GO Comm. ex rel. Hale v. City of Minot

• Decision Date: 20 July 2005
• Docket Number: No. 20040367.,20040367.
• Citation: 701 N.W.2d 865,2005 ND 136
• Parties: GO COMMITTEE, by and through its spokesperson Robert HALE, and Dr. Jerome Schuler, and Ward County Farm Bureau, by and through its representative John Fjeldahl, Plaintiffs, Appellees and Cross-Appellants v. CITY OF MINOT, Defendant, Appellant and Cross-Appellee.
• Court: North Dakota Supreme Court

701 N.W.2d 865

2005 ND 136

GO COMMITTEE, by and through its spokesperson Robert HALE, and Dr. Jerome Schuler, and Ward County Farm Bureau, by and through its representative John Fjeldahl, Plaintiffs, Appellees and Cross-Appellants v. CITY OF MINOT, Defendant, Appellant and Cross-Appellee.

No. 20040367.

Supreme Court of North Dakota.

July 20, 2005.

Lynn M. Boughey, Boughey Law Firm, Minot, N.D., for plaintiffs, appellees and cross-appellants.

Nevin Van de Streek, City Attorney, Minot, N.D., for defendant, appellant and cross-appellee.

MARING, Justice.

[¶ 1] The City of Minot ("Minot") appealed from a declaratory judgment, and the GO Committee, by and through its spokesperson Robert Hale, and Dr. Jerome Schuler, and Ward County Farm Bureau, by and through its representative John Fjeldahl (collectively referred to as "GO Committee"), cross-appealed from an order, an order for judgment, and the judgment entered in a declaratory judgment action challenging Minot's handling of sales tax receipts. We affirm in part and reverse in part.

I

[¶ 2] In 1999, Minot adopted Ordinance No. 3560 creating a temporary surtax on its sales and use taxes to make improvements to its water supply, beginning January 1, 2000, if ratified by a majority of the voters in a special election. The ordinance was approved by the voters. It provides, in part:

AN UNCODIFIED ORDINANCE TO IMPOSE A TEMPORARY SURTAX ON THE CITY SALES AND USE TAXES, WITH THE PROCEEDS OF SUCH SURTAX TO BE USED FOR MAKING IMPROVEMENTS TO THE CITY'S WATER SUPPLY.

. . . .

Sec. 1. Definitions.

"Improvements" as used herein in the context of contemplated improvements to the City of Minot water supply means any measure or activity which has the effect, direct or indirect, of enhancing. . . such water supply, including but not limited to . . . treatment facilities . . . .

"Project" means the Northwest Area Water Supply (NAWS) Project.

Sec. 2. Municipal water supply improvements surtax imposed; amount; collection.

. . . .

(d) The administrator is authorized (but not required) to contract with the State Tax Commissioner to enforce this division, subject to confirmation of the contract by the city council. . . .

Sec. 3. Use of municipal water supply improvements surtax.

The revenues generated by the municipal water supply improvements surtax, less reasonable costs of administering the surtax, shall be expended exclusively to make improvements to the municipal water supply for the City of Minot through the mechanism of the Project. . . or, failing that, through any prudent and reasonable means to the same end. Provided that, however, such expenditures shall be limited to those which relate to the capital costs of accomplishing such improvements, and shall not extend to those which relate to the operating costs of the Project or of any water utility.

Sec. 4. Duration and Suspension of municipal water supply improvements surtax.

. . . .

(c) Any determination by the Finance Director called for in subsection (a) [termination of the surtax] or subsection (b) [suspension of the surtax] shall be considered binding and unimpeachable on all affected parties as long as it is made in good faith. In making such estimate the Finance Director is authorized and directed to take into account (but not necessarily exclusively so) all of the following factors—

. . . .

(2) the earnings likely to be derived from tax proceeds set aside to make future cash payments during such time as it is possible to accomplish such set-aside.

[¶ 3] In determining how much of its sales tax revenues were due to pre-2000 retail sales and post-1999 retail sales, Minot estimated the amounts by extrapolating from its experience with a prior tax. Minot commingled excess NAWS funds available for investment with other funds and distributed interest earned by those pooled funds to its general fund, rather than adding interest generated by the NAWS surtax to the NAWS Fund. Minot used some of the surtax revenue to make improvements to its water treatment plant.

[¶ 4] The GO Committee brought a declaratory judgment action raising issues about (1) whether Ordinance No. 3560 requires an exact accounting and distribution of the tax to the NAWS fund by the State Tax Commissioner instead of an estimate; (2) whether interest derived from the NAWS fund should be placed in the NAWS fund, instead of Minot's general fund; (3) whether the ordinance prohibits use of NAWS funds for paying administrative costs of collecting other taxes; and (4) whether the ordinance prohibits use of NAWS funds for improvements to Minot's water treatment plant. The complaint also alleged misuse of NAWS funds in balancing a "deficit caused by overspending economic development monies" and in upgrading Minot's water treatment plant, and sought to enjoin dissemination of incorrect information.

