IN THE SUPREME COURT OF IOWA No. 101 / 05-0818
Filed October 27, 2006
CITY OF ASBURY, IOWA,
Appellee,
vs.
THE IOWA CITY DEVELOPMENT BOARD,
Appellant.
and
CITY OF DUBUQUE,
Intervenor-Appellant.
________________________________________________________________________ Appeal from the Iowa District Court for Dubuque County,
Lawrence H. Fautsch, Judge.
A city appeals the district court’s decision nullifying the city’s
annexation of adjacent land. REVERSED.
Thomas J. Miller, Attorney General, and Michael H. Smith,
Assistant Attorney General, for appellant Iowa City Development Board.
Frank Murray Smith, of Frank Smith Law Office, Des Moines, and
Barry A. Lindahl, Dubuque, for appellant City of Dubuque.
Thomas Henderson, John F. Fatino, and Karin M. Sinnard of
Whitfield & Eddy, P.L.C., Des Moines, for appellee. 2
STREIT, Justice.
When does a carrot become a stick? Competing for common
ground, the City of Asbury objects to the tactics the City of Dubuque
used to voluntarily annex land. After the City Development Board 1
(CDB) approved Dubuque’s annexation application, Asbury appealed to
the district court arguing Dubuque’s application should have been
dismissed because Dubuque coerced property owners into consenting to
the annexation by offering them tax and other financial benefits
conditioned on each property owner’s consent. In response, Dubuque
argued the offered benefits merely encouraged property owners to
consent to annexation. The district court agreed with Asbury and found
Dubuque’s annexation process invalid. Because we find Dubuque’s
tactics were not prohibited by law, we reverse. I. Facts and Prior Proceedings
Asbury is west of Dubuque. An irregular gap exists between the
two cities. The territory at issue in this case is between the western
boundary of Dubuque and the southern boundary of Asbury.
Callahan Construction, which owns approximately 114 acres of
unincorporated land in this area, asked Dubuque to annex its land in
order to facilitate the development of a housing subdivision. Dubuque
also received annexation requests from various members of the Bahl
family, who separately own several parcels of land totaling approximately
408 acres, which is most of the remaining unincorporated land between
Dubuque and Asbury. Dubuque could not annex the Bahl and Callahan
properties without also annexing the surrounding parcels of property.
1“The City Development Board is the administrative board established to exercise administrative jurisdiction over annexation petitions.” Dunn v. City Dev. Bd., 623 N.W.2d 820, 821 (Iowa 2001) (citing Iowa Code § 368.9 (1997)). 3
This is because the annexation of the Bahl and Callahan properties alone
would have created “islands” of unincorporated land, which is prohibited
by statute. See Iowa Code § 368.7(3) (Supp. 2003) 2 (“The [CDB] shall not
approve an application which creates an island.”); id. § 368.1(10)
(defining an island as “land which is not part of a city and which is
completely surrounded by the corporate boundaries of one or more
cities”). As a result, Dubuque pursued the annexation of twenty-nine
parcels of land or approximately 704 acres. Callahan Construction owns
two of these parcels (114 acres) and the Bahl family in total owns seven
(408 acres). The remaining twenty parcels amount to 168 acres.
Dubuque’s annexation also included fifteen acres of county roads. Dubuque sought annexation consents from the owners of the
remaining twenty parcels in the proposed territory. Dubuque’s city
manager and several Dubuque employees attempted to personally
contact each property owner in the annexation territory in order to
discuss the annexation and the transition benefits Dubuque was
proposing. 3 Additionally, the city manager attended a neighborhood
meeting with about thirty people in attendance.
In an effort to entice the property owners in the proposed territory
to consent, Dubuque offered the following transition benefits to the
property owners within the territory: (1) a five-year partial exemption
from city property taxes; (2) a reduced cost to voluntarily connect to
Dubuque sanitary sewer lines; (3) a reduced cost to connect to Dubuque
water lines; (4) consideration by Dubuque to enlarge Middle Road; and
2All references to the Iowa Code are to the 2003 Supplement unless otherwise indicated. 3 It is unclear from the record how many individuals were actually contacted. The city manager told the CDB Dubuque “made a very strong effort” to meet with individuals face-to-face and answer questions. 4
(5) deferral of any sewer connection costs until the property is sold.
