The Supreme Court Fails to Stop “the Nonstop Shenanigans of Local Governments”

Earlier this week the Supreme Court handed down its decision in the case of Armour v. Indianapolis. At issue was a property assessment levied by Indianapolis in order to pay for a sewer project in a housing subdivision. Property owners in that subdivision were given the option of paying the $9,000 assessment in installments or in a lump sum. Most selected the installment plan. When the city announced a revised and cheaper assessment plan a few years later, the small group of property owners who initially paid a lump sum asked for a refund. Their request was denied so they took the city to court. In its ruling on Monday, the Supreme Court sided with Indianapolis. Writing at the Hoover Institution’s Defining Ideas journal, New York University law professor Richard Epstein explains why this ruling “encapsulates what goes wrong when the Supreme Court abandons its constitutional obligation to prevent the nonstop shenanigans of local governments.” Epstein writes:

The moment local governments can renege on promises with impunity, no one in his right mind would choose the lump sum payment. At this point, two bad consequences follow. First, a deep sense of social unfairness leads to a net loss in public confidence in government. Second, wealth transfers wholly gratuitously from one group of citizens to another. At this point, wasteful lobbying could set in to make those transfers happen. The best way to think about Armour is not as some sterile equal protection case, but as a taking of property, through the conscious maladministration of the city, from the members of group A to those of group B. That level of misconduct deserves more scrutiny than the rational basis test supplies....

Some skeptics might ask why anyone would get bent out of shape in a case where the claims of all class members total less than $300,000. The answer is because bad rules in small cases lead to horrific consequences in bigger ones. As a matter of first principle, the rational basis test lets all courts turn a blind eye to various programs of business and fiscal madness.

Read the full story here.

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  • ||

    Why would you pay the lump sum?

    Anyway I don't see a problem with this decision. How is this a case about liberty again?

    Also I think if it had gone the other way it would discourage governments from reassessing.

  • BC||

    You would pay the lump sum if you had $9000 cash on hand, and believed that you'd pay more in interest over the term of the installment plan than you'd lose to inflation. Maybe you're wrong in the long run, but it's not a self-evidently insane financial calculus.

    The case is about liberty because the local government didn't just change its mind; it ripped off a bunch of people in the process, in a way that the law and markets would not tolerate in the commercial space. And the Supreme Court left those people without any remedy.

  • Tulpa the White||

    This happens with futures contracts all the time. Just because you paid $1000 and the price of the item went down to $500 a month later doesn't mean you're entitled to a refund.

  • ||

    I'd be surprised if they were being charged interest.

  • R C Dean||

    Yes, the installment plan charged interest.

    And futures contracts? Really, Tulpa? You think there's any connection at all between getting a refund when you pay for a service in advance and the service isn't provided, and getting a refund from a seller because whay you bought subsequently went down in price?

  • BarryD||

    Also...

    The installment plan charged interest, which implies that it was a loan. That means that all of the homeowners ostensibly paid the same amount, but some of them financed the payment.

    If I borrow money to pay for a service, that generally means that the vendor was paid in full, and I now owe the lender. Occasionally, the vendor might choose to play the role of "lender" also, and "carry his own paper." However, the transaction works exactly the same way as when there are separate vendors and creditors, in the private sector, in terms of what someone owes at any point in the loan's term.

  • Registration At Last!||

    Nice piece -- click the link and read it in full. Well argued.

  • Bruce Ross||

    Epstein's analogy to the the theater season tickets seems off-point. Nobody seems to mention that the city scrapped the sewer project and didn't refund the money. It seems instead that the city built the sewer, then down the road decided to change its financing scheme. That seems more like an airline or theater offering discount tickets after the early birds bought them at higher prices, or even a markdown. You buy a jacket the first week, and the store later marks it down, do you get a refund? Um, no.

    Don't get me wrong. The lump-sum payers got a bad deal. I'd agree it's not necessarily a constitutional issue, though perhaps more of the details would change my mind.

    As an aside, I look forward to Reason's embracing Epstein's argument that Prop. 13 is unconstitutional. Let's see that campaign get rolling.

  • ||

    You buy a jacket the first week, and the store later marks it down, do you get a refund? Um, no.

    Depending on how quickly the item goes n sale after you've purchased it, you can absolutely ask for a price adjustment. Most stores have a policy that allows for this with sales occurring within 14 days of your purchase.

    The reason for this of course is that the store wants your sale, and wants to give you the confidence to buy it now and know you'll still get the "best price."

  • Bruce Ross||

    Sure.

    But stores do that because they want repeat customers, not because those customers have a legally enforceable or widely recognized ethical right --- which was Epstein's argument.

  • R C Dean||

    It seems instead that the city built the sewer, then down the road decided to change its financing scheme.

    I can't really tell from the article linked exactly what the city did, and why it changed the assessment from $9K to "annual charges of $2,500 per home."

    It sounds like what happened was they shifted from a single charge, to an annual charge. So, the lump sum payers are paying twice for the same thing, while the installment payers, who had their installment obligations waived, are not.

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