Green v. City of Mt. Pleasant

• Citation: 256 Iowa 1184,131 N.W.2d 5
• Decision Date: 20 October 1964
• Docket Number: No. 51515,51515
• Parties: James M. GREEN, in behalf of himself, and all other persons, similarly situtated who may come, and join in a class action, Appellant, v. CITY OF MT. PLEASANT, Iowa, Appellee.
• Court: United States State Supreme Court of Iowa

Page 5

131 N.W.2d 5

256 Iowa 1184

James M. GREEN, in behalf of himself, and all other persons, similarly situtated who may come, and join in a class action, Appellant, v. CITY OF MT. PLEASANT, Iowa, Appellee.

No. 51515.

Supreme Court of Iowa.

Oct. 20, 1964.

John F. Elgar, Mt. Pleasant, for appellant.

Roger S. Galer, Mt. Pleasant, for appellee.

MOORE, Justice.

Plaintiff in this 'test case' for declaratory judgment and injunctive relief attacks the constitutionality and validity of chapter 247, Laws of the 60th General Assembly, I.C.A. § 419.1 et seq. The title of the Act is:

'AN ACT authorizing cities and towns to acquire, purchase, construct, reconstruct, improve, extend the lease industrial buildings; authorize the issuance of revenue bonds of cities and towns for the purpose of securing and developing industry and provide for the payment of certain sums in lieu of taxes to the state of Iowa and to the county, city, town, school district and other political subdivisions.'

Plaintiff also questions the resolutions and actions of defendant city of Mr. Pleasant to finance the construction of a new industrial plant near the city under a plan to issue $650,000 industrial development revenue bonds pursuant to the provisions of chapter 247.

From the trial court's judgment upholding the act in its entirety, approving the city's actions and denying plaintiff the relief sought, he has appealed.

On November 20, 1963 the city council of Mt. Pleasant adopted a resolution calling for a special election on the proposition of issuing $650,000 industrial development revenue bonds. It provides that any revenue bonds which may be authorized by the voters shall be payable solely from the project revenues as required by section 3, chapter 247.

The council in the preamble of this resolution stated preliminary arrangements to locate a Vega Industries, Inc., industrial plant within eight miles of Mt. Pleasant had been made. It found local capital was not available for the project, such a plant would alleviate existing unemployment and would serve the best public interest. Evidence on the trial was offered to establish the arrangement with Vega and the findings of the council.

After an extensive promotional campaign the election on the proposition was held December 17, 1963. It carried by 1005 yes to 29 no votes.

The Mt. Pleasant city council adopted a resolution on February 5, 1964 which authorized acquisition of land, construction of a manufacturing plant, issuance of industrial development bonds and execution and delivery of a mortgage to secure them. It also provided for the acceptance of an assignment of a construction contract entered into originally by the Henry County Industrial Development Corporation and for reimbursement of this corporation for monies advanced by it to initiate the construction of the plant.

It also provided for execution and acknowledgment of a mortgage and indenture of trust, designating the Central National Bank and Trust Co. of Des Moines, as trustee. Under the resolution and proposed mortgage proceeds from sale of the bonds are to be used in acquiring title to certain real estate within eight miles of the Mt. Pleasant city limits (as required by section 2 (1) of chapter 247) and in constructing thereon an industrial building meeting the specifications of Vega. Proceeds from the sale of the bonds are to be deposited with the trustee and held as the 'construction fund'. All costs for the land, building construction and related costs are to be paid by the trustee from this fund.

This resolution also approved an agreement with Carleton D. Beh Co. for the sale of the bonds.

The preamble of this resolution recited the location of this industrial plant in the agricultural area around Mt. Pleasant would avoid low wages and unemployment.

Another resolution adopted by the city council on February 5 provided for approved of a lease with Vega and pledge of the lease and rentals therefrom to secure the bonds. The proposed lease provides the industrial plant is to be rented to Vega from March 1, 1964 to September 1, 1980. The basic rent schedule is for an amount sufficient to pay interest on the bonds and the principal thereof as they mature. Under the schedule the principal of all bonds would be paid by September 1, 1980.

The lease also requires payment as additional rent a sum equal to the amount of tax which the state, county, city, school district or other political subdivision would receive if the property were owned by any private person or corporation.

