Meierhenry v. City of Huron

In 1978, the South Dakota legislature passed an act that authorized municipalities to engage in tax-increment financing (TIF). The primary purpose of TIF was to allow for redevelopment projects in blighted areas. Under the act, municipalities could create a tax-incremental district (TIF district), comprising real property in an area of which at least 25 percent was found to be blighted and substantially all the other realty was likely to experience a significantly enhanced value from redevelopment. Once a TIF district was created, the state department of revenue (DOR) was required to determine its tax-incremental base, defined as the aggregated assessed value of all taxable property located in the district on the date of its creation. The DOR would then levy “positive tax increments” based on a formula after notifying taxpayers of the same. The tax increment was computed as the total taxes levied on all taxable property within the TIF district multiplied by the current assessed value of property less the tax-incremental base divided by the current assessed value. Under the act, positive tax increments were paid to the municipality and deposited in a special fund. The special fund was used to pay project costs. The tax-incremental base constituted a cap on the assessed valuation of property for school and local governmental purposes. The act also allowed the issuance of bonds, the sales of which could be used to pay project costs. In 1983, the cities of Huron and Rapid City (defendants) intended to proceed with TIF districts and bonds under the act. The state attorney general and two taxpayers (collectively, the taxpayers) (plaintiffs) sued the cities, seeking a declaratory judgment that the act was unconstitutional and a writ of prohibition stopping the cities from proceeding with TIF. The taxpayers argued that the act resulted in an unconstitutional, non-uniform levy of taxes.