These benefits were explained in an agreement entitled “Agreement
between and among the City of Dubuque, Iowa and Certain Property
Owners in Dubuque County, Iowa” (“Agreement”). The Agreement was
sent to each property owner along with a letter from Dubuque’s city
manager dated August 8, 2003. 4 In his letter, the city manager
explained “only those property owners who choose to sign this Agreement
[i.e. consent to Dubuque’s annexation] will be entitled to the benefits of
this Agreement.” The Agreement gave the property owners until August
14, 2003 to respond. In the accompanying letter, the city manager
stated “[h]opefully, all of the property owners will sign this Agreement
and return it to my office not later than 5:00 p.m. on August 13, 2003 so
that it may be placed on the Agenda for the Dubuque City Council
meeting of August 18, 2003.” In the end, twenty-one of the twenty-nine property owners
(representing 643 acres) signed the Agreement and consented to
Dubuque’s annexation. The owners of the non-consenting parcels asked
Asbury to annex their land. Asbury agreed and on December 16, 2003,
Asbury filed an application for voluntary annexation with the CDB. On
January 9, 2004, Dubuque filed its voluntary annexation application
with the CDB for approximately 704 acres which included the land in
Asbury’s application. The CDB directed the two cities to meet and try to
resolve their competing annexation proposals. After the two cities were
4 It is also unclear how much time spanned between the initial contacts and the August 8 letter. One property owner, Francis McDonald, told the CDB Dubuque “gave us about three weeks to make up our mind if we wanted to join the City of Dubuque voluntarily [inaudible].” 5
unable to reach a compromise, the CDB dismissed Asbury’s application
because it would have created a proscribed island.
The CDB proceeded with Dubuque’s application and conducted a
public hearing in Dubuque on April 1, 2004. In its presentation to the
CDB, Dubuque explained the necessity of the annexation as well as the
services Dubuque would provide to the territory.
At the CDB hearing, Asbury objected to Dubuque’s annexation
application. Asbury accused Dubuque of “bad faith” in obtaining the
consents of property owners in the proposed territory. Asbury claimed
Dubuque did not give the property owners adequate time to consider the
proposal. Asbury’s biggest concern, however, was that Dubuque
conditioned the receipt of transition benefits on each property owner’s
consent. Asbury argued this amounted to “undue pressure” and
questioned the voluntariness of the property owners’ consents. Additionally, several property owners within the proposed territory
spoke at the hearing. Members of the Bahl family spoke in favor of the
annexation. Other property owners spoke against the annexation. For
example, Joe and Mary Behnke through their attorney said they felt
“pressured and coerced by the representatives of [Dubuque]” to annex
their land. Francis McDonald told the CDB he signed the Agreement
“under duress” in order to get the tax benefits. 5 Another property owner, Pete Henkels, compared the conditioning of benefits on a property
owner’s consent to “bribery or extortion.” Douglas Fritch also spoke out
5Mr. McDonald used more force in his letter to the CDB. There, he claimed the Dubuque employees told differing stories to the various property owners in the territory. He stated “[t]his whole land grab is money driven by owners of four farms who want to develop their land. When [Dubuque’s city manager] states 93% of the land and owners are signed up this is a ‘Trojan horse.’ If it weren’t for the City’s all out campaign for this program, the City of Dubuque would have only six property owners out of 26 who are affected. We believe this is taking a very undemocratic approach to this situation.” 6
against the “unethical treatment” of him and his neighbors by Dubuque.
According to Mr. Fritch, Dubuque estimated it would cost him about
$10,000 for “mandatory sewer hookup.” He signed the Agreement only
to defer that “huge cost” until he sold his property. Mr. Fritch also said
that he wanted to include a notation on the Agreement that he was
reluctantly signing but Dubuque would not let him. In response to a
question by one of the CDB members, Dubuque reiterated its intention to
give the tax abatement only to the property owners in the territory who
consented to annexation. Shortly after the public hearing, Dubuque’s City Council passed
Resolution No. 174-04 which extended the transition benefits to those
property owners in the territory who had not consented to annexation.
Thereafter, Dubuque presented the CDB with a copy of the Resolution.
The CDB met in Des Moines to deliberate and determine
Dubuque’s annexation request. At least four-fifths of the CDB members
voted to approve the annexation as required by Iowa Code
section 368.7(1)(f). The CDB filed its written decision concerning the
matter on July 7, 2004.
