Judge Lucy J. Gamon has annulled the Appanoose County Board of Supervisors' decision to deny a petition filed by the Homeowners Association of The Coves of Sundown Lake to establish a Rural Improvement Zone.
The hearing on the Petition of Writ of Certiorari filed Dec. 7, 2012 by the Homeowners Association against the Appanoose County Board of Supervisors was held Jan. 10. The judge issued her 10-page decision Jan. 30.
The judge ordered the board to consider the petition to establish a RIZ at Sundown Lake "using the statutory factors set forth in Iowa Code Chapter 357H."
The judge stated "evidence of deterioration was not refuted at the public hearing and no evidence was presented that improvements were not necessary. The Board concluded that Sundown Lake was not in need of improvements based on a rational and reasoned standard based on a premise on the tax implications of the proposed Rural Improvement Zone. They used a cost-benefit analysis approach to determine if the area was in need of improvements under Chapter 357H.
"Applying its cost-benefit analysis approach, the Board concluded that the costs of trying to reclaim Sundown Lake would be prohibitive because establishing a Rural Improvement Zone at Sundown would seriously impact schools and local governments by absorbing incremental increases in the tax base."
The basic arguments in the case: The Homeowners Association argued the board acted illegally in denying the petition to establish a RIZ. The board argued the Homeowners Association lacked standing to bring the petition and that it did not act illegally.
The Appanoose County Board of Supervisors held a public hearing Nov. 2, 2012 where Dennis Chalupa, attorney for the Homeowners Association and Jason Kok, Sundown Lake sales representative, presented evidence in support of the petition to establish a RIZ at the lake.
During the public hearing a petition with 172 signatures, 32 pages of aerial photos and oral evidence were presented to the board that a RIZ was needed at Sundown Lake because of deterioration of the lake due to the progression of siltation, lake volatility and the need for maintenance.
The petition claimed the proposed RIZ is needed "to control the erosion and silting of Sundown Lake, to establish erosion control measure, dredging, land acquisition as may be required, and related improvements including soil conservation practices within or outside the boundraires of the zone."
Kok said 15-20 homeowners actually reside at the lake and there are 250 lot owners at the lake. There are approximately 350 platted lots at Sundown, with approximately 280 lots being sold and approximately 70 homes constructed to this date.
Several in the audience Nov. 2 expressed their concerns with the petition for a RIZ and what it would mean to area school districts. If the RIZ at Sundown Lake ultimately becomes a reality, it would mean less money for taxing authorities.
Under the provisions of Iowa Code Chapter 357H, if a RIZ is established it is entitled to receive and use all future real estate taxes based on the total incremental taxable valuation (that is, any increase in the tax base for the proposed zone) from and after the date of its approval. Those taxes may be used by the RIZ (through a Board of Trustees who are to be elected residents of the proposed zone) for “improvements,” which are further defined as “dredging, installation of erosion control measures, land acquisition, and related improvements, including soil conservation practices, within or without the boundaries of the zone.”
If the RIZ is established and receives all the incremental taxes arising from all future increases in the tax base for Sundown Lake, such action could impact schools and local government by absorbing incremental increases in the tax base.
The Appanoose County Board of Supervisors on Nov. 13, 2012 during a special meeting before approximately 25 who attended approved a resolution by a 3-0 vote denying the petition for a RIZ at the lake
The resolution reads, in part: "The Board recognizes that the development at Sundown Lake can be an asset to Appanoose County; however, the Board does not believe the enhancement of the private assets of that development should be accomplished at the expense of all other taxpayers of the county. The Board is aware that the Iowa Court of Appeals issued a ruling in 2010 which stated, in part, that a Board acting pursuant to Chapter 357H has no discretion to disallow a proper petition if it determines that the proposed area is in need of the improvements as previously defined. The Board is of the opinion that the statutory scheme set forth by the legislature in enacting Chapter 357H has no rational basis as applied to Appanoose County and Sundown Lake, that the statutory requirements as set forth in that Chapter are ambiguous, and that the application of the provisions of that Chapter irrationally discriminate against the remaining residents of the County.
With full awareness that its actions here may result in prolonged litigation, the Board believes that the petition must be disallowed.
"The petition as submitted to the Board does not meet the threshold statutory requirements for the Board’s consideration. Section 357H.2 requires that a petition for the establishment of a RIZ be signed and submitted by residents of the proposed RIZ. Although the petition submitted to the Board was signed by approximately 172 persons, the Board has determined only a small percentage of the petitioners are actually residents of the proposed zone. Specifically, only 9 homestead exemption credits have been applied for within the proposed zone and the petitioners at the hearing indicated that only 15-20 of the houses constructed to date are being occupied by permanent residents. "Chapter 357H further provides that the petitioners (which the Board submits must be residents in order to sign the petition) must represent at least 25% of the total assessed value of the proposed zone. The Board has examined the assessments for the properties located within the proposed zone and has determined that the assessed values of the properties owned by persons residing at Sundown Lake do not comprise at least 25% of the assessed value of the zone. Accordingly, the petition is disallowed for failure to comply with those statutory requirements.
