The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge
This cause is before the Court on Plaintiffs' Motion for Preliminary Injunction (d/e 8). On May 29, 2009, the Court held a hearing on this Motion. Subsequently, both parties submitted briefs discussing the evidence and issues involved. For the reasons stated below, the Motion is denied. The Court finds that the assessment at issue is a tax, but that Plaintiffs failed to establish the propriety of a preliminary injunction.
Plaintiffs Kansas City Southern Railway Company (Kansas City Southern) and Norfolk Southern Railway Corporation (Norfolk Southern) operate interstate railroads that cross through Illinois. Defendants Brady Lee Borrowman, Russell E. Koeller, and Dan Lundberg serve as commissioners of Defendant Sny Island Levee Drainage District (Sny Island), which is a subdivision of the State of Illinois organized to construct and operate a system to provide surface water control to certain areas of land. Defendant Michael H. Reed serves as Sny Island's superintendent and treasurer. Illinois granted Sny Island the power to levy assessments against land owners within its boundaries to fund operations, and a recent annual assessment increase forms the basis of this suit.
For purposes of this Motion, and from the evidence submitted at the hearing and with the subsequent briefs, the Court finds the following facts. For all assessment years preceding 2009, Sny Island assessed landowners within its boundaries using the same methodology for all: it divided its operating budget by the number of benefitted acres and then assessed a per acre fee for each landowner based on the number of acres owned, with an adjustment of the dollars an acre fee per tract for elevation. It did not distinguish among residential, industrial, commercial, and agricultural land, other than to assess land within a municipality at a flat fee of $5 per lot without adjustment for elevation. For all of these pre-2009 assessment years, Sny Island assessed Kansas City Southern and Norfolk Southern in line with all other landowners for their proportionate shares of the operation costs.
For 2009, however, Sny Island changed its assessment method. First, it opted not to assess any amount to the lands within the municipal limits of a village or town; it found that the costs of mailing out the assessment materials to these landowners and collecting from them outweighed the benefits it would incur from them. Second, regarding lands outside municipal limits, it adopted a two-category approach. In one category were residential, commercial, and agricultural lands. In the other category were lands owned by railroads, pipelines, and utilities, which Sny Island classified as industrial lands.
Approximately 700 landowners own property within the Sny Island boundaries. The vast majority of the approximately 692 non-industrial properties are agricultural. Sny Island considered fourteen of these 692 landowners to be commercial and a handful to be residential. Only eight landowners fell within the industrial category. Kansas City Southern and Norfolk Southern were among them. The industrial category included only railroads, pipelines, and utilities.
Having divided the lands it intended to assess into two categories, Sny Island then used two different methods to calculate the appropriate 2009 assessment for each landowner. For the residential, commercial, and agricultural lands, it merely added $10.00 per acre to its 2008 assessment amount. It is unclear how Sny Island settled on this $10.00 per acre increase. Sny Island's corporate designee testified that Sny Island assumed an average benefit to each acre for the services provided by the drainage district of $280.00. The corporate designee did not know how Sny Island estimated $280.00 per acre of benefit, however. The corporate designee testified that Sny Island's commissioners provided their attorneys their opinion regarding the extent to which the drainage system increased the cash rent and market value of the benefitted land, and the attorneys then recommended the $280.00 figure. The parties have presented the Court no evidence on how the Sny Island commissioners assessed the cash rent and market value of the non-industrial land or how they determined the benefit the drainage system provides to these lands. Further, it is not clear how the $280.00 figure relates to a $10.00 per acre increase.
For the industrial lands, Sny Island had its attorneys estimate how much the industrial landowners would have to pay to repair damage to their land if a flood were to occur without the drainage levees and how much of a financial loss they would suffer if they could not use their land because of a flood. For the railroads, the attorneys developed assumptions regarding the type of damage the train tracks would sustain, the length of track that would sustain damage, and the costs of various aspects of repair. Using this methodology, Sny Island calculated a benefit amount for each industrial landowner. It then multiplied that amount by 6.6% to set an assessment amount. It is unclear why Sny Island settled on a 6.6% assessment rate for the industrial landowners.*fn1
According to Sny Island's corporate designee, it only analyzed the economic benefits to particular landowners in the industrial category. It did not make individual investigations of the benefits each of the residential, commercial, and agricultural landowners enjoyed. The corporate designee conceded that Sny Island could have calculated individual benefits for each landowner, but it opted not to do so.
Based on the industrial land methodology, Sny Island imposed a substantially higher increase on Kansas City Southern and Norfolk Southern than either would have received had it been a residential, commercial, or agricultural landowners. Had these companies received assessments under the non-industrial methodology, Kansas City Southern would have been obligated to pay $3,897.14. Instead, Sny Island imposed an assessment of $85,544.26. Similarly, Norfolk Southern would have been obligated to pay $2,578.26. Instead, Sny Island imposed an assessment of $93,917.34. These figures represent thousand-fold increases over the previous year: Kansas City Southern's rate increased 4,700 percent, and Norfolk Southern's rate increased 8,000 percent.
On October 9, 2008, a Pike County court ordered the annual assessment as Sny Island proposed. The payments were due June 1, 2009, but at the hearing on this Motion, Defendants agreed to waive any late fees until after this Court ruled. Thus, Plaintiffs have not yet paid the 2009 assessment. They allege that Defendants' assessment against them violates the Railroad Revitalization and Regulatory Reform Act, which prohibits state and local governments from discriminating against railroads by taxing railroad property more heavily than other commercial property. 49 U.S.C. § 11501. They ask the Court to enjoin the collection of the approved assessment.
Congress enacted the Railroad Revitalization and Regulatory Reform Act, referred to as the "4-R Act," in 1976 to halt the economic decline of the railroad industry. CSX Transp., Inc. v. Georgia State Bd. of Equalization, 552 U.S. 9, 128 S.Ct. 467, 469-70 (2007). It "recognized that the railroads are easy prey for State and local tax assessors in that they are nonvoting, often nonresident, targets for local taxation who cannot easily remove themselves from the locality." Duluth, Missabe & Iron Range Ry. Co. v. State of Wis., 100 F.3d 69, 70 (7th Cir. 1996) (quotation marks ...