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