RICK BARNETT, as Property Appraiser of Bay County, Florida, and PEGGY BRANNON, as the Tax Collector for Bay County, Florida v. DEPARTMENT OF MANAGEMENT SERVICES
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IN THE DISTRICT COURT OF APPEAL
FIRST DISTRICT, STATE OF FLORIDA
RICK BARNETT, as Property
Appraiser of Bay County, Florida,
and PEGGY BRANNON, as the Tax
Collector for Bay County, Florida,
NOT FINAL UNTIL TIME EXPIRES TO
FILE MOTION FOR REHEARING AND
DISPOSITION THEREOF IF FILED
CASE NO. 1D05-1731
Appellants/Cross-Appellees,
v.
D E P A R T M E N T
O F
MANAGEMENT SERVICES,
Appellee/Cross-Appellant.
_____________________________/
Opinion filed March 27, 2006.
An appeal from the Circuit Court for Bay County.
Dedee S. Costello, Judge.
Larry E. Levy and Loren E. Levy of The Levy Law Firm, Tallahassee for
Appellant/Cross-Appellee Rick Barnett.
Douglas L. Smith of Burke, Blue, Hutchinson & Walters, P.A., Panama City, for
Appellant/Cross-Appellee Peggy Brannon.
Robert C. Reid and Theresa Proctor of Bryant, Miller & Olive, P.A., Tallahassee, and
Michael S. Davis of Bryant, Miller & Olive, P.A., Tampa, for Appellee/CrossAppellant.
ERVIN, J.
The property appraiser, Rick Barnett, and tax collector, Peggy Brannon, of Bay
County, Florida (collectively, property appraiser), appeal a final judgment deciding
that the real property on which the Bay Correctional Facility (facility) is located was
immune from ad valorem property taxes because the Department of Management
Services (DMS), the lessee under a lease-purchase agreement (LPA), was the
property’s equitable owner. As a consequence, the court directed the property
appraiser to set aside the assessments he made for the taxable years 1999 through
2002. The Department cross-appeals the lower court’s failure to declare the subject
property immune from taxation since 1994, the date it asserts it first became the
equitable owner of the property. We affirm all issues, but address only those raised
by appellants.
The facts, as stipulated by the parties, disclose that the Florida Legislature
enacted the Correctional Privatization Commission Act, sections 957.01- 957.16,
Florida Statutes (1993), which was designed to privatize the operation of state prison
facilities, and in order to accomplish that purpose, it created the Correctional
Privatization Commission (CPC),1 a public entity acting within DMS. § 957.03(1),
Fla. Stat. (1993). In implementing the legislative goals, the Bay County Private
1
The authority of the CPC to so act was transferred to DMS on July 1, 2004.
2
Correctional Facility Finance Corporation (Finance Corporation),2 a private, not-forprofit corporation, was created in 1994, for the purpose of acquiring the title to the
property on which the facility would be located. Shortly thereafter the Panama City
Port Authority transferred title of the real property to the Finance Corporation, which
then leased the facility and its property to the CPC, pursuant to the terms of the LPA,
which made the CPC responsible for providing all insurance, repairs and maintenance
of the facility, and all risk of loss. Finally, under its terms, the CPC was given an
option to purchase the facility and receive all the interests of the lessor upon
expiration of the lease, with no further payment.
The Finance Corporation entered into a separate agreement with NationsBank
of Florida, N.A., as trustee (Trustee), and it transferred its interest in the LPA to the
Trustee. Pursuant to the agreement, the Trustee issued certificates of participation
(COPs) to investors, the proceeds of which were used by the Finance Corporation to
acquire the property on behalf of the CPC and to construct the facility. In order to
secure the issuance of the COPs, the Finance Corporation mortgaged its interest in the
property to the Trustee, and thereafter the CPC, the Finance Corporation, and the
Correctional Corporation of America (CCA), a private corporation, entered into a
2
In 2001, the Finance Corporation merged into Florida Correctional Finance
Corporation.