"The proposed RIZ would have a critical long term impact on the taxes which would otherwise be available for school and local governments. At the county level, this is particularly troublesome in that the county’s general basic tax rate already exceeds the statutory maximum because of the unusually low growth rate in the property tax base and the need for monies to permit continuation of existing essential services to county residents. With the construction of housing on the remaining sold lots, it is reasonable to assume that in the area of two-thirds of all property taxes within the proposed zone will be spent (with no statutory limitation of how long these taxes will be allocated to the RIZ) on the mainly private purpose of improving the shoreline within the zone. Those taxes would not even be available to provide required (and ever increasing) essential county services to the persons who own properties within the proposed area.
"The statute as drafted is vague and ambiguous in that it provides no quantification or guidelines for the Board to use in its determination as to whether or not “the area is in need of improvements.” The Board does not believe that the legislature would have considered a de minimis amount of improvements a proper threshold for such a determination, and has determined that some level of cost-benefit analysis would at a minimum be a consideration; otherwise, there would be no reason for the legislature to even require the Board to make such a determination. The Board is aware that Sundown Lake was constructed well over 40 years ago as a recreational facility, and that it is reasonable to assume that the life of that lake was substantially diminished by the time the current owners purchased the lake and surrounding real estate for sale to private owners. From a cost-benefit analysis, the cost of trying to reclaim Sundown Lake would be prohibitive. After the recent years of substantial rainfall, any property impacted by streams, ponds and lakes anywhere within the county would be in need of improvements. Sundown Lake is located within the Soap Creek Watershed, an area proscribed by federal and state agencies which have established various planning and funding options for dealing with improvements at issue here. Chapter 357H as implemented would result in the supplanting of federal state funds with critically needed local tax dollars. In similar fashion the statute provides no standard for determining whether or not a development is a “private lake development.” For all of the foregoing reasons, the Board finds that the proposed RIZ is not in need of “improvements” based upon any rational and reasoned standard.
"Chapter 357H as drafted could lead to some extreme results. Assume that a platted private lake development like Lake Sundown has only one (1) resident living in its planned development of approximately 350 lots and that, although clearly in a high erosion area, the developer has made no effort to design or plan for such erosion. In that instance all the tax revenues relating to the sale of the remaining lots and any improvements (in essence all the tax revenues) would under the provisions of Chapter 357H be available for those improvements, with no time limit on the use of those taxes, with no control over the expenditures of those taxes, and purely for the benefit of the owners of the private lots and homes.
"The Board notes that the Code of Iowa authorizes the establishment of several forms of quasi- governmental entities to deal with concerns faced within an unincorporated area of a county.
"These include water and sanitary districts, fire districts, street lighting districts, recreational lake districts, and real estate improvement districts. In each of those instances, however, the authorized financing of those purposes is through special assessments or tax levies applied to the owners of the benefitted properties and not by diverting general taxes from schools and local government. In those instances where the property owners pay for those services, they have every incentive to control costs and monitor benefits. Under Chapter 357H there is absolutely no incentive for the RIZ to spend anything less than the full amount of the taxes it will receive, no oversight or review of its spending decisions, and no time limit on how long it can continue to spend those funds. The Board believes that Chapter 357H is irrationally and unconstitutionally discriminatory against the residents of Appanoose County."
Evidence presented at the hearing in Mahaska County showed there are 369 parcels located within Sundown Lake. The total assessed value of the parcels at Sundown Lake is $15,500,400.
Dean Kaster, Appanoose County Board of Supervisors chairman, at the Feb. 16 Legislative Coffee at Chariton Valley Planning and Development, explained to Rep. Larry Sheets and Sen. Ken Rozenboom, the Sundown Lake homeowners association lawsuit filed against the county in order to establish a RIZ.
Kaster said bill 357H, that governs RIZ, is unconstitutional based on several reasons, one being it only applies to counties with 20,000 or less population.
A RIZ in essence allows property taxes on any new development to stay with the development. Property taxes on existing development would still be distributed to taxing authorities.
Kaster said a judge in Mahaska County ruled when the supervisors accepted the 172 petitions presented during a public hearing and did not argue against their request they in essence agreed to the homeowners to establish a RIZ at Sundown Lake.
Kaster appealed to Sheets, R-Moulton and Rozenboom, R-Oskaloosa for help to deal with the RIZ law.
"That legislation, there needs to be some changes made," Kaster said while tapping his fingers against the table loudly. "And we need someway to get some damn legislation that everyone can live with. When you talk about priorities, damn it, this is a priority."
Sheets, who serves in Iowa House District No. 80 and Rozenboom, who serves in Iowa Senate District No. 40, both promised to do what they can to address his concerns with the RIZ law.
Kaster said 14 families get their mail and live at Sundown Lake and get homestead credits. The lake has 390 lots and $13 million in development. The county assessor estimates in the next 10 years Sundown Lake will be valued at $40 million, Kaster said.
Most of the 172 petitions submitted by individuals who do not live at the lake but own a lot, Kaster said. He said there are 42 structures at the lake and 25 of those are homes.
Current taxpayers at Sundown Lake are not involved. Once a RIZ is established, property taxes on subsequent improvements stay with the development and with no sunset.
Kaster said the county has 30 days to appeal the ruling to the Iowa Supreme Court, which is expected to cost between $3,000 and $5,000.
Kaster said Decatur County has a RIZ. The county auditor, Kaster said, told him they paid $367,000 tax dollars to the homeowners association two out of the last three years.