[¶ 5] The district court issued an opinion and order on motions ruling: (1) "The City must obtain an exact accounting from the State in order to determine the amount of money intended for the NAWS Fund and the amount of money intended for the Arena Fund"; (2) "The interest accumulated from NAWS revenues must be placed in the NAWS Fund"; (3) With regard to administrative fees incurred in the collection of Minot's sales taxes, "an accounting must occur to determine whether the appropriate amount of money was returned to the NAWS Fund"; (4) "[U]se of NAWS funds to improve the Minot water treatment plant was within the discretion of the Minot City Council"; (5) There must be an accounting "to verify that the proper funds are placed back into the NAWS Fund"; (6) On the claim that Minot "improperly used over $1.8 million in NAWS funds to balance a deficit caused by overspending from the economic development fund," Minot's "accounting entry was appropriate, as no funds were ever actually transferred"; and (7) On the claim that Minot disseminated false information, the court "decline[d] to impose a restriction on the City which would somehow limit what City officials could and could not talk about."

[¶ 6] The court issued an order for declaratory judgment noting the parties stipulated "that the amount of interest as of August 31, 2004, that should have been earned by the NAWS fund was $1,020,204.35," and that an exhibit "established that the principal amount of the NAWS fund as of August 31, 2004 was $10,832,560.09." The Clerk entered a declaratory judgment ordering Minot is not required to maintain a separate bank account for NAWS funds, but must account for and invest them separately from other funds, must clearly identify transfers to and from the NAWS fund, and must restore the NAWS fund to the $11,852,764.44 level it should have been on August 31, 2004.

[¶ 7] The City of Minot appealed, raising the following issues:

1. Did the City act properly when— consistent with a policy it had followed uniformly for decades and as specifically authorized and required in annual budget ordinances enacted subsequent to Ordinance 3560 (a more general ordinance which arguably provided otherwise)—it allocated certain interest earnings to its General Fund, rather than to the special fund set up by said Ordinance 3560?

2. Did the City of Minot stray from the "range of reasonableness" when it decided to apportion sales tax revenues—among various funds entitled thereto—by use of a mathematical formula, which formula was derived by way of extrapolation from its prior experience in a very similar situation?

The GO Committee cross-appealed, raising the following issues:

1. Whether the City violated its own ordinance and the vote of the people approving that ordinance by diverting the interest derived from the NAWS funds to the general fund.

2. Whether the lower court's decision relating to distribution of the NAWS funds is correct.

3. Whether the City violated its own ordinance and the vote of the people approving that ordinance by using the NAWS funds to upgrade the City's own water treatment plant.

4. Whether the City violated its own ordinance and the vote of the people approving that ordinance by using the NAWS funds to cover the City's deficit in its economic development account and whether the lower court erred in not requiring the City to place the NAWS funds in a separate account.

5. Whether the lower court erred in not granting an injunction against the City prohibiting city officials from providing "incorrect information" relating to the NAWS fund.

II

[¶ 8] The judiciary's role in reviewing a municipality's interpretation and application of a municipal ordinance is limited by the doctrine of separation of powers to determining if the municipality clearly abused its discretion:

Our review of a municipality's adoption, interpretation and application of its own ordinances is strictly limited by the doctrine of separation of powers. A municipality has broad discretion to determine the manner and means of exercising the powers delegated to it by state law. Ebach v. Ralston, 469 N.W.2d 801, 804 (N.D.1991); Peterson v. McKenzie County Public School District No. 1, 467 N.W.2d 456, 458 (N.D.1991). Courts will not substitute their judgment for that of the municipality's governing body in interpreting or applying ordinances unless an abuse of discretion is clearly shown. Sloven v. Olson, 98 N.W.2d 115, 124 (N.D.1959). To establish an abuse of discretion, it must be shown that the municipality's governing body acted arbitrarily, oppressively or unreasonably. E.g., Pic v. City of Grafton, 339 N.W.2d 763, 765 (N.D.1983)

.

A & H Servs., Inc. v. City of Wahpeton, 514 N.W.2d 855, 858 (N.D.1994). The limited nature of judicial oversight of the exercise of municipal authority is also shown in Haugland v. City of Bismarck, 429 N.W.2d 449, 453-54 (N.D.1988):

In defining municipal powers, the rule of strict construction applies. Lang v. City of Cavalier, 59 N.D. 75, 228 N.W. 819 (1930). Once a municipality's powers have been determined, however, "the rule of strict construction no longer

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