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contract for CCA to construct the correctional facility, and the CPC and CCA
executed a separate contract for its operation. The state has appropriated funds to the
CPC on an annual basis in an amount sufficient to pay the annual lease payments to
the Trustee, as required by the LPA, and to pay the cost of operating the facility.
Thereafter, the property appraiser assessed both the real and personal property
and placed them on the tax rolls for the years 1995-2002. In 1997, both the CPC and
the Finance Corporation filed complaints challenging the assessments of the property
for the years 1995-1997, which were dismissed. The CPC filed separate complaints
challenging the assessment of the property for the tax years 1999-2002, which resulted
in the final judgment appealed, declaring the property immune from ad valorem
property taxation during the later years challenged.
The property appraiser first argues that the LPA, which is part of the financing
arrangement used for the construction and operation of the prison facility, is precisely
that, a lease, and not a mortgage; therefore, it could not legally transfer equitable
ownership of the property to the CPC, and, because legal ownership to the property
remained in a private entity, the Finance Corporation, the property could not be
deemed immune from taxation. The appraiser alternatively argues that if, in fact, the
lease had the effect of transferring equitable ownership to the CPC, its legal effect was
that of a mortgage given to secure the repayment of the debt evidenced by the
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mortgage the Finance Corporation conveyed to the Trustee; therefore, the repayment
of the COPs for the purpose of satisfying the debt by state funds would have required
compliance with the referendum provision of article VII, section 12 of the Florida
Constitution, and because there was none, the debt was invalid. See Nohrr v. Brevard
County Educ. Facilities Auth., 247 So. 2d 304 (Fla. 1971). Finally, the appraiser
argues that the legislature, in enacting the CPCA, reasonably intended that the
contractor which operated the facility, CCA, would be the lessee of the property, not
CPC; therefore, if equitable title was transferred, it was conveyed to CCA, a private
entity, making the property subject to taxation. We cannot agree with any of these
arguments.
In our judgment, the issue of the property’s status is controlled by the Florida
Supreme Court’s decision in Leon County Educational Facilities Authority v.
Hartsfield, 698 So. 2d 526 (Fla. 1997), wherein the court was asked whether property
leased to the Leon County Educational Facilities Authority (LCEFA) from a nonprofit entity under an LPA was subject to ad valorem taxes. Somewhat similar to the
case at bar, SRH, Inc., a private, non-governmental entity, served as the lessor under
the agreement, and in such capacity it was required to “acquire, construct, and equip
the project and lease it to the Authority in exchange for periodic rental payments.” Id.
at 527. COPs were sold to finance the dormitory project and investors received a
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fractional interest in the rental payments made by the authority. Id. Once the
certificates were fully paid, the Authority had the option under the lease of purchasing
the dormitory project for $1.00. Id. The terms of the agreement also provided that the
lessee, the Authority, “shall pay any taxes which may be assessed against the project.”
Id. After the property appraiser’s denial of the authority’s application for an ad
valorem tax exemption, the Authority and SRH sought declaratory relief, and their
complaint was dismissed, which was affirmed by this court on appeal for the reason
that the property was not exempt because SRH, a private entity, rather than the public
Authority, held legal title to the property. Id. at 527-28.
Applying the doctrine of equitable ownership, the Florida Supreme Court
quashed this court’s decision, concluding that the project was exempt from taxation
because the Authority, a public entity, not SRH, was its equitable owner. Id. at 529.
In so deciding, the court noted that the Authority held “virtually all the benefits and
burdens of ownership.” Id. at 530. Among other things, the court noted that the
Authority was responsible for maintaining and insuring the project and, more to the
point, it could purchase the project for a nominal sum upon termination of the lease.
Id. at 527. In reaching its decision, the court emphasized the use of the property and
the lack of benefits acquired by SRH under the lease:
It is unlikely that the legislature intended that property
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being used by the Authority for its authorized purpose
should be denied a tax exemption solely because it does not
hold bare legal title. The only reason legal title is held by
SRH is to facilitate the financing of the project. In essence,
SRH is a conduit through which the lease payments are
used to repay the COPS holders. Under the lease, SRH can
make no profit on the project.
