Brueggeman v. Osceola Cnty.

954 N.W.2d 764

Al BRUEGGEMAN, Dan Breuker, Tom Bremer, Roger Bosma, Mark Dillehay, Randy Rowe, Allen Rowe, and Jarrod Wallace, Plaintiffs-Appellants,

v.OSCEOLA COUNTY, Iowa and City of Harris, Iowa, Defendants-Appellees.

No. 19-1010

Court of Appeals of Iowa.

Filed November 4, 2020

Aaron W. Ahrendsen and John C. Werden of Eich Werden Steger & Ahrendsen PC, Carroll, for appellants.

Stephen G. Kersten, Fort Dodge, for appellees.

Heard by Doyle, P.J., and Tabor and Ahlers, JJ.

TABOR, Judge.

This case returns to our court for a second time.¹ This go-round, Al Brueggeman and seven other taxpaying residents of Osceola County (collectively "the taxpayers") contend a resolution adopted by the City of Harris and Osceola County violates Iowa's urban renewal law. See Iowa Code ch. 403 (2015). That resolution anticipated using tax increment financing (TIF)² to raise revenue from properties with windmills in the county to cover the costs of the city's sewer rehabilitation project. In challenging the resolution, the taxpayers argued the city and county ran afoul of the urban renewal law in three ways: (1) by not entering into a valid joint agreement before passing the resolution, in violation of Iowa Code section 403.17(4) ; (2) by establishing urban renewal areas that were not contiguous, in violation of section 403.17(23) ; and (3) by including wind energy conversion properties in the TIF, in violation of the "spirit and purpose" of the urban renewal law. The district court rejected the taxpayers’ claims.

On appeal from that rejection, the taxpayers reprise all three challenges to the urban renewal area. But their focus is on the first claim. They argue the city council could not retroactively ratify an alleged joint agreement with the county, as required by section 403.17(4) to form the urban renewal area. Why not? Because the council did not pass a resolution, as required by Iowa Code section 364.3(1), authorizing the mayor to enter into that agreement. The taxpayers argue that under City of Akron v. Akron-Westfield Community School District , any oral agreement between the mayor and the county was void (not just voidable) and thus not subject to later ratification. See 659 N.W.2d 223, 225 (Iowa 2003).

We agree City of Akron controls. That case held that "any contract with a city entered without a formal motion, resolution, amendment or ordinance is void." Id. In justifying what seemed like an "unduly harsh" result, the Akron court reasoned: "The legislature considered it of first importance for city officials to observe formal requirements before obligating taxpayers to finance the affairs of city government." Id. at 225–26. Because Harris did not take formal action to enter the joint agreement with the county, any later effort at ratification fails. Without a valid joint agreement, the city and county did not satisfy the requirements of section 403.17(4) for establishing the urban renewal area. Given the importance of protecting taxpayers from municipal actions executed without observing statutory requirements, we reverse the ruling and remand to the district court. Finding the first issue dispositive, we need not address the two other claims on appeal.

I. Facts and Prior Proceedings

Harris is a small city in Osceola County. In fact, at last count, the city had fewer than two hundred residents. To serve those residents, Harris began operating its own wastewater treatment facility in 2004 under a pollution discharge permit issued by the Iowa Department of Natural Resources (DNR). For many years, Harris drained its wastewater into a single "stabilization lagoon." That lagoon drew DNR scrutiny from 2008 until 2014 because wastewater often overflowed into the nearby Ocheyedan River. Finding "the lagoon was not providing adequate storage time before wastewater was being released to the receiving stream," the DNR issued an administrative consent order against the city for violating its permit and DNR regulations. Under the consent order, Harris had to "submit a facility plan for the rehabilitation of the collection system" by August 2015 and begin reconstruction by July 2016. All repairs and improvements needed to be completed by August 2017 to avoid civil and possibly criminal penalties.

In February 2015, the city council and mayor Greg Spaethe met to discuss the DNR order. Although the city council unanimously agreed to move forward with the rehabilitation project, the city lacked a sufficient tax base to pay for the improvements. With estimated costs "ranging from $1.2 million up to $2 million," city attorney Daniel DeKoter recommended using TIF, explaining it "was the only available source" of financing that would allow the city to bring the facility up to code.³ Because TIF required creating an urban renewal area that would include certain windmill properties located beyond the city's boundaries, DeKoter informed the city council that Harris could not proceed with the project without Osceola County's consent.

