Concerned Citizens of Se. Polk Sch. Dist. v. City of Pleasant Hill

• Decision Date: 22 April 2016
• Docket Number: No. 14–1362.,14–1362.
• Citation: 878 N.W.2d 252
• Parties: CONCERNED CITIZENS OF SOUTHEAST POLK SCHOOL DISTRICT, Appellant, Southeast Polk Community School District Board of Education, Intervenor–Appellant, v. CITY OF PLEASANT HILL, IOWA, and the City Council of the City of Pleasant Hill, Iowa, Appellees.
• Court: Iowa Supreme Court

878 N.W.2d 252

CONCERNED CITIZENS OF SOUTHEAST POLK SCHOOL DISTRICT, Appellant,

Southeast Polk Community School District Board of Education, Intervenor–Appellant,

v.CITY OF PLEASANT HILL, IOWA, and the City Council of the City of Pleasant Hill, Iowa, Appellees.

No. 14–1362.

Supreme Court of Iowa.

April 22, 2016.

Gary D. Dickey of Dickey & Campbell Law Firm, P.L.C., Des Moines, for appellant Concerned Citizens of Southeast Polk School District.

John E. Lande and Thomas D. Hanson of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for appellant Southeast Polk Community School District Board of Education.

William J. Miller of Dorsey & Whitney LLP, Des Moines, and R. Bradley Skinner of Skinner Law Office, P.C., Altoona, for appellees.

MANSFIELD

, Justice.

This case presents important issues relating to the use of tax increment financing (TIF) for economic development purposes. A citizens group and a school district have challenged a city's urban renewal plan. They claim the plan violates Iowa law because it (1) unlawfully extends the duration of a TIF area, (2) unlawfully uses revenue from that TIF area to support development in other parts of the city, and (3) fails to conform to the terms of the city's general plan.

Both the district court and the court of appeals rejected these challenges. On further review, we conclude that extending the duration of the TIF area was impermissible because that area had previously been consolidated with other TIF areas and therefore no longer existed. Thus, the old TIF area could not benefit from a grandfather provision in a 1994 Iowa law that otherwise limited such TIF arrangements to twenty years' duration. We further hold that revenue may be shared within the consolidated, larger TIF area, subject to the time limits set forth in the 1994 Iowa law. Lastly, we agree that the urban renewal plan and the city's general plan were not inconsistent with each other. For these reasons, we vacate the court of appeals decision, affirm the district court judgment in part, reverse in part, and remand for further proceedings.

I. Background Facts and Proceedings.

Iowa Code chapter 403 covers urban renewal in Iowa. Under that chapter, the governing body of the municipality must first determine by resolution that an area is "a slum area, blighted area, economic development area or a combination of those areas." Iowa Code §§ 403.5(1)

, .17(23) (2013). This area, having been designated as appropriate for a renewal project, is known as an urban renewal area (URA). Id. The municipality also must prepare or cause to be prepared an urban renewal plan that lays out proposed projects for "the development, redevelopment, improvement, or rehabilitation" of the designated URA. Id. §§ 403.5(2)(a ), .17(24).

The governing body submits the urban renewal plan to the municipality's planning commission for review and recommendation as to whether it complies with the general plan of development for the municipality. Id. § 403.5(2)(a )

. The governing body then holds a public hearing on the plan. Id. § 403.5(3). After the hearing, the governing body may approve the plan. Id. § 403.5(4). The plan may be modified at any time, subject to the hearing process if the modification will require an increase in debt service or other issuance of indebtedness. Id. § 403.5(5).

Chapter 403 also authorizes a unique form of financing for urban renewal projects. This is known as tax increment financing (TIF). Id. § 403.19

. TIF works on the theory that any projects completed in the URA will increase the taxable value of the properties included within the area. Upon approval of a TIF district, the assessed value of the properties within the district is frozen for purposes of normal tax assessment by the municipality. Id. § 403.19(1)(a ). Then, the tax collected for any enhanced value above this base is allocated to a separate fund designated to pay for any indebtedness incurred to complete the improvements. Id. Presumably, that is because the improvements bring about the increased property value. "In theory, the process is a closed circuit: the incremental revenues pay for the public expenditures, which induce the private investment, which generates the incremental revenues, which pay for the public expenditures." Richard Briffault, The Most Popular Tool: Tax Increment Financing and the Political Economy of Local Government, 77 U. Chi. L.Rev. 65, 68 (2010) [hereinafter Briffault].