Asbury filed a petition for judicial review in the district court for
Dubuque County. Based on the record, the district court reversed the
CDB’s decision approving Dubuque’s annexation. The district court
found the annexation process invalid because Dubuque “unfairly
induced the property owners to the extent it placed the property owners
in a position of either agreeing to the annexation and receiving financial
benefits, or being denied financial benefits for refusing to agree to the
annexation.” Dubuque and the CDB appealed. 7
II. Standard and Scope of Review
Iowa’s city development statute specifically limits judicial review of
a CDB decision. It states:
The judicial review provisions of this section and chapter 17A shall be the exclusive means by which a person or party who is aggrieved or adversely affected by agency action may seek judicial review of that agency action. The court's review on appeal of a decision is limited to questions relating to jurisdiction, regularity of proceedings, and whether the decision appealed from is arbitrary, unreasonable, or without substantial supporting evidence. The court may reverse and remand a decision of the board or a committee, with appropriate directions.
Iowa Code § 368.22 (2003). “On appeal, we decide whether the district
court correctly applied the law.” Pruss v. Cedar Rapids/Hiawatha
Annexation Special Local Comm., 687 N.W.2d 275, 279 (Iowa 2004). If we
reach the same conclusions as the district court, we affirm; if not,
reversal may be required. Id.
“The law of annexation is purely statutory.” Id. Nevertheless,
substantial compliance with our annexation statutes is sufficient. City of
Des Moines v. City Dev. Bd., 473 N.W.2d 197, 200 (Iowa 1991). We
liberally construe “legislation establishing the method by which
municipal corporate boundaries may be extended . . . in favor of the
public.” Id. III. Merits
The question presented in this case is whether a city may offer tax
and other financial benefits to property owners on the condition they
consent to their properties’ inclusion in an 80/20 annexation. The
district court answered this question in the negative. The district court
found Dubuque’s annexation was “irregular” for three reasons. First, it
held section 368.7(3), which explicitly allows city councils to offer 8
property owners in a proposed territory a partial tax exemption, only
applies to 100% voluntary annexations. The district court reasoned that
even if section 368.7(3) does apply to 80/20 annexations, it does not
allow a city to discriminate between consenting and non-consenting
property owners. Second, the district court held Dubuque did not have
the authority under chapter 368 of the Code to offer other financial
benefits, such as a reduction in sewer and water hook-up costs and the
deferral of sewer hook-up costs until the property is sold. Finally, the
district court held Dubuque’s annexation was not in fact voluntary due
to “coercive and unfair practices” by the city. The court stated:
Since the City of Dubuque unfairly induced the property owners to the extent that it placed the property owners in a position of either agreeing to the annexation and receiving financial benefits, or being denied financial benefits for refusing to agree to the annexation, it must be concluded that the annexation process was invalid. The City of Dubuque placed the property owners in a position in which the refusal to sign the annexation petition would make them unequal to their neighbors. Under these facts it cannot be said that the annexation proceedings were “voluntary” under Iowa Code Section 368.7.
On appeal, Dubuque and the CDB argue the district court erred in all three holdings. We address each holding in turn.
At the outset, we note our ruling is largely confined to this case
because during the pendency of this appeal, the legislature amended
several relevant provisions of the Iowa Code. We discuss the legislative
changes below.
A. Background on Voluntary Annexations
It may be helpful if we first discuss voluntary annexation in
general before addressing the district court’s ruling. Section 368.7 of the
Iowa Code governs voluntary annexations of territory. There are two 9
types of voluntary annexations—100% annexations and 80/20
annexations. In a 100% voluntary annexation, all of the property owners
in the territory request the adjoining city to annex their land. Iowa Code
§ 368.7(1)(a). In contrast, an 80/20 annexation includes some land
whose owner did not request or consent to annexation. The annexation
is still “voluntary” if the owners of at least 80% of the property in the
proposed territory consent to annexation and the inclusion of the non-
consenting property is necessary to “avoid creating an island or to create
more uniform boundaries.” Id. All voluntary annexations require approval by the annexing city via
a resolution by the city council. See id. § 368.7(1)(d), (2), (3). Approval
by the City Development Board (“CDB”) may also be required depending
on the type of voluntary annexation. The CDB must approve a city’s
annexation if the proposed territory is within the urbanized area of
another city. Id. § 368.7(3); see id. § 368.1(16) (defining “urbanized area”
as “any area of land within two miles of the boundaries of a city”).