Id. at 529.
Despite the factual similarities between the Hartsfield financing
arrangement and that in the present case, the county argues that Hartsfield is not
controlling.
The property appraiser fails to show how the occurrence of a bond validation
proceeding would in the instant case have any impact upon a determination of
equitable ownership, any more than such proceeding would have affected the
determination in Hartsfield, in which no mention was made of the necessity of a
referendum. The relative burdens and benefits flowing to the lessor and lessee are
controlled in both cases by the financing arrangement and the LPA. In this case, the
majority of the benefits and burdens of the prison ownership flow to the state, while
virtually none are conveyed to CCA.
Although the property appraiser argues that the contractor, CCA, is the
equitable owner of the prison facility due to the terms of an operation and
management service contract between it and the CPC, in which CCA agreed to operate
and manage the project and be responsible for all lawful taxes assessed on the
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property, this argument fails to acknowledge that CCA was not the lessee under the
terms of the LPA, but rather CPC, and, indeed, CCA was not a party to the LPA.
Similar to SRH, the non-profit corporation in Hartsfield which leased the project to
the Authority, in the present case, the Finance Corporation, also a non-profit
corporation, was established solely to facilitate the financing of the facility, and it, too,
leased the property to a governmental agency. The Finance Corporation, like SRH,
holds bare legal title to the property, and, although it mortgaged its interest in the
property to the Trustee, it has no obligation to repay the funds secured by the issuance
of the COPs to construct the facility under the terms of the mortgage if the legislature
fails to appropriate sufficient amounts for such purpose. Moreover, as the lessor, the
Finance Corporation collects none of the rent paid by the state under the agreement,
as it has assigned its right to rental payments under the LPA to the Trustee, which in
turn, are applied by the Trustee to the payment of principal and interest on the COPs.
As a result, the Finance Corporation has obtained no burdens or benefits of ownership
under the LPA.
While CCA had a stake in the construction and operation of the prison, its
potential gains or losses were derived solely from its status as a contractor, and not as
a tenant. The benefits it received were obtained under the terms of the operation and
management service contract in its role as general contractor for the construction of
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the prison, and as a contract provider of correctional services, and not as a lessee.
Thus, because it also had none of the benefits or burdens associated with owning the
prison, it cannot be considered the property’s equitable owner.
It is obvious, under the contractual terms, that only the state, operating through
the CPC, can in fact occupy the status of equitable owner. Subject to annual
appropriations, the CPC is ultimately responsible for repaying the COPs issued to
construct the prison. Finally, following the final payment under the agreement, the
concluding payment is “$0.00,” and the Finance Corporation is then required to
convey its fee-simple interest to the CPC. As a result, we consider the facts
essentially indistinguishable from those in Hartsfield, and we agree with the lower
court that the state, acting through the CPC, must be considered the equitable owner
of the facility.
The property appraiser next argues that if the CPC has acquired such status, the
state was constitutionally prohibited from entering into the agreement, because it
constitutes a public debt without a referendum vote by the people. The decisions that
the property appraiser relies upon, State v. School Board of Sarasota County, 561 So.
2d 549 (Fla. 1990), and State v. Brevard County, 539 So. 2d 461 (Fla. 1989), offer
little support for his argument. In each case, the supreme court found that a
referendum was not constitutionally required to approve lease-purchase financing
9
arrangements similar to those involved at bar, because the governmental entities did
not secure their obligations with a pledge of ad valorem taxes, or a mortgage with the
right of foreclosure. See Sarasota County, 561 So. 2d at 553. In rejecting the
argument that such a financing arrangement required a referendum, the court in
Sarasota County concluded:
The state contends that County of Volusia v. State,
417 So.2d 968 (Fla.1982), precludes validation in this
instance. We disagree. In Volusia, the obligations were
supported by the pledge of all legally available
unencumbered revenues other than ad valorem taxation,
along with a promise to fully maintain the programs and
services which generated the non-ad valorem revenue. We
held that referendum approval was required because the
interrelated promises “in effect constitutes a promise to
levy ad valorem taxes.” Id. at 971. The instant case is not
analogous. We have here no interrelated promises which
will inevitably lead to an increase in ad valorem taxation.