After the project debt has been paid through the allocation of TIF revenues, any increased tax revenue thereafter goes to the normal taxing districts. Iowa Code § 403.19(2)(c )

. By its nature, TIF diverts property tax revenue that would otherwise be available to the regular taxing districts. See Briffault, 77 U. Chi. L.Rev. at 88 ("From a municipal perspective, TIF is far better than either tax abatement authority or revenue-enhancement authority because it permits the capture and use for municipal economic development projects of revenues that would have gone to these other governments."). Potentially, TIF can lead to controversy because a city or town's use of TIF results in less money going to the county and the school district in that area. See Brad Perri, Note, Financing the Future: Interpreting the "Economic Development Area" Provision of the Iowa TIF Statute, 50 Drake L. Rev. 159, 161 (2001)

; see also Briffault, 77 U. Chi. L. Rev. at 88–90.

Until 1994, TIF arrangements were not subject to any time limit. In that year, the legislature amended the law, limiting TIF revenue division for economic development areas, but not slum or blighted areas, to twenty years. 1994 Iowa Acts ch. 1182, § 8 (codified as amended at Iowa Code § 403.17(10)

).¹ Yet the same amendment altered the wording of the TIF law to allow the tax valuation freeze to be used through the entire URA rather than only within the portion of the URA where the project was being constructed. Id. § 10 (codified as amended at Iowa Code § 403.19(2)(a ) ); cf. Richards v. City of Muscatine, 237 N.W.2d 48, 61 (Iowa 1975) (holding that under prior law the statute "can be applied to freeze the tax valuation only in areas being physically redeveloped by an urban renewal project"). Thus, the municipality could now freeze valuation for an entire urban renewal area rather than just the project area, but such valuation freeze was limited to twenty years in economic development areas.

The twenty-year limitation applied to "urban renewal plans approved ... on or after January 1, 1995." 1994 Iowa Acts ch. 1182, § 15. On June 28, 1994, the Pleasant Hill City Council adopted resolutions establishing Urban Renewal Area No. 1 (the "Copper

Creek URA") and an urban renewal plan ("Plan") for the Copper Creek URA. The Plan envisioned that a golf course and single- and multi-family housing would be constructed in the northwest corner of the City. The Plan provided it would remain in effect for twenty years and for any additional time while "obligations payable from incremental taxes are outstanding." The Plan also stated,

This Urban Renewal Plan may be amended to include such things as a change in the project boundaries, to modify renewal objectives or activities, to add or change regulations for development of property, or for any other purposes consistent with Chapter 403 of the Code of Iowa, following a public hearing on the proposed change, in accordance with Chapter 403 of the Code of Iowa.

That same day, the Pleasant Hill City Council also passed an ordinance for TIF purposes. This ordinance permitted the division of property taxes within the Copper

Creek URA, in accordance with Iowa Code section 403.19, "to finance or refinance in whole or in part projects in the [Copper Creek URA]." It does not appear the ordinance has been amended since its original passage.

In 1995, the City created a second URA to the east of the Copper

Creek URA known as the Industrial URA. As before, the City simultaneously took steps to make this URA a TIF district. And in 2000, the City created yet another URA with a TIF division of property tax revenue. This URA was also to the east of the original Copper Creek URA and was known as the East URA.

In 2006, the City consolidated the Industrial and East URAs into the Copper

Creek URA, which by then had been renamed the Pleasant Hill URA. The Plan was amended to cover the consolidation. In addition, some property that had not previously been covered by any of the three URAs was added to the Pleasant Hill URA. The resolution amending the Plan explained,

Changing economic needs and priorities now make it unnecessary to maintain each of the [URAs] as a separate area, and the City has determined that consolidation of the [URAs] would enable the City to maximize the benefits of further development within the City and make it possible to devote increment property tax revenues in a more efficient manner.

The resolution added, however, "[T]he adoption of this Amendment will have no effect on any of the tax increment ordinances or amendments that have been adopted for any of the [URAs]...." The Pleasant Hill URA, like its predecessors, was an economic development area, not a slum or blighted area.

In June 2013, the City annexed 238 acres on the east edge of town across Highway 163 from Southeast Polk High School.² By resolution, the City also established a new economic development area consisting of the newly annexed property, plus certain existing street rights-of-way that were already located within the City. Additionally, the City amended the Plan to incorporate the just-created URA into the existing Pleasant Hill URA (the Amended Plan).

The Amended Plan provided for certain projects to be completed on the newly added streets and the newly annexed property. These projects included both improvements to existing streets and construction of new streets. The Amended Plan also stated that "[i]ncremental property tax rebate payments to a developer are authorized with respect to the development of property that is...