Title: Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co.

State: iowa

Issuer: Iowa Supreme Court

Document:

334 N.W.2d 290 (1983) In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor, Iowa State Association of Counties, et al., Movants. No. 146. Supreme Court of Iowa. May 18, 1983. *291 Lee H. Gaudineer and Carlton G. Salmons of Austin & Gaudineer, Des Moines, for movants. Thomas J. Miller, Atty. Gen., Lester A. Paff, Asst. Atty. Gen., and Jane E. Phillips, of the Transportation Regulation Authority, Des Moines, for the respondent State. Considered by HARRIS, P.J., and McCORMICK, SCHULTZ, CARTER and WOLLE, JJ. McCORMICK, Justice. The United States District Court for the Northern District of Illinois has certified seven questions of Iowa law to us. The questions arise from competing claims in that court between certain Iowa counties and the State of Iowa to delinquent property taxes of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company. We answer the certified questions. The railroad filed a petition for reorganization under chapter VIII of the federal bankruptcy statute, 11 U.S.C. section 205 et seq., in the United States District Court for the Northern District of Illinois in 1977. The court allowed the petition and entered an order giving the railroad authority to pay taxes "now due or hereafter coming due . . . ." The order separately enjoined the commencing or continuing of "any court or other proceeding against the Debtor, or the enforcement of any judgments against it, or . . . any act or the commencement or continuation of any court proceeding to enforce any lien against its property . . . ." Pursuant to this order, the trustee elected to defer paying property taxes owed by the railroad in Iowa that became due after December 20, 1977. Subsequently, in 1980, the Iowa General Assembly enacted the Iowa Railway Finance Authority Act, Iowa Code chapter 307B (1981). The statute also added a provision that was codified after a minor amendment as section 307.29 in the 1981 Code: 1. Sixty days after the tax obligations of a railway company which are owed to a political subdivision of this state become delinquent as provided in section 445.37 and remain unpaid, the state department of transportation shall become *292 responsible for collection of the delinquent taxes. The county treasurer of each affected county shall transmit the unpaid tax statement of the railway company to the state department of transportation. This new law became effective on June 2, 1980. Section 307.29 was amended by 1981 Acts, 2nd Ex.Sess., ch. 3, section 1, effective July 1, 1982. The amendment made the following changes in section 307.29: In March 1982, the State of Iowa and Iowa Department of Transportation filed an application in the bankruptcy action making claim to all unpaid property taxes due from the trustee to any Iowa unit of local government. Notice was given to the 56 counties in which the railroad owned property. They, the Iowa Association of Counties, and several individuals resisted the State's claim and raised a number of legal issues. The federal court has certified seven questions based on those issues. The court provided the parts of the federal court record that the parties agree is relevant to our determination. The questions have now been submitted for answer in accordance with Iowa R.App.P. 451-57. We will state each question and our response. Our answer to the first question is "yes." John Torbert's affidavit shows he is a resident and property taxpayer in Polk County, through which the railroad runs. As a resident of the county, he has a stake in the outcome of the case because it will affect the amount of revenue available to the county for local services. As a property taxpayer he has a stake in the outcome because it may affect his taxes in the future. The standing of individuals has been recognized in analogous circumstances in other cases. See Polk County v. Iowa State Appeal Board, 330 N.W.2d 267, 273 (Iowa 1983); Warren County v. Judges of Fifth Judicial District, 243 N.W.2d 894, 897 (Iowa 1976). We need not decide whether the other parties have standing because the question posed is whether any one of them does. It is sufficient to find that Torbert has standing. Because Torbert has standing, the predicate for the second question is lacking. It does not require an answer. We answer this question "yes." Section 445.37 states when unpaid taxes became delinquent: Thus all railroad taxes which have been unpaid since the date they were due are delinquent unless there was delay in certification. In the event of delay in certification, the delinquency arose 30 days after the date of certification or the next October 1st, whichever date occurred later. Our response to this question is that Iowa Code section 307.29 (1981) does not have retrospective application. It is prospective from its original effective date of June 2, 1980. This means it gives collection authority to the department of transportation for all property taxes owed by a railway company that became delinquent after June 2, 1980, and remained unpaid for 60 days. The legislature has provided that a statute "is presumed to be prospective in its operation unless expressly made retrospective." Iowa Code § 4.5 (1983). Statutes affecting substantive rights are construed to operate prospectively unless a legislative intent that they be given retrospective operation clearly appears from their express language or by necessary and unavoidable implication. In re Estate of Parsons, 272 N.W.2d 16, 17 (Iowa 1978). Section 307.29 