The state in addition argues that validation is
precluded by Nohrr v. Brevard County Educational
Facilities Authority, 247 So.2d 304 (Fla.1971). In Nohrr,
we held that a bond-supporting agreement which granted a
mortgage with right of foreclosure violated the predecessor
to article VII, section 12, absent an approving referendum.
The rationale of Nohrr does not apply to the instant case.
There is no mortgage with right of foreclosure. Here the
bondholders are limited to lease remedies and the annual
renewal option preserves the boards’ full budgetary
flexibility.
10
Id. at 553 (emphasis added) (footnote omitted). Moreover, the court did not hold that
such a lease-purchase financing arrangement did not constitute debt. In fact, the court
specifically recognized that governmental entities involved became debtors under the
financing arrangement:
In the instant cases, likewise, the supporting agreements –
the facilities and ground leases and the trust agreements –
are evidence of the boards’ indebtedness. They constitute
obligations of the boards, so long as funds are appropriated,
to pay the designated revenues to the trustees to assist in
servicing the bonds.
Id. at 552 (emphasis added).
In this case, the CPC is in the same position as that of the school boards in
Sarasota County and the county in Brevard County. The CPC is indebted to the COP
holders. As long as funds are annually appropriated, the CPC is required to make
principal and interest payments on its debt. A default in the payments required under
the mortgage would occur only if the state defaulted in the payments required by the
LPA. Under such circumstances, the state would cease to be the equitable owner of
the property; the Finance Corporation would become both its legal and equitable
owner, and the Trustee could then pursue its remedies to enforce the mortgage against
the Finance Corporation, not the CPC. As a result, the holders of the COPs are in no
better position than the bondholders in State v. Miami Beach Redevelopment Agency,
11
392 So. 2d 875, 898-99 (Fla. 1980), to compel the state by judicial action, if the
obligations of the debt represented by the COPs could not be fulfilled, to satisfy the
indebtedness. As a result, neither Sarasota County nor Brevard County provides
support for the proposition that the CPC could not assume debt in the absence of a
referendum.
The property appraiser next argues that in enacting chapter 957, the legislature
intended that facilities constructed pursuant to such legislation would be subject to ad
valorem taxation in their status as private prison facilities. Only by fixing on isolated
portions of the legislation is the property appraiser able to reach such conclusion, one
with which we cannot agree. Among other things, he points to section 957.03(1),
requiring the CPC to enter into contracts with contractors for the purpose of designing,
leasing, constructing and operating the facilities, and section 957.04(2)(c), designating
the contractor, not the CPC, as the entity responsible for obtaining the financing
necessary to design and construct the facility. This argument overlooks the fact that
section 957.04(2)(a) authorizes the use of tax-exempt financing of the facilities
through the issuance of tax-exempt bonds, COPs and LPAs.
A well-recognized maxim of statutory construction is that the legislature must
be presumed to be aware, at the time it enacts new legislation, of the status of the law
then existing, including pertinent judicial case law. Thus, when the legislature
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adopted chapter 957 in 1993, it was no doubt aware of the supreme court’s decisions
in Sarasota County and Brevard County, approving financing arrangements involving
LPAs through the issuance of bonds or COPs which would be paid from sources that
included ad valorem taxes, and that such arrangements did not require a public
referendum. Any lingering uncertainty as to the legislative intent behind the creation
of the Act was, in our opinion, clearly dispelled by the legislature’s addition of
subsection (8) to section 957.04 in 1999, which provides that the buildings and other
improvements financed under subsection (2)(a) and leased to the CPC would, upon
the expiration of the lease, become the property of the state.
AFFIRMED.
WOLF and DAVIS, JJ., CONCUR.
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