Additionally, any 80/20 annexation, irrespective of whether it is within
the urbanized area of another city, requires approval by four-fifths of the
members of the CDB after a public hearing. Id. § 368.7(1)(f). The CDB
may only approve an application that substantially complies with the
statutory requirements for annexations. City of Waukee v. City Dev. Bd.,
590 N.W.2d 712, 716-17 (Iowa 1999) (quoting Gorman v. City Dev. Bd.,
565 N.W.2d 607, 609 (Iowa 1997)).
From a city’s perspective, a voluntary annexation is preferable to
an involuntary annexation for at least two reasons. First, only
involuntary annexations require an election. See Iowa Code §§ 368.11- 10
.20 (2003). 6 Second, applications for voluntary annexation are expressly
afforded a presumption of validity. Id. § 368.6. Thus, it is not surprising
Dubuque made every effort to get the owners of at least 80% of the land
in the proposed territory to consent to annexation. We now consider
whether Dubuque’s efforts were proper.
B. Section 368.7(3) and 80/20 Voluntary Annexations
Section 368.7 governs voluntary annexations of territory. At the
time of Dubuque’s annexation proceedings, section 368.7 had four
subsections. 7 The parties disagree on whether subsection 3, which
allows a city to offer a partial tax exemption to property owners, applies
to an 80/20 annexation. The district court held subsection 1 exclusively
governs 80/20 annexations. Because subsection 1 does not mention the
availability of a tax incentive, the court reasoned Dubuque was not
entitled to offer a partial exemption from city property taxes to the
property owners in the proposed territory. According to the district
court, subsection 3, which explicitly grants city councils the right to offer
such a benefit, only applies to 100% annexations. A careful reading of
the statute does not support this conclusion.
6 When an election to approve an involuntary annexation proposal is held, “registered voters of the [annexation] territory and of the city may vote, and the proposal is authorized if a majority of the total number of persons voting approves it.” Iowa Code § 368.19 (2003).
Section 368.7 has since been amended to include a fifth subsection. See Iowa 7
Code § 368.7(5) (Supp. 2005). The legislature removed the provision for tax exemptions from subsections 2 and 3 and created subsection 5, which solely addresses tax exemptions. 11
1. Section 368.7(3) Applies to 80/20 Annexations
On its face, subsection 1 appears to be primarily concerned with
80/20 annexations. 8 But aside from the definitions of 80/20 and 100%
voluntary annexations found in subsection 1, section 368.7 makes no
express distinction between the two types of voluntary annexations. We
must determine whether the remaining subsections apply to 80/20
annexations.
Subsection 2 governs an annexation of territory not within an
urbanized area of another city. Subsection 3 governs an annexation of
territory that is within an urbanized area of another city. A territory is
“within an urbanized area” if it is within two miles of the boundaries of a
city. Id. § 368.1(16) (Supp. 2003). Both subsection 2 and subsection 3
give a city council the discretion to include a property tax incentive in its
resolution approving the annexation. Subsection 1, which defines an
80/20 annexation, contains no such provision. There is no indication
subsections 2 and 3 only apply to 100% annexations and we do not read
the statute so narrowly. Instead, we believe subsections 2 and 3 apply to
both types of voluntary annexations—80/20 and 100% annexations. We
read subsection 1 to simply provide additional requirements for an
80/20 annexation. 9 Thus, a city is entitled to offer a partial exemption from city property taxes with either type of voluntary annexation.
8 For example, paragraph (c) requires a copy of the annexation application to be mailed to the “nonconsenting owner.” Iowa Code § 368.7(1)(c). Paragraph (d) requires the annexation city to provide for a public hearing and give notice to “each owner of property located within the territory to be annexed who is not a party to the application”—i.e. to those who did not consent. Paragraph (e) allows a property owner who consented to annexation to withdraw his consent within three days after the public hearing with some exceptions. Paragraph (f) requires 4/5 of the CDB’s members to approve an 80/20 annexation.
