CITY, COUNTY OPEN TIF ARGUMENTS IN COURT

District Court Judge Charles Borth said Monday he will rule soon on whether to dismiss the City of Storm Lake’s lawsuit against Buena Vista County over the misappropriation of more than $5 million in tax-increment financing revenue.

A half-hour hearing adjourned on Monday afternoon with Judge Borth promising “as soon as possible” a written ruling on Buena Vista County’s request to dismiss the city’s lawsuit over the TIF revenue that was intended for the city but sent to other municipalities.

The city sued the county in March, claiming the county auditor’s office misappropriated at least $5 million over a 12-year period – the money was allegedly distributed to other taxing entities. 

City Manager Keri Navratil, Mayor Mike Porsch, County Attorney Paul Allen, Supervisor Kathy Croker and representatives from the Buena Vista County Auditor’s office were seated in the gallery. “I’ll review the briefs again in light of the arguments that were heard today. I’ll get a written ruling on file for you folks as soon as possible,” Borth said as the hearing concluded.

At issue on Monday was the county’s motion to dismiss the city’s lawsuit on several grounds. 

Its argument relies primarily on immunities that flow from the Iowa Municipal Tort Claims Act of 1967. Katie Graham, a Des Moines attorney representing the county, told Judge Borth the tort claims act is broad and ironclad. Graham said the statute stands on the precept that “the king can do no wrong.”  

She noted the statute specifically exempts liabilities stemming from “any claim in connection with the assessment or collection of taxes.” She claimed the city’s lawsuit ignores the statute’s “plain language.” 

“The court must dismiss with prejudice,” Graham closed. “It’s harsh. It is a magic-words argument, but that’s what the statute says, and it’s what the Legislature is mandating the courts to apply.”

The city argues the tort claims act’s taxing immunity hasn’t yet been construed by the Iowa Supreme Court, and so an exemption could apply. Bill Miller, a Des Moines attorney representing the city, pointed to a 2013 Iowa Appeals Court opinion that held immunities did not apply to the distribution of tax funds. 

Assessment, collection and distribution, Miller added, are functions in county government that happen years apart from each other, and are thus separate. The assessor assesses all properties in the county; the treasurer collects property taxes; and the auditor distributes the funds to dozens of taxing entities in the county. Miller claimed there were failures in those offices — as well as other county offices — during that time.

“Overall the county was negligent in failing to properly train personnel to ensure this was properly done,” said Miller, as Croker, the former assessor, shook her head in the gallery.

Graham also cited a 2005 Iowa Supreme Court case finding that taxing, collecting and distribution must be viewed as a single operation, not separate. “The nexus between the city’s claims and the county’s tax assessment and collection activities is both immediate and obvious,” Graham’s brief reads. 

The county’s immunity argument poses a tough question for the judge, said Storm Lake attorney Dave Jennett, a former county attorney who now represents cities in Buena Vista and Sac counties. Jennett said the city’s claims deserve sympathy – over $5 million in Storm Lake tax money vanished. But he believes the city’s lawyers haven’t confronted the county’s broad immunity head-on. 

“I think (the county’s immunity argument) has got some beef to it,” Jennett said on Monday. “The city’s kind of nipping and tucking around the edges. They’re trying to find a way around this.”

The lawyers also sparred about whether the city’s lawsuit falls outside the statute of limitations. The county claims that most of the damages the city outlined in its lawsuit can’t be claimed because they were allegedly inflicted more than two years ago. 

The tort claims act, the county claims, limits damages against municipalities to two years from the date of injury. 

The city described the damages it suffered from its tax-increment financing losses as “ongoing and cumulative.” The city claims it lost at least $5 million through TIF misappropriation by the county auditor’s office from 2010 to 2022. Additional losses are accumulating from interest expenses the city has incurred without the TIF revenue at its disposal. Miller noted the city notified the county of the issue in 2022. Both entities, he noted, have been in communication with each other on the matter since the city finance office discovered the erroneous distributions. 

Miller also noted that the county was in possession of the records that could substantiate the extent of its losses. 

Graham claimed the Legislature didn’t create a “fairness consideration” the city is arguing. The history of the tort claims act — since its most recent amendments and subsequent interpretations by the Iowa Supreme Court — suggest that the city’s damages can be calculated “upon the date of injury and not the date of accrual.”