Grove v. City of Des Moines

• Decision Date: 27 June 1979
• Docket Number: No. 62903,62903
• Citation: Grove v. City of Des Moines, 280 N.W.2d 378 (Iowa 1979)
• Parties: Eula GROVE, Robert Willis, Virgil Douglas, William Cook, Gloria Richardson, Sheila Schmitz, Lloyd Belt, and Donald Washburn, Appellants, v. CITY OF DES MOINES and City Council of the City of Des Moines, Appellees.
• Court: Iowa Supreme Court

Page 378

280 N.W.2d 378

Eula GROVE, Robert Willis, Virgil Douglas, William Cook, Gloria Richardson, Sheila Schmitz, Lloyd Belt, and Donald Washburn, Appellants, v. CITY OF DES MOINES and City Council of the City of Des Moines, Appellees.

No. 62903.

Supreme Court of Iowa.

June 27, 1979.

Bernard Mercer of Mercer & Mercer, Des Moines, for appellants.

Phillip T. Riley, Corporation Counsel, City of Des Moines, and Kenneth H. Haynie and Richard G. Santi of Ahlers, Cooney, Dorweiler, Haynie & Smith, Des Moines, for appellees.

Considered by REYNOLDSON, C. J., and UHLENHOPP, McCORMICK, McGIVERIN, and LARSON, JJ.

UHLENHOPP, Justice.

This appeal involves the legality of proceedings for issuance of municipal revenue bonds to construct a parking facility and to refund outstanding bonds previously issued to construct other parking facilities. We refer to defendants collectively as the council.

Following approval by the electors of the home rule amendment to the Iowa Constitution, the legislature adopted a comprehensive home rule act relating to cities. The portion of the act having to do with city finance comprises chapter 384 of the Code of 1977. Division III of that chapter relates to general obligation bonds and division V relates to revenue bonds. We dealt with those divisions in Green v. City of Cascade, 231 N.W.2d 882 (Iowa 1975) (general obligation bonds), and in McGrory v. Board of Trustees of Municipal Electric Utility, 232 N.W.2d 262 (Iowa 1975) (revenue bonds). The present litigation presents additional problems under division V, but consideration of division III is also necessary in order to visualize the legislative scheme fully.

For purposes of General obligation bonds, division III creates two classes of bonds: those for "essential" and those for "general" corporate purposes. § 384.24(3) and (4). Each class contains several categories of purposes. Essential corporate purposes include refunding bonds as one category. § 384.24(3)(f). General corporate purposes include bonds for a "city enterprise" as one category, and city enterprises in turn include parking facilities. § 384.24(4)(a) and (2)(a). The proceedings for issuing bonds for essential and for general corporate purposes are quite different. Under section 384.25, bonds for an essential corporate purpose such as refunding can be issued by a city council itself after public hearing, while under section 384.26 bonds for a general public purpose such as parking facilities require a public election and a sixty-percent affirmative vote. Section 384.28 contains a novel provision allowing joinder of proceedings for issuance of bonds in different categories in the same or different classes; if however a general corporate purpose is included, the public vote of section 384.26 is required for the whole proposition. Section 384.28 provides so far as presently pertinent:

Separate categories of essential corporate purposes and of general corporate purposes may be incorporated in a single notice of intention to institute proceedings for the issuance of bonds, or separate categories may be incorporated in separate notices, and after an opportunity has been provided for filing objections, or after a favorable election has been held, if required, the council may include in a single resolution and sell as a single issue of bonds, any number or combination of essential corporate purposes or general corporate purposes. If an essential corporate purpose is combined with a general corporate purpose in a single notice of intention to institute proceedings to issue bonds, then the entire issue is subject to the referendum requirement provided in section 384.26.

Thus in a single proceeding a council could include general obligation bonds (1) to refund prior bonds and (2) to build a new parking facility. Since the latter would be a general corporate purpose, a public referendum would be necessary.

For purposes of Revenue bonds, "city enterprises" again include parking facilities. § 384.80(2). Section 384.80(3) defines a "combined" city enterprise as "two or more city enterprises combined and operated as a single enterprise." Division V speaks in terms of "projects," which section 384.80(5) defines to include a city enterprise or combined city enterprise. Section 384.80(5) does not however include refunding as a "project." Section 384.82 deals in two subsections with the procedure for financing by revenue bonds for two objectives: bonds (and certain other debt instruments) issued for "projects," and bonds issued for "refunding" outstanding bonds. Subsection 1 provides:

1. A city may carry out projects, borrow money, and issue revenue bonds and pledge orders to pay all or part of the cost of projects, such revenue bonds and pledge orders to be payable solely and only out of the net revenues of the city utility, combined utility system, city enterprise, or combined city enterprise involved in the project. The cost of a project includes the construction contracts, interest upon the revenue bonds and pledge orders during the period or estimated period of construction and for twelve months thereafter, or for twelve months after the acquisition date, such reserve funds as the governing body may deem advisable in connection with the project and the issuance of revenue bonds and pledge orders, and the cost of engineering, architectural, technical, and legal services, preliminary reports, surveys, property valuations, estimates, plans, specifications, notices, acquisition of real and personal property, consequential damages or costs, easements, rights of way, supervision, inspection, testing, publications, printing and sale of bonds and provisions for contingencies. A city may sell revenue bonds at public or private sale in the manner prescribed by chapter 75 and may deliver revenue bonds and pledge orders to the contractors, sellers, and other persons furnishing materials and services constituting a part of the cost of the project in payment therefor.

A city may deliver its revenue bonds to the federal government or any agency thereof which has loaned the city money for sanitary or solid waste projects, water projects or other projects for which the government has a loan program.

Subsection 2 provides:

2. A city may issue revenue bonds to refund revenue bonds, pledge orders, and other obligations which are by their terms payable from the net revenues of the same city utility, combined utility system, city enterprise, or combined city enterprise, or from a city utility comprising a part of the combined utility system or a city enterprise comprising a part of the combined city enterprise, at lower, the same, or higher rates of interest. A city may sell refunding revenue bonds at public or private sale in the manner prescribed by chapter 75 and apply the proceeds thereof to the payment of the obligations being refunded, and may exchange refunding revenue bonds in payment and discharge of the obligations being refunded. The principal amount of any refunding revenue bonds may exceed the principal amount of the obligations being refunded to the extent necessary to pay any premium due on the call of the obligations being refunded and to fund interest accrued and to accrue on the obligations being refunded.

Proceeding to section 384.83, the first subsection grants authority to the council to issue revenue bonds, by majority vote of all members. Subsection 2 then provides:

2. Before the governing body institutes proceedings for the issuance of revenue bonds, it shall fix a time and place of meeting at which it proposes to take action and give notice by publication in the manner directed in section 362.3. The notice must include a statement of the time and place of the meeting, the maximum amount of the proposed revenue bonds, the purpose for which the revenue bonds will be issued, and the city utility, combined utility system, city enterprise, or combined city enterprise whose net revenues will be used to pay the revenue bonds and interest thereon. The governing body shall at the meeting receive oral or written objections from any resident or property owner of the city. After all objections have been received and considered, the governing body may, at the meeting or any adjournment thereof, take additional action for the issuance of the bonds or abandon the proposal to issue bonds. Any resident or property owner of the city may appeal a decision of the governing body to take additional action to the district court of the county in which any part of the city is located within fifteen days after the additional action is taken, but the additional action of the governing body is final and conclusive unless the court finds that the governing body exceeded its authority. The provisions of this subsection with respect to notice, hearing, and appeal in connection with the issuance of revenue bonds are in lieu of those contained in chapter 23 or any other law.

(Succeeding subsections deal with subjects not directly involved here.)

With respect to joinder of bond proceedings for two or more purposes, the legislature faced a different problem with revenue bonds than with general obligation bonds. Bonds of the latter kind are supported by the city's general taxing power, so that the inclusion of multiple purposes does not pose a fiscal problem of applying revenues from specific projects to bonds issued for those projects. Revenue bonds, however, are supported by receipts from particular activities whose receipts must be segregated accordingly. Unlike division III, division V therefore contains no provision corresponding to section 384.28 for joinder of proceedings to issue bonds for more than one purpose. On the contrary, the notice under section 384.83(2) of division V must contain a statement of the "purpose" of proposed revenue bonds, while section 384.25(2) requires a statement of "purposes" of proposed general obligation bonds. See also § 384.87 ("Revenue bonds and pledge orders are...