It also requires the lessee to pay all costs, expenses, liabilities, obligations and other payments of whatever nature which the city has agreed to pay or assume under the provisions of the lease and agreement.

Vega, by the terms of the lease, also agrees to pay expenses of any paying agents for the bonds and the charges and expenses of the trustee as provided in the indenture.

The lease further provides that at its expiration on September 1, 1980 it may be extended for two ten-year periods, each at a basic rental of $100 per snnum, being otherwise subject to the terms and conditions governing the original period. The proposed lease also grants Vega options to purchase the land and building included in the project at the end of the original term or any renewal period, provided all bonds have been retired or sufficient funds furnished to do so.

The proposed mortgage and indenture of trust provides that all rents and other revenues are to be pledged by the city to the trustee.

The council proceedings contemplate the project will cost not to exceed $650,000 and any excess costs shall be paid by the lessee. Vega is required to furnish machinery, equipment and trade fixtures. These items are to be separately identified and included in the mortgage to the trustee althogh paid exclusively from funds provided by the lessee and not from the issuance and sale of the revenue bonds.

It is provided in the proposed mortgage, the proceedings authorizing the issuance of the bonds and on the face of the bonds that they shall never constitute 'general obligations of the City nor an indebtedness of the City within any constitutional or statutory limitation, * * * and do not constitute nor give rise to a pecuniary liability of the City or a charge against its general credit or taxing powers'. It is expressly provided the bonds are 'special obligations payable solely from revenues derived from the Project.'

Construction of the industrial building is to be initiated by the Henry County Development Corporation, a private incorporated body, acting on behalf of the city and pursuant to an understanding with the city. The development corporation is to advance funds to initiate the project and no public letting of the construction contract is contemplated. At the appropriate time and when funds become available fom the sale of the revenue bonds the construction contract is to be assigned to the city and it is to reimburse the development corporation for all monies expended and assume the responsibility for the completion of construction.

Under the contract with the city Carleton D. Beh Co. agrees, among other things, to assist the city, industry, and bond attorneys, in financial sections of the test case to be submitted to this court, to assist in the preparation of a satisfactory lease and to recommend a maturity schedule, etc., for the proposed bond issue most advantageous to the city. In return the city grants to the Carleton D. Beh Co. the exclusive right to buy the revenue bonds.

The trustee is required to act as bond register. It is the duty of the trustee to cancel all bonds together with unmatured coupons which have been redeemed. It can order the city to have the city's books and accounts (insofar as they relate to the project) audited by an independent certified accountant. The trustee's consent is essential to the amendment or modification of the lease agreement. Power is granted the trustee in its name or in the name of the city to enforce all rights of the lessor and all obligations of the lessee under this agreement for and on behalf of the bondholders. The trustee is under a duty set up certain funds including a 'Bond Fund', a 'Bond Fund Reserve Account' and a 'Construction Fund'. There is imposed upon the trustee a duty to invest any funds not needed to meet current obligations. All rentals, both basic and additional, are to be paid to the trustee, and it is made the obligation of the trustee, out of the funds coming into its hands and from the appropriate account, to pay principal and interest on the bonds, All proceeds from the sale of the revenue bonds are to be paid into the hands of the trustee. It is the duty of the trustee to pay from the construction fund the various expenses and costs in the construction of the building. In the event of default the trustee may, and upon request of the holders of 25 per cent in aggregate principal amount of the bonds outstanding must, declare the principal of all bonds then outstanding, together with the interest accrued thereon, immediately due and payable. In the event of default, the city, upon demand of the trustee, shall surrender to the trustee the actual possession of the property, and the trustee is given power to lease the property and to collect and receive the rentals and apply the same upon the obligations. The trustee, in the event of default, is given power to bring actions at law or in equity to enforce payment of principal and interest, including foreclosure actions. Under appropriate circumstances the trustee is entitled to appointment of a receiver.

We, like the trial court, take judicial notice that for many years there has been a continuing and discouraging decline in the population of the rural area surrounding Mt. Pleasant, agriculture is no longer as dominant and significant a factor in the Iowa economy as it was few generations ago and that many people are moving from...