House File 412 - Introduced HOUSE FILE 412 BY BUSH A BILL FOR An Act relating to certain bonds issued for urban renewal 1 purposes. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 2060YH (3) 89 md/jh
H.F. 412 Section 1. Section 403.9, subsection 2, Code 2021, is 1 amended to read as follows: 2 2. Bonds issued under this section shall not constitute 3 an indebtedness within the meaning of any constitutional or 4 statutory debt limitation or restriction, and shall not be 5 subject to the provisions of any other law or charter relating 6 to the authorization, issuance , or sale of bonds. Bonds issued 7 under the provisions of this chapter are declared to be issued 8 for an essential public and governmental purpose and, together 9 with interest thereon and income therefrom, shall be exempted 10 from all taxes. 11 EXPLANATION 12 The inclusion of this explanation does not constitute agreement with 13 the explanation’s substance by the members of the general assembly. 14 Code section 403.9 states that bonds issued under the 15 authority of that section for purposes of urban renewal 16 shall not constitute indebtedness within the meaning of any 17 constitutional or statutory debt limitation or restriction, 18 presumably including Iowa Constitution, Article XI, section 19 3, which prohibits counties or other political or municipal 20 corporations from becoming indebted in any manner to an 21 aggregate amount exceeding 5 percent of the value of taxable 22 property within the corporation. The Iowa supreme court in 23 Richards v. City of Muscatine, 237 N.W.2d 48 (Iowa 1975), 24 ruled that urban renewal bonds issued pursuant to Code 25 section 403.9, although payable with incremental property 26 tax revenues deposited in the special fund, are indebtedness 27 subject to the constitutional limitation because the bonds 28 are payable from the general revenues of the city and not 29 from a special assessment or from the operating revenues of a 30 municipal enterprise that generates income. In Fults v. City 31 of Coralville, 666 N.W.2d 548 (Iowa 2003), the Iowa supreme 32 court ruled that urban renewal indebtedness subject to an 33 annual appropriation provision is a contingent obligation that 34 does not constitute debt for purposes of the constitutional 35 -1- LSB 2060YH (3) 89 md/jh 1/ 2
H.F. 412 limitation on indebtedness of a municipality. An annual 1 appropriation provision (also known as a “nonappropriation 2 clause”) means that the indebtedness incurred by a municipality 3 is subject to repayment only if the governing body of the 4 municipality annually appropriates the funds necessary 5 for repayment in the coming fiscal year and there is no 6 legally enforceable obligation to continue repayments in the 7 future. The Iowa supreme court stated that debt subject to 8 the constitutional limitation is that which a municipality 9 obligates itself to pay without further action on the part of 10 the city. The Iowa supreme court stated that the repayment of 11 debt that is not certain to take place is not subject to the 12 constitutional debt limitation because the city cannot be held 13 legally responsible for the debt for a year other than one in 14 which funds for repayment have been appropriated. Therefore, 15 the city’s obligation is restricted to the fiscal year within 16 which the city council appropriates money for repayment. It is 17 that annual amount appropriated, therefore, that is included 18 in the aggregate amount of debt when computing whether a 19 municipality exceeds the constitutional limitation. 20 This bill strikes that portion of the bonding authority 21 language under Code section 403.9 stating that bonds issued 22 under the authority of that section for purposes of urban 23 renewal shall not constitute indebtedness within the meaning of 24 any constitutional or statutory debt limitation or restriction. 25 -2- LSB 2060YH (3) 89 md/jh 2/ 2