Knudson v. City of Decorah

• Decision Date: 20 December 2000
• Docket Number: No. 99-0987.,99-0987.
• Citation: 622 N.W.2d 42
• Parties: Karl KNUDSON and Crisan Singer, Appellants, v. CITY OF DECORAH, Appellee.
• Court: Iowa Supreme Court

622 N.W.2d 42

Karl KNUDSON and Crisan Singer, Appellants, v. CITY OF DECORAH, Appellee.

No. 99-0987.

Supreme Court of Iowa.

December 20, 2000.

Karl G. Knudson, Decorah, for appellants.

Richard D. Zahasky, Decorah, for appellee.

Considered en banc.

LAVORATO, Chief Justice.

In this proceeding, Karl Knudson and Crisan Singer challenged the City of Decorah's (City) decision to issue tax increment finance bonds pursuant to Iowa Code chapter 403 (1997), Iowa's Urban Renewal Law, for a residential development in an urban renewal area. They did so by filing appeal to the district court pursuant to Iowa Code section 403.9(3) and a declaratory judgment action. The district court sustained the City's motion for summary judgment dismissing both the appeal and declaratory judgment action. Knudson and Singer appeal, raising issues concerning the validity of certain actions the City took under chapter 403. We affirm in part, reverse in part, and remand.

I. Background.

To understand the issues in this case, we think it would be helpful to discuss several provisions in chapter 403 before proceeding to the facts, procedural history, and merits.

Iowa Code section 403.2 sets out the legislature's declaration of policy. The provision declares that there exist in the municipalities of this state

"slum and blighted areas ... which constitute a serious and growing menace, injurious to the public health, safety, morals and welfare of the residents of the state ... and that the prevention and elimination of slums and blighted areas is a matter of state policy...."

Iowa Code § 403.2(1).

The announced purpose of chapter 403 includes the prevention, elimination, and rehabilitation of "slum and blighted areas" in order that the

"state and its municipalities shall not continue to be endangered by areas which are focal centers of disease, promote juvenile delinquency and consume an excessive proportion of state revenues because of the extra services required for police, fire, accident, hospitalization and other forms of public protection, services, and facilities."

Id.

Iowa Code section 403.2(3) declares that there "exists in this state the continuing need for programs to alleviate and prevent conditions of unemployment and a shortage of housing...." Iowa Code § 403.2(3). This provision also recognizes that it is

necessary to provide means and methods... for the provision of public improvements related to housing and residential development, and for the construction of housing for low and moderate income families; that accordingly it is necessary to authorize local governing bodies to designate areas of a municipality as economic development areas for . . . public improvements related to housing and residential development, or construction of housing for low and moderate income families . . . .

Iowa Code § 403.2(3) (emphasis added).

Several provisions in chapter 403 give municipalities a variety of powers to remedy the problems identified by the Urban Renewal Law and to further its purposes. One such power includes

undertak[ing] and carry[ing] out urban renewal projects within its area of operation; and to make and execute contracts and other instruments necessary or convenient to the exercise of its powers under this chapter; and to disseminate slum clearance and urban renewal information.

Iowa Code § 403.6(1) (emphasis added).

An urban renewal project may include undertakings and activities of a municipality in an urban renewal area for the elimination and for the prevention of the development or spread of slums and blight, [and] may include the designation and development of an economic development area in the urban renewal area....

Iowa Code § 403.17(24) (emphasis added).

An "urban renewal area" is "a slum area, blighted area, economic development area, or combination of the areas, which the local governing body designates as appropriate for an urban renewal project." Iowa Code § 403.22 (emphasis added).

An "economic development area" refers to

an area of a municipality designated by the local governing body as appropriate for commercial and industrial enterprises, public improvements related to housing and residential development, or construction of housing and residential development for low and moderate income families, including single or multifamily housing.

Iowa Code § 403.17(9) (emphasis added).

An "urban renewal plan" is defined as "a plan for the development, redevelopment, improvement, or rehabilitation of a designated urban renewal area, as it exists from time to time." Iowa Code § 403.23.

