Koppenhaver v. Department of Community and Economic Development

• Decision Date: 03 May 2006
• Parties: April M. KOPPENHAVER, Petitioner v. DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT, Respondent County of Lancaster, Petitioner v. Department of Community and Economic Development, Respondent.
• Court: Pennsylvania Commonwealth Court

898 A.2d 654

April M. KOPPENHAVER, Petitioner v. DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT, Respondent County of Lancaster, Petitioner v. Department of Community and Economic Development, Respondent.

Commonwealth Court of Pennsylvania.

Argued February 27, 2006.

Decided May 3, 2006.

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Kathryn L. Simpson, Harrisburg, for petitioner, April M. Koppenhaver.

Howard L. Kelin, Lancaster, for petitioner, County of Lancaster.

David C. Sirolly and Robert J. Tribeck, Harrisburg, for intervenor, City of Lancaster.

BEFORE: COLINS, President Judge, and SIMPSON, Judge, and LEAVITT, Judge (P).

OPINION BY Judge SIMPSON.

These are consolidated appeals from a decision of the Department of Community and Economic Development (Department) approving two bond guaranties adopted by the City of Lancaster (City). The guaranties are part of a financing agreement for the construction of the controversial Lancaster Convention Center/Hotel (Project or Overall Project).¹ April M. Koppenhaver (Taxpayer) and the County of Lancaster (County) (collectively, Complainants) petition for review of the Department's dismissal of their respective complaints, asserting the invalidity of the City's debt proceedings under the Local Government Unit Debt Act (Debt Act), 53 Pa.C.S. §§ 8001-8271. For the reasons that follow, we affirm.

I. Background

A. Facts and Procedural History

The Project, part of the City Redevelopment Authority's (Redevelopment Authority) plan to reinvigorate the City's Penn Square commercial district, dates back to the 1990s. It entails the renovation of the former Watt and Shand building, a City landmark, into two units: a 300-room Marriott Hotel (Hotel) and the adjoining Lancaster Convention Center. High Associates, Ltd. (Project Designer), a real estate developer specializing in commercial, industrial and hotel properties, designed the Project.

A financing agreement for the Project was not achieved until 2004. Parties to the agreement include the City, the Redevelopment Authority, the Lancaster County Convention Center Authority (Convention Center Authority) and Penn Square Partners (Developer), a private entity which will operate the Hotel. As to the Hotel, the Redevelopment Authority will be the fee simple owner of the Hotel property unless and until it is sold. Developer will lease the Hotel for a term of 20 years. At the expiration of the lease, Developer will have an option to purchase the Hotel. As to the Convention Center, the Convention Center Authority will own and operate it.

As part of the financing package, the Redevelopment Authority will issue two series of bonds: $12,000,000 ($12M) in special revenue bonds and $24,000,000 ($24M) in lease revenue bonds. Debt service payments (principal and interest) on the special revenue bonds will be covered by a 20-year series of grants the Redevelopment Authority will receive under the recently enacted Infrastructure and Facilities Improvement Program, 12 Pa.C.S. §§ 3401-3406, popularly known as "Act 23." Debt service payments on the lease revenue bonds will be covered by Developer's rental payments on the 20-year Hotel lease. As part of the financing package, the City will guaranty payment of debt service on both series of the Redevelopment Authority's bonds.

Council discussed the Project on at least three occasions: the March 8 regular meeting, the April 4 special meeting and the April 12 regular meeting.² At the April 12 meeting, Council enacted administrative ordinances approving the guaranties. Ordinance No. 5 authorized the City's full guaranty of the Redevelopment Authority's payment of debt service on the special revenue bonds ($12M guaranty). Ordinance No. 10 authorized the City's limited guaranty covering a potential shortfall in the Redevelopment Authority's payment of debt service on the lease revenue bonds "in the event and to the extent" the Redevelopment Authority must pay real estates taxes on the Hotel property (limited guaranty).³

As required by the Debt Act, the City filed debt proceedings seeking Department approval to become bound by its $12M and limited guaranties.⁴ Pursuant to Section 8211 of the Debt Act, 53 Pa.C.S. § 8211, Taxpayer and the County each filed a complaint asserting the invalidity of the debt proceedings.

Complainants advanced several "legality of purpose" challenges under 53 Pa.C.S. § 8211. They claim the "true and intended purpose" of the limited guaranty is to promise to pay the Hotel's real estate taxes for the benefit of Developer in the event the property is not immune from taxation while under Redevelopment Authority ownership. The City's promise to pay real estate taxes, Complainants contend, does not constitute a "legal purpose."