We have previously held subsections 1 and 2 must be read together. In City of 9
Waukee v. City Development Board, 590 N.W.2d 712 (Iowa 1999), we stated: “Although 12
Our interpretation of section 368.7 is consistent with the
legislature’s policy of promoting voluntary annexations. Gorman, 565
N.W.2d at 609 (“The purpose of section 368.7 is to avoid the costly and
involved procedures governing involuntary annexations.”). When a city
begins the annexation process, it does not know whether all of the
property owners will consent. Allowing a city to offer a partial tax
exemption is a means to encourage property owners to consent to
annexation. It is illogical to interpret the statute to require a city to first
obtain the consents of all of the property owners in a territory before
offering them a tax benefit. If one property owner refused to consent,
then no property owner could receive a partial tax exemption. Such an
outcome would frustrate the legislature’s desire to help cities obtain
consents by using property tax incentives as an inducement. A recent amendment to section 368.7 supports the conclusion that
a city can offer a partial exemption from city property taxes in both
80/20 and 100% annexations. Section 368.7 was amended in 2005 by
Senate File 78. 10 2005 Iowa Acts ch. 111, § 3. The legislature deleted
the language pertaining to the transition of city property taxes from
subsections 2 and 3 and created a fifth subsection. Subsection 5
provides:
In the discretion of a city council, the resolution provided for in subsection 1, paragraph “d”, or subsection 2 or 3, may include a provision for a transition for the imposition of city ________________________ section 368.7(1) does not expressly mention that parcels within the annexation territory be contiguous to one another, we think subsection 2 of section 368.7 imposes such a requirement. Subsection 2 prohibits approval of any annexation application ‘which would create an island.’ ” City of Waukee, 590 N.W.2d at 717 (quoting Iowa Code § 368.7(2) (1995)).
10The amendment took affect May 5, 2005 and applies to an annexation application submitted to a city council on or after that date. 2005 Iowa Acts ch. 111, § 5. 13 taxes against property within the annexation area as provided in section 368.11, subsection 3, paragraph “m.”
Iowa Code § 368.7(5) (Supp. 2005). The introduced version of Senate File
78 included an explanation for the amendment. It states “[t]he bill also
clarifies that a city may include a provision for transition for imposition
of city taxes in a resolution approving any voluntary annexation.”
(Emphasis added.) The word “any” as well as the reference to subsection
1 in the new subsection 5 makes clear the legislature intends the partial
tax exemption to be available for both 100% and 80/20 voluntary
annexations. More importantly, the explanation of the amendment
indicates this was the legislature’s intention prior to the amendment.
When the legislature amends a statute, we generally presume it intended
to change the statute’s meaning. Martin v. Waterloo Cmty. Sch. Dist., 518
N.W.2d 381, 383 (Iowa 1994). However, this presumption can be
overcome by legislative history or by an explanation accompanying the
amendment. Id.; see Tiano v. Palmer, 621 N.W.2d 420, 423 (Iowa 2001)
(“Although ordinarily any material change in the language of a statute is
presumed to alter the law, the time and circumstances of an amendment
may indicate that the legislature merely intended to clarify the intent of
the original enactment.”); State v. Schuder, 578 N.W.2d 685, 687 (Iowa
1998) (“An amendment may be enacted so a statute corresponds ‘to what
had previously been supposed was the law rather than to effect a change
therein.’” (quotation omitted)).
In the present case, the owners of more than 80% of the property
in the proposed territory consented to Dubuque’s annexation. The
parties agree the proposed territory is within two miles of Asbury. Thus,
section 368.7(3) applies to Dubuque’s annexation. Subsection 3 allows a
city council to transition the imposition of city property taxes as provided 14
in section 368.11(3)(m) for the property owners in the proposed territory.
Iowa Code § 368.7 (referencing section 368.11(3)(m)). Section
368.11(3)(m) states:
In the discretion of a city council, [it may provide] a provision for the imposition of city taxes against property within an annexation area. The provision shall not allow a greater exemption from taxation than the tax exemption formula schedule provided under section 427B.3, subsections 1 through 5, and shall be applied in the levy and collection of taxes.
The amount of exemption from city property taxes allowed under section
427B.3 (2003) is as follows:
1. For the first year, seventy-five percent. 2. For the second year, sixty percent. 3. For the third year, forty-five percent. 4. For the fourth year, thirty percent. 5. For the fifth year, fifteen percent. 11
Dubuque’s offer to the property owners follows this schedule exactly.
Therefore, we hold Dubuque’s offer to transition the imposition of city
property taxes was proper in this case.
