Effect on county tax base not relevant to decision to create rural improvement zone

by Gary Taylor

Homeowners Association of the Coves of Sundown Lake v. Appanoose County Board of Supervisors
(Iowa Court of Appeals, March 26, 2014)

The Homeowners Association of the Coves of Sundown Lake (Association) petitioned the Appanoose County Board of Supervisors (Board) to establish a rural improvement zone (RIZ) surrounding the lake for the purpose of diverting future property tax revenue growth towards making improvements in the Sundown Lake area.  The petition contained 172 signatures, representing at least 25% of the residents and 25% of the total assessed value of the proposed zone.  The Association requested a public hearing before the Board, and a hearing was held November 2, 2012.  Information was presented during the hearing concerning the need for improvements to the lake; most notably to alleviate the effects of silting.  The Board also discussed the requirements for establishment of a RIZ and the loss of revenue to the county if a RIZ was created.  The statutory requirements necessitating that the Board hold a hearing were not discussed; however, the Board denied the request on November 13 because the Association had failed to meet the statutory requirements for Board consideration, and also because of the loss of tax revenue to the county if a RIZ were created.  On appeal, the district court found the Board was precluded from examining whether the petition had satisfied the statutory requirements because the Board had in fact scheduled and held the hearing. The district court also concluded that the Board acted illegally in considering the impact of a RIZ on county tax receipts. The Board appealed to the Court of Appeals.

After confirming that the Association had standing to bring the initial suit before the district court, the Court of Appeals confirmed both conclusions of the district court.  First, the Court of Appeals examined the statutory scheme of Iowa Code 357H.1 through 357H.4 (procedures for creating RIZ) and concluded that once the Board called a hearing, the only matters it was empowered to consider were the merits of the petition, not whether the petition itself met the statutory requirements.

This interpretation avoids the element of unpredictability found in this case. The Board’s interpretation of the chapter would allow a board to set a hearing for the purpose of determining whether an improvement is needed, hold the hearing on the merits, and then confound the petitioners by deciding – after the hearing on the merits an without discussion – that the hearing itself should not have occurred.  We find nothing in the chapter to evidence a legislative intent to create such inefficiencies.

Second, the Court of Appeals affirmed that the Board was not to consider the effect of the RIZ on the county’s tax base.  “The chapter directs a board to establish a zone if the area is in need of improvements. The consideration is specifically and unambiguously limited to the needs of the area under consideration and does not include issues pertaining to the county as a whole….The Board acted improperly by considering the impact the zone would have on county finances.”  The Court of Appeals affirmed the district court order for the Board to consider the Association’s petition using a proper interpretation of chapter 357H.

County board limited to consideration of need for improvements in creating rural improvement zone

by Gary Taylor

Holiday Lake Owners’ Association v. Poweshiek County Board of Supervisors
(Iowa Court of Appeals, February 10, 2010)

Holiday Lake Owners’ Association (HLOA) filed a petition for a public hearing concerning the establishment of a rural improvement zone under Iowa Code 357H.1 and 357H.2.  A hearing was held, at which HLOA presented evidence that the area was in need of improvements.  At the close of the hearing, the Poweshiek County Board of Supervisors unanimously voted to disallow the creation of a rural improvement zone.  In reaching the decision the Board made no findings as to whether the area was in need of improvement.  Rather, the Board heard objections from the local school district that the creation of a rural improvement zone would have a negative impact on school funding.  The Board did observe that an increase in lot and maintenance fees “would be the fairest way to finance the needed improvements at Holiday Lake.”

HLOA filed a petition for certiorari, claiming that the Board’s action was in violation of Iowa Code 357H.1.  In granting HLOA’s petition, the district court found that the only alternatives open to the Board under the statute were (1) to determine that the area was in need of improvements and grant the petition, or (2) determine that the area was not in need of improvements and deny the petition.  The district court concluded that the Board ignored substantial evidence that the area was in need of improvement, and ordered the Board establish the rural improvement zone.

On the Board’s appeal of the district court decision, the Court of Appeals agreed that the only basis for denying a petition under Chapter 357H is upon a finding that the area is not in need of improvements.  “The statute provides no other factor for consideration beyond the need for improvements.”  The Board failed to make such a finding.  Rather than order the approval of HLOA’s petition as the district court did, however, the Court of Appeals determined that it was beyond the authority of the district court to engage in independent fact-finding and make such an order.  Instead the Court of Appeals remanded the case for reconsideration by the Board using only the statutory factor found in 357H.1.