contains no express language providing for retrospective operation. *294 The State contends, however, it should be so construed because of necessary implication. The State's argument rests largely on the magnitude and urgency of the problem to be addressed by the Railway Finance Authority as indicated in chapter 307B. The legislature established the authority as a financing mechanism with the purposes stated in section 307B.2. The legislature identified the magnitude and urgency of the problem in section 307B.3. We do not find an intent demonstrated in chapter 307B that section 307.29 operate retrospectively. It will take longer to obtain funds if the statute is only prospective in its operation, but that is not sufficient to demonstrate legislative intent for retrospective operation by necessary and unavoidable implication. We find the statute to be prospective from June 2, 1980, the date collection authority was given to the department of transportation. Insofar as relevant here, the 1981 amendment merely named the fund into which the collected taxes were to be placed. Even before the amendment, however, those taxes were state property. 5. If the Iowa legislature intended § 307.29 (1981), Code of Iowa, as amended, to be applied prospectively and retrospectively, is this statute to be applied retrospectively to (1) June 2, 1980, the original effective date of this section; (2) July 1, 1982, the effective date § 307.29 (1981) was amended; or (3) a date 60 days after the Trustee, in his discretion or as otherwise directed by the Court, pays these unpaid property taxes; (4) all delinquent taxes at least 60 days overdue owed by a railway company in Iowa? Because section 307.29 is not retrospective, no answer to this question is required. Because section 307.29 is not retrospective, no answer to this question is required. Our response to this question is "no." The parties have briefed four constitutional issues. They expand the scope of the question, but we will assume the question is intended to embrace the issues the parties have briefed. Two of them are based on Iowa Const. art. I, section 6, one is based on Iowa Const. art. I, section 9, and one is based on Iowa Const. art. III, section 30. The issues under article I, section 6, involve equal protection and privileges and immunities. The issue under article I, section 9, relates to delegation of legislative power. The issue under article III, section 30, involves local or special laws. When a classification survives an equal protection challenge under article I, section 6, it will also survive a privileges and immunities challenge under the same provision and a local or special law challenge under article III, section 30. See John R. Grubb, Inc. v. Iowa Housing Finance Authority, 255 N.W.2d 89, 95-96 (Iowa 1977). Traditional equal protection analysis applies here: "Under that test the classification must be sustained unless it is patently arbitrary and bears no rational relationship to a legitimate governmental interest." Lunday v. Vogelmann, 213 N.W.2d 904, 907 (Iowa 1973). Section 307.29 classifies railroads differently than other property taxpayers. More specifically, it singles out railroads whose property taxes have been delinquent for more than 60 days. We do not find this classification to be patently arbitrary. Railroads whose property taxes remain delinquent for more than 60 days are more likely than not to be in financial trouble. Two major railroads including the railroad in this case were in bankruptcy reorganization proceedings at the time section 307.29 and chapter 307B *295 were enacted. It was not irrational for the General Assembly to look to delinquent taxes of railroads as one source of funds or property to help establish a financing mechanism to provide the public with adequate railway services. Moreover, a rational relationship exists between the classification and the state's goal of rehabilitating railway facilities. No one benefits from tax delinquencies. If the state can collect the money or acquire property and use it to upgrade railway services, local government might eventually be freed from the albatross of future delinquencies. No violation of equal protection has been shown. Consequently section 307.29 does not infringe taxpayer rights under Iowa Const. art. I, section 6, or Iowa Const. art. III, section 30, in the respects alleged. Nor do we find an unconstitutional delegation of legislative power under Iowa Const. art. I, section 9. The argument is that railroads control the classification because they are free to decide whether to pay their property taxes on time. This decision is legislative, according to the argument, because it determines which funds belong to the state and which belong to the counties. Principles governing delegation of legislative power are reviewed in Polk County v. Iowa State Appeal Board, 330 N.W.2d 267, 273-74 (Iowa 1983). Under those principles, the decision whether to pay taxes on time is plainly not the exercise of legislative power. Nor is it converted to legislative power by its effect on the source and amount of money subject to the state's collection authority under section 307.29. Normal incentives to pay taxes on time remain. The longer railroads wait to pay their taxes the more they owe, by reason of penalties and interest. In addition, the counties retain their collection authority for 60 days after delinquencies occur. Railroads are thus not always free to decide if their taxes will remain uncollected. We find no merit in the delegation argument. CERTIFIED QUESTIONS ANSWERED.