Also relevant for current purposes, Complainants alleged the City failed to obtain and consider realistic cost estimates for the Hotel component of the Project as required by 53 Pa.C.S. § 8006.

The City filed answers and motions to dismiss; it also submitted evidence in response to Complainants' cost estimate allegations. Complainants filed discovery motions and requested an evidentiary hearing on the cost estimate issue. During a June 2005 conference call, the parties presented argument on the procedural motions and the merits.

Thereafter, the Department issued orders consolidating the two complaints. It also denied (a) the City's motion to dismiss to the extent it challenged the County's standing; (b) the motion for discovery; and (c) the motion for evidentiary hearing on the preliminary cost estimate issue.

In July 2005, Complainants filed briefs. Therein, they argued for the first time that the City did not obtain realistic cost estimates specifically attributable to the Hotel construction, the subject of the guaranties.

The Department held a September 2005 conference call to address the Hotel cost estimate issue; it granted the City's request to submit a reply brief and proof showing all Council members were aware of the estimated Hotel cost. The City submitted affidavits from three witnesses stating all Council members obtained and reviewed the cost estimate for the Hotel prior to enacting the Ordinances. The City also submitted additional cost estimate documents. The Department accepted the City's evidence as credible and concluded Council was aware of the projected Hotel cost.

Ultimately, the Department held the City's debt proceedings satisfied the requirements of the Debt Act and dismissed Complainants' complaints. It concluded the Project was a "legitimate government undertaking" and thus the City's guaranties met the legality of purpose test. The Department further concluded the City obtained and reviewed realistic cost estimates for the Project before enacting the Ordinances. Complainants petition for review.⁵

On appeal, Complainants advance two primary arguments. They contend the City's limited guaranty fails the "legality of purpose" requirement in 53 Pa.C.S. § 8211. Complainants' maintain the true and intended purpose of the limited guaranty is to pay the Hotel's real estate taxes in the event the property is not immune from taxation, which is unlawful for various reasons. They also assert both guaranties violate 53 Pa.C.S. § 8006 because the City did not obtain a realistic cost estimate for the Hotel before approving the guaranties.

B. Purposes of Debt Act Review

Article IX, § 10 of the Pennsylvania Constitution provides in pertinent part: "[T]he General Assembly shall prescribe the debt limits of all units of local government including municipalities and school districts." "[T]he Debt Act establishes controls over a local government which seeks to incur indebtedness on bonds or notes." County of Northampton v. Dep't of Cmty. And Econ. Dev., 573 Pa. 401, 409, 825 A.2d 1245, 1249 (2003). "The enactment requires disclosure to ensure lawfulness and public notice, while at the same time constraining administrative agency review in deference to the discretion of a local government body to pursue major projects in furtherance of the public interest." Id.

"The Debt Act carries out this mandate by limiting the amount of debt a local government unit may incur and providing the means for incurring, evidencing, securing and collecting this debt." Property Owners, Residents and/or Taxpayers of the Pleasant Valley Sch. Dist. v. Pleasant Valley Sch. Dist., 100 Pa.Cmwlth. 513, 515 A.2d 85, 88 (1986).

The Act also "provides a means by which taxpayers and other interested parties may challenge the validity of the proceedings in which a local government unit incurs bonded debt." Simonetti v. Dep't of Cmty. Affairs, 651 A.2d 626, 628 (Pa.Cmwlth.1994), overruled in part on other grounds by County of Northampton. However, the Debt Act is "concerned exclusively with compliance by the local government unit with the procedures mandated therein." Property Owners, 515 A.2d at 89 (emphasis added). "Consideration of [third party opinions as] to whether or not a specific project is necessary or wise, is beyond the authority granted to [the Department]." Id.

The Department's Debt Act review is narrowly limited. Section 8211(d), 53 Pa. C.S. § 8211(d), provides:

The department has exclusive jurisdiction to hear and determine all procedural and substantive matters arising from the proceedings of a local government unit taken under this subpart, including the regularity of the proceedings, the validity of the bonds, notes, tax anticipation notes or other obligations of the local government unit and the legality of the purpose for which the obligations are to be issued .... The department may, after appropriate proceedings in accordance with its regulations, approve or disapprove the proceedings of the local government unit .... A determination by the department under this subpart shall ... be conclusive and binding as to all procedural and substantive matters which were or could have been presented to the...