth of the annexation boundaries coincide with the city's boundaries and that the territory is necessary for the city's future development. The parties involved agreed that Carmel's proposed annexation fulfilled subsection (b). Under subsection (d), the city must demonstrate a written fiscal plan that includes: 1) itemized cost estimates for planned services; 2) funding methods detailing taxes and grants; 3) organization and extension of services with specific timelines; 4) provision of non-capital services within one year equivalent to those within city boundaries; and 5) capital improvements within three years, compliant with laws and planning criteria.

A written fiscal plan in annexation law serves three critical purposes: it informs landowners about annexation decisions, facilitates realistic remonstrance and judicial review, and protects landowners' rights to ensure promised services are provided. Courts evaluating a municipality's fiscal plan must recognize that annexation is a legislative function and focus on the plan's credibility rather than conducting an audit. In the case of Southwest Clay, the trial court found Carmel's fiscal plan inadequate for lacking specific funding methods and expense estimates. However, the Supreme Court overturned this decision, stating the plan included detailed expenditure breakdowns and revenue projections that demonstrated the financial feasibility of providing services to the annexed area. The Court emphasized that the key question is whether the municipality can finance services comparable to those in existing city areas. The trial court's error was highlighted as it failed to contest the adequacy of planned services and overlooked Carmel's demonstrated financial capacity. Carmel's fiscal analysis indicated that projected expenditures would initially exceed revenues but could be covered by "Other available net revenue," with testimony confirming the existence of an operating balance to address the deficit. The reliability of financial reports was debated, with the more credible annual report supporting Carmel's position. Ultimately, the Supreme Court concluded that Carmel's fiscal plan met the requirements of Indiana Code Section 36-4-3-13(d)(2).

Mr. Coonrod indicated that Carmel's operating balance had decreased due to recent large annexations but forecasted improvement as income and property taxes from these annexations began to materialize, thus ensuring sufficient funds for the Home Place annexation. The parties contested the relevance of the Southwest Clay case, noting challenges in comparing its facts due to the lack of clarity regarding projected expenditures versus revenues. The Supreme Court in Southwest Clay acknowledged that annexation revenue would significantly fund services, implying a similar conclusion for Carmel's fiscal plan. The plan adequately fulfilled the necessary purposes, with Remonstrators demonstrating effective notice of their interests. Carmel's detailed fiscal plan outlined its service provision strategy for Home Place, including hiring new personnel for various departments, and these calculations were not disputed on appeal. The Supreme Court emphasized that courts should not micromanage legislative decisions regarding annexation but rather assess credible commitments for service provision. Despite Mr. Reedy's challenges to Carmel's financial capabilities—without any direct inquiries or audits—Mr. Coonrod confirmed that Carmel had sufficient funds labeled as 'Other available net revenue' to cover initial costs associated with the annexation. The trial court's determination that the fiscal plan failed to meet financing requirements was deemed a clear error akin to a judicial audit, leading to a reversal of that judgment. The fiscal plan's analysis was revised on July 22, 2004, and it is noted that amendments can be made to meet specificity requirements during remonstrance hearings as per Indiana law.

The report referenced is from the Department of Local Government Finance, not Carmel's Clerk-Treasurer, who provided a more reliable report for determining Carmel's operating balance. The court commended the counsel's oral arguments for aiding in the case's resolution. Carmel's brief divides the issue into two parts, but the court considers it as one. The court noted that Carmel could have presented various sworn public officials, particularly the Clerk-Treasurer, or submitted certified financial records to support its proposed annexation, which would have been a straightforward way to demonstrate the existence of 'other available net revenues.' The court agrees with the Remonstrators that Carmel's interpretation of the trial court's language is unreasonable, emphasizing that while Carmel had the burden of proof, it chose to rely on its accountant's testimony, which the trial court deemed insufficient. The ruling clarifies that a city is not obligated to use its officers or financial records exclusively to meet its burden of proof. Carmel's argument suggesting otherwise is dismissed.