Fults v. City of Coralville, No. 02-1857.

• Court: United States State Supreme Court of Iowa
• Writing for the Court: STREIT, Justice.
• Citation: 666 N.W.2d 548,548 Iowa 666
• Parties: Karen FULTS and Wayne Siems, Appellants, v. CITY OF CORALVILLE, Appellee.
• Docket Number: No. 02-1857.
• Decision Date: 11 June 2003

666 N.W.2d 548
548 Iowa 666

Karen FULTS and Wayne Siems, Appellants,
v.
CITY OF CORALVILLE, Appellee

No. 02-1857.

Supreme Court of Iowa.

June 11, 2003.

Rehearing Denied August 7, 2003.

666 N.W.2d 550

Bruce D. Nestor of De Leon & Nestor, Minneapolis, Minnesota, for appellants

666 N.W.2d 551

Dennis W. Johnson of Dorsey & Whitney, Des Moines, for appellee

STREIT, Justice.

Property owners challenge a city's amending two urban renewal areas to support the development of a hotel and conference center. The City of Coralville amended two distinct urban renewal areas to include the highway corridor connecting the two areas and consolidated both into one urban renewal area. To finance, in part, the hotel/conference center project, the city took out $33 million in notes and bonds. Property owners in the urban renewal area challenge the city's inclusion of the highway corridor in the economic development area to support the creation of the consolidated urban renewal area. The property owners also argue the city exceeded its constitutional debt limitation in taking out $33 million in notes and bonds. Because we find the city complied with the urban renewal law of Iowa Code chapter 403 and the appropriations-backed "debt" does not constitute constitutional debt, we affirm.

I. Background and Facts

The City of Coralville established the Highway 6 Urban Renewal Area in 1992. Five years later, it created the Mall Urban Renewal Plan Area to finance development of the Coral Ridge Mall. In 2001, the city amended its general plan to include a hotel/convention center (the "project") to be built in the Highway 6 Urban Renewal Area. However, this area alone would not generate sufficient tax increment financing (TIF) revenue to fund the project.¹ To resolve this problem, the city consolidated the two previously existing urban renewal areas to finance the project. The two areas were connected by Interstate 80. Each of the original urban renewal plans was modified to include the I-80 corridor, a strip of land along the interstate from the Coral Ridge Mall east to Highway 6. The addition of the Interstate 80 corridor to each of the previously existing urban renewal areas physically and visually connected the two urban renewal areas. The city called this newly created area the "Mall and Highway 6 Urban Renewal Plan Area" (the "plan").

To finance the hotel project's construction, the city approved a financing project of $20 million in notes and $13 million in bonds. The notes and bonds were contingent obligations subject to repayment only if the city would annually appropriate the funds necessary for repayment.

666 N.W.2d 552

Plaintiffs Karen Fults and Wayne Siems are residents of the City of Coralville and owners of property in the Highway 6 Urban Renewal Area (the "property owners"). The property owners filed a petition for declaratory judgment challenging the city's financing of the project. The property owners argued the consolidation of the two urban renewal areas was invalid because the I-80 right-of-way cannot be designated an urban renewal area for economic development. The property owners also challenged the city's compliance with the statutory procedure for issuing the bonds and notes. Finally, the property owners asserted the city's issuance of notes and bonds caused the city to exceed its constitutional debt limit. The property owners sought a declaration of the appropriate assessment to be used in setting the base valuation and the portion of taxes reserved to the respective taxing districts

The district court ruled in favor of the city on each issue and dismissed the property owners' petition. The property owners appeal contending the city's designation of the I-80 right-of-way as an economic development area was arbitrary, capricious, or unreasonable. The property owners also argue the annual appropriation debt constitutes debt subject to the debt limitation provision of the Iowa Constitution.

II. The Merits

On appeal, we examine two main issues. The property owners ask us to determine whether the district court erred in finding the city properly designated the I-80 right-of-way as an economic development area. Our review of this issue is for correction of errors of law. Iowa Coal Min. Co. v. Monroe County, 494 N.W.2d 664, 668 (Iowa 1993). We also consider whether the district court erred in finding the city's annual appropriation obligations do not constitute constitutional debt. As to the second issue, our review is de novo because constitutional issues are involved. Id.