Based on DeKoter's recommendation, the city council unanimously passed resolution number 02.10.15.02 that stated:

Section 1. That it is hereby determined that it is necessary and advisable to hire a bond counsel for Tax Increment Financing for the Lagoon & other projects.

Section 2. By hiring a bond counsel the City of Harris will be able to obtain the funding necessary for the number of improvements that the City needs.

BE IT FURTHER RESOLVED, the City Council hereby delegates the Mayor and City Clerk the duty of hiring a bond counsel for Tax Increment Financing for the Lagoon and other projects.

(Emphasis added.) Although the resolution delegated "the duty of hiring a bond counsel," the city council provided little clarity as to the scope of that duty in the meeting minutes.⁴ When asked to provide context, DeKoter explained that "as long as they were meeting, they should adopt a resolution to hire bond counsel" so the city could move forward with the TIF and not "keep that process suspended."⁵

DeKoter believed the resolution to hire a bond counsel included authorization for the mayor to make "agreements with the County to move forward with TIF." Mayor Spaethe and city clerk Chrissi Wiersma shared a similar understanding. They testified that the bond-counsel resolution, in their view, included implied authorization for them to enter into the actual joint agreement with Osceola County, as needed for the TIF plan.

Shortly after the city council meeting, Wiersma sent a letter to the county, asking generally for its assistance with financing the city's project. The letter stated, in part:

The City of Harris is asking for help with possibly doing a TIF on the windmills for infrastructure within the City as well as possibly repairing and paving road in and around Harris.

A representative from Harris would be more than willing to come before the Board of Supervisors to discuss the possibility of entering into an agreement with the County.

According to Wiersma, "[t]he purpose of the letter was to get a conversation going" between the city and county about how to proceed with the project.

In late March 2015, Wiersma and Mayor Spaethe attended a board meeting on behalf of the city to discuss the letter. During his deposition, Mayor Spaethe explained his primary goal was to secure agreement from the board of supervisors⁶ to undertake the bond obligation because of the city's limited debt capacity.

Recalling that meeting later in his deposition, board chairperson Merlin Sandersfeld remembered asking Mayor Spaethe whether he had "full consent" from the city council to make that request. Sandersfeld also sought a copy of the city council's February resolution, but he did not see the resolution at that time. Relying on the mayor's assurance, the supervisors voted in favor of helping the city finance its urban renewal project and beginning the bond process for the TIF. The minutes of that meeting show the board's approval of hiring bond counsel for the project. Although the minutes do not refer to any formal agreement between the mayor and the board, Mayor Spaethe and two supervisors testified that they entered into an oral agreement that same day to formalize the board's consent.

At a meeting later that August, the board unanimously voted to approve the engagement of Dorsey & Whitney Law Firm and the hiring of a financial consultant for the urban renewal project. The board met again in September, passing the county's first formal resolution. Under that resolution, the board published a notice of public hearing set for October 20, 2015, inviting Osceola County residents to voice their opinions about the urban renewal project and the TIF plan. The resolution also directed the county auditor to present a formal joint agreement to the city before the public hearing date. Before the board's September resolution, the record reveals no mention of a formal joint agreement.

The taxpayers (who now appeal) attended the October 20 hearing and voiced their objections to the proposed urban renewal plan. Noting their objections, the board nevertheless passed resolution number 10-15/16, establishing the urban renewal area. That resolution stated:

Section 1. An economic development and blight area as defined in Chapter 403 of the Code of Iowa is found to exist on the Property.^[7]

Section 2. The Property is hereby declared to be an urban renewal area, in conformance with the requirements of Chapter 403 of the Code of Iowa, and is hereby designated the Osceola County Urban Renewal Area 7.

....

Section 6. The Joint Agreement between the County and the City as has been presented to the Board is hereby approved, and the Chairperson and County Auditor are hereby authorized and directed to execute said agreements on behalf of the County.

Following the resolution's adoption, the board chairperson and county auditor signed the joint agreement. That same meeting, the board also gave "its initial consideration"⁸ to ordinance number 47—tentatively voting to authorize the TIF...