2. Dubuque may Distinguish between Consenting and Non- consenting Property Owners The district court held that even if section 368.7(3) applies to
80/20 annexations, “the Code language does not provide that a city may
discriminate between consenting and non-consenting landowners.” The
language of the Code does not support this interpretation.
Iowa Code section 368.11(3)(m) begins with the following phrase:
“In the discretion of a city council, a provision for a transition for the
imposition of city taxes against property within an annexation area.” The
district court’s interpretation requires the addition of the word “all”—i.e.
11Cities may now transition property taxes over a period of ten years rather than
five years. See Iowa Code § 368.11(3)(m) (Supp. 2005). 15
“In the discretion of a city council, a provision for a transition for the
imposition of city taxes against [all] property within an annexation area.”
This we cannot do. We may not, under the guise of judicial construction,
add modifying words to a statute or change its terms absent “inadvertent
clerical errors or omissions which frustrate obvious legislative intent.”
Schultze v. Landmark Hotel Corp., 463 N.W.2d 47, 49 (Iowa 1990). In
this case, we find no such justification to alter the plain language of
section 368.11(3)(m). Instead, this is a matter for the legislature. In fact,
the legislature recently amended section 368.11(3)(m). 2006 Iowa Legis.
Serv. 5 (West). The following sentence was added to the end of
paragraph (m): “If the city council provides for a transition for the
imposition of city taxes against a property in an annexation area, all
property owners included in the annexation area must receive the
transition upon completion of the annexation.” 12 (Emphasis added.) In contrast to the amendment to section 368.7 just discussed, there is no
indication by the legislature that it merely intended to clarify the statute
as it existed at the time of the amendment. We presume the legislature
meant to change section 368.11(3)(m). Davis v. State, 682 N.W.2d 58, 61
(Iowa 2004) (When interpreting an amendment, we presume “the
amendment sought to accomplish some purpose and was not a futile
exercise.”). Therefore, pursuant to the versions of sections 368.7(3) and
368.11(3)(m) in effect at the time of this annexation, Dubuque was
permitted to stipulate only consenting property owners would be eligible
for a partial exemption from city property taxes.
“As an alternative basis to affirm the district court,” Asbury claims
Dubuque’s “disparate treatment of non-consenting landowners violates
12This amendment became effective on July 1, 2006. 2006 Iowa Legis. Serv. 42 (West). 16
the due process and equal protection clauses of the United States and
Iowa Constitutions.” However, Asbury failed to articulate this claim in its
brief and failed to address any specific application of due process and
equal protection to this case. Accordingly, Asbury has waived this
argument and we do not address it further. See Iowa R. App. P.
6.14(1)(c) (“Failure in the brief to state, to argue or to cite authority in
support of an issue may be deemed waiver of that issue.”).
C. Availability of Other Financial Incentives The district court also held Dubuque did “not have the authority
under Chapter 368 of the Code of Iowa to offer the other financial
benefits . . . .” The court stated:
Nowhere does the statute provide that the City of Dubuque may offer consenting landowners deferral of payment for expenses for city services such as sewer or water hookup fees, or exemption from the costs of installation of city sewer or water lines.
Dubuque and the CDB argue this holding ignores Dubuque’s home rule
power. We agree.
In 1968, Iowa amended its constitution to give municipalities home
rule authority. See Iowa Const. art. III, § 38A. Under the home rule amendment, a city has the “power and authority, not inconsistent with
the laws of the General Assembly, to determine their local affairs and
government, except that they shall not have power to levy and tax unless
expressly authorized by the General Assembly.” Id. Similarly, the Iowa
Code provides:
A city may, except as expressly limited by the Constitution of the State of Iowa, and if not inconsistent with the laws of the general assembly, exercise any power and perform any function it deems appropriate to protect and preserve the rights, privileges, and property of the city or of its residents, 17 and to preserve and improve the peace, safety, health, welfare, comfort, and convenience of its residents. Iowa Code § 364.1 (2003). Home rule power was intended to renounce the common law
“Dillon rule.” City of Des Moines v. Master Builders of Iowa, 498 N.W.2d
702, 703 (Iowa 1993) (referring to Merriam v. Moody’s Ex’rs, 25 Iowa 163,
170 (1868), an opinion authored by Chief Justice John F. Dillon). Under
the Dillon rule, cities were powerless to act in the absence of an express
legislative grant of authority. Id. Home rule authority reversed this
presumption by giving cities broad police powers, except they cannot
impose taxes without the express authorization of the legislature. Home
Builders Ass’n of Greater Des Moines v. City of West Des Moines, 644
N.W.2d 339, 345–46 (Iowa 2002). As we have discussed, section 368.7 gives cities the discretion to
provide a partial exemption from city property taxes to property owners
in an annexed territory. The statute does not contemplate the offering of
any other benefits. The district court in turn reasoned the city property
tax incentive was the only benefit a city may offer property owners. But
in its analysis, the district court asked the wrong question. The question is not whether a statute gives a city authority. Instead, the question is
whether a statute forbids it. Nothing in chapter 368 forbids a city such
as Dubuque from offering additional benefits. Without such a limitation,
a city has the authority to offer other benefits, unless they are related to
taxation, which does require an express authorization from the
legislature. See Iowa Code § 364.3(4) (2003) (“A city may not levy a tax
unless specifically authorized by a state law.”).
