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.