A. Designation of the Urban Renewal Area

The property owners challenge the city's inclusion of the I-80 corridor as part of the consolidated urban renewal area. The property owners misconstrue the real issue before us by concentrating their argument on the legality of declaring the I-80 corridor itself an economic development area. We do not review whether the I-80 right-of-way as it stands alone complies with chapter 403, but rather whether the Mall and Highway 6 Urban Renewal Area (of which the I-80 right-of-way is a part) is consistent with our state urban renewal law. Property owners have the heavy burden of showing the city's designation of this urban renewal area was arbitrary, unreasonable, or capricious. Dilley v. City of Des Moines, 247 N.W.2d 187, 190 (Iowa 1976).

As we have said before, it is critical to examine the nature of the city council's action to determine whether the city acted in conformance with the urban renewal laws of Iowa Code chapter 403. McMurray v. City Council, 642 N.W.2d 273, 277 (Iowa 2002). A municipality is vested with "all the powers necessary or convenient to carry out and effectuate the purposes and provisions of [chapter 403.]" Iowa Code § 403.6 (2001). In McMurray, we summarized the proper actions of a city council in achieving the purposes of our urban renewal statute as follows:

In general, the City Council acts in a legislative capacity. Chapter 403 grants city councils authority to carry out urban redevelopment, rehabilitation, and renewal projects. As such, the City Council's action in designating this economic

666 N.W.2d 553

development area involved determination of legislative, not judicial, facts. Legislative facts are "generalized propositions of fact or policy guiding the exercise of legislative judgment." (Citation omitted.) Moreover, legislative facts are not concerned with particular problems of individuals, but involve a determination of what is in the best interests of the public generally. Trager v. Peabody Redevelopment Auth., 367 F.Supp. 1000, 1002 (D.C.Mass.1973)....

Such decisions by the city council involving legislative facts necessarily involve the exercise of considerable discretion. Legislative declarations, such as the one before us, are entitled to great weight. See, e.g., Miller v. City of Tacoma, [61 Wash.2d 374] 378 P.2d 464, 470 (Wash. 1963).... Consequently, we have no power to interfere with the City Council's legislatively given discretion to carry out the purposes of the urban renewal law. See, e.g., Dilley v. City of Des Moines, 247 N.W.2d 187, 192 (Iowa 1976).... Rather, we presume the City Council, as a governing body of elected officials, acted in the overall best interests of the public.

McMurray, 642 N.W.2d at 277. Bearing in mind the wide discretion city councils have in carrying out our urban renewal laws, we turn to whether the city in this particular case complied with the requirements of chapter 403.

Iowa Code chapter 403 provides that one reason a municipality may create an urban renewal area is to encourage general economic development for a community. Iowa Code § 403.2(3); see McMurray, 642 N.W.2d at 278 (citing Bowers v. Polk County Bd. of Supervisors, 638 N.W.2d 682, 697 (Iowa 2002)). In this instance, the city had already created two separate urban renewal areas.² The Mall Urban Renewal Area already had substantial development, while the Highway 6 Urban Renewal Plan remained relatively unchanged. By resolution, the city council amended the Highway 6 Urban Renewal Area and the Mall Urban Renewal Area and created the Mall and Highway 6 Urban Renewal Area. The city combined these two areas to use the success and stability of the Mall Urban Renewal Area to assist in the economic development of the Highway 6 Urban Renewal Area.

It is common for a municipality to amend urban renewal areas to respond to changing needs and circumstances. Once a city adopts an urban renewal plan, it may modify the original plan through additional resolutions. Iowa Code section 403.5(6) states,

Upon approval by the municipality of an urban renewal plan or of any modification thereof, such plan or modification shall be deemed to be in full force and effect for the respective urban renewal area, and the municipality may then cause such plan or modification to be carried out in accordance with its terms.

Iowa Code § 403.5(6). Property owners do not contend the city is prohibited from consolidating urban renewal areas, especially those areas that are not contiguous. No statute prohibits a municipality from combining tax revenues within the combined urban renewal areas to fund a new project. To the contrary, the record shows it is common for a municipality to consolidate existing urban renewal areas to finance development of the community within the expanded urban renewal area. Further, the record reflects that it is not unusual for a municipality to use a highway right-of-way to join urban renewal

666 N.W.2d 554

areas. It was within the city's discretion to amend the original urban renewal areas and combine them to promote economic development in the Highway 6 area. The question is whether the city's declaration of the consolidated areas as one economic development area to support the creation of the Mall and Highway 6 Urban Renewal Plan Area complied with chapter 403.

Before a municipality may designate an urban renewal area, it must pass a resolution finding...