We have previously defined a tax as “‘a charge to pay the cost of
government without regard to special benefits conferred,’ meaning its 18
primary purpose is to raise revenue.” Kragnes v. City of Des Moines, 714
N.W.2d 632, 639 (Iowa 2006) (quoting Home Builders Ass’n of Greater
Des Moines, 644 N.W.2d at 346). In exercising its police power, a city
may charge a citizen when it provides a service to that citizen. Home
Builders Ass’n of Greater Des Moines, 644 N.W.2d at 347. The fee
associated with that service is not a tax so long as it is the fair and
reasonable cost of providing that service. Newman v. City of Indianola,
232 N.W.2d 568, 573–74 (Iowa 1975) (holding a city may charge a
property owner the reasonable cost of extending an electrical
transmission line to owner’s property). In the present case, Dubuque
offered to reduce the costs associated with extending water and sewer
lines to the properties in the proposed territory. These are costs related
to the conferral of “special benefits.” Asbury never alleged these costs
are more than the reasonable costs for such services. Consequently,
these additional benefits are not tax-related. Thus, Dubuque does not
need a special authorization by the legislature to offer these benefits. We
therefore conclude all of Dubuque’s proposed benefits were proper. D. Voluntariness of Consents
Finally, the district court held the property owners’ consents were
not voluntary because “Dubuque unfairly induced the property owners to
the extent that it placed the property owners in a position of either
agreeing to the annexation and receiving financial benefits, or being
denied financial benefits for refusing to agree to the annexation . . . .”
The court relied on Hoepker v. City of Madison Plan Commission, 563
N.W.2d 145 (Wis. 1997), a Wisconsin case, for this proposition. See
Hoepker, 563 N.W.2d at 150 (“Municipalities cannot coerce or unfairly
induce an elector and/or property owner into agreeing to annexation.”). 19
Besides the differences in Wisconsin’s and Iowa’s annexation laws, there
is one most obvious distinction between Hoepker and this case. In
Hoepker, the property owners themselves alleged they had been coerced
by the City of Madison into annexing their land. In the present case, the
property owners are not seeking relief. Instead, Asbury, a competing
city, is challenging Dubuque’s annexation and relies on statements the
property owners made to the CDB. This is not how one raises coercion
or duress in Iowa. But see Town of Fond du Lac v. City of Fond du Lac,
126 N.W.2d 201 (Wis. 1964) (one municipality successfully arguing
another municipality coerced residents into consenting to annexation). The Agreement at issue is a contract. Dubuque offered several
incentives to the property owners in the proposed territory in return for
their consent to annexation. Based on the CDB’s record, some property
owners only grudgingly consented to annexation. Nevertheless, Dubuque
rightly points out that none of the property owners rescinded their
consent. Section 368.7(1)(f) allows a property owner to withdraw his
consent within three business days after the public hearing “unless the
property owner has entered into a written agreement for extension of city
services or unless the right to withdraw consent was specifically
identified and waived by the landowner.” The Agreement states “[e]ach
Property Owner agrees not to withdraw the application or any part
thereof after its filing with the City Council.” We need not decide whether
the Agreement effectively waived the property owners’ right to withdraw
their consents under section 368.7(1)(f) because none of the property
owners attempted to withdraw their consents within the nearly seven
month time frame between executing the Agreement and the public
hearing. 20
Essentially, Asbury is arguing the Agreement is voidable