To pay for renewal projects, municipalities have the "power to periodically issue bonds in [their] discretion to pay the costs of carrying out the purposes and provisions" of chapter 403. Iowa Code § 403.9(1). Municipalities may use tax money obtained through levies on taxable property in the urban renewal area to (1) pay the principal of and interest on such bonds used to finance in whole or in part an urban renewal project within the urban renewal area and (2) provide assistance for low and moderate income family housing. Iowa Code § 403.19(2).

However, Iowa Code section 403.22(1) (Supp.1997) places a limitation on the use of taxes in this fashion. This provision provides that

[w]ith respect to any urban renewal area established upon the determination that the area is an economic development area, a division of revenue as provided in section 403.19 shall not be allowed for the purpose of providing or aiding in the provision of public improvements related to housing and residential development, unless the municipality assures that the project will include assistance for low and moderate income family housing.

Iowa Code § 403.22(1) (emphasis added). This provision goes on to explain the formula for calculating the amount to be provided for low and moderate income (LMI) family housing assistance. See id. The formula essentially requires that a percentage of the original project cost be devoted to LMI family housing assistance.

Before a municipality may exercise the powers granted it under chapter 403, its local governing body must adopt a resolution finding that:

1. One or more slum, blighted, or economic development areas exist in the municipality.

2. The rehabilitation, conservation, redevelopment, development, or a combination thereof, of the area is necessary in the interest of the public health, safety, or welfare of the residents of the municipality.

Iowa Code § 403.4 (emphasis added).

In addition,

[a] municipality shall not approve an urban renewal project for an urban renewal area unless the governing body has, by resolution, determined the area to be a slum area, blighted area, economic development area or a combination of those areas, and designated the area as appropriate for an urban renewal project.

Iowa Code § 403.5(1) (emphasis added).

Before a municipality may issue bonds to pay the costs of carrying out the purposes and provisions of chapter 403, it must authorize such action by resolution or ordinance. Iowa Code § 403.9(3). And before instituting proceedings to issue the bonds, the local governing body of the municipality must publish

notice of the proposed action, including a statement of the amount and purposes of the bonds and the time and place of the meeting at which the local governing body proposes to take action for the issuance of the bonds . . . .

Id.

After receiving and considering all objections at such meeting, such body "may take additional action for the issuance of the bonds ...." Id. However,

[a]ny resident or property owner of the municipality may appeal the decision of the local governing body to take additional action to the district court of the county in which any part of the municipality is located, within fifteen days after the additional action is taken.

Id. Nevertheless, "[t]he additional action of the local governing body is final and conclusive unless the court finds that the municipality exceeded its authority." Id.

It is against this background that we now turn to the facts and procedural history of this case.

II. Facts.

On June 17, 1997, the City designated 200 acres within its corporate limits as a "Hospital Medical and Residential Urban Renewal Area" (Renewal Area), according to a "resolution of necessity." See Iowa Code §§ 403.4, .17(22) (1995). The resolution stated that the area had been determined appropriate for designation as an economic development area because, as the City concedes, the area was "appropriate for public improvements related to housing and residential development."

On July 15 the City passed a resolution approving an "Urban Renewal Plan" (Renewal Plan) concerning the Renewal Area. See Iowa Code § 403.17(23) (1997).

On November 4 the City adopted a "Resolution Approving an Urban Renewal Project" (Renewal Project) submitted to it by Aase Haugen Properties, Inc. and Highland Place, Inc., owners of approximately 162 of the 200 acres designated as the Renewal Area. See Iowa Code § 403.17(24). The Renewal Project proposed the construction of senior housing and other residential structures and called for tax increment financing.

On April 21, 1998, the City entered into an "Agreement of Redevelopment" (Redevelopment Agreement) with Aase Haugen Properties, Inc. and Highland Place, Inc., pertaining to the development of the Renewal Area. The same day the City adopted a resolution approving the Redevelopment Agreement.

The Redevelopment Agreement called for the construction of public improvements within a portion of the Renewal Area designated as "Phase I." These improvements included "water, sanitary sewer, street, curb and gutter, storm sewer, lighting, regulatory and warning signs, and retaining walls necessary for street construction, including engineering costs associated with such improvements." The agreement provided for tax increment financing for these improvements.

The Phase 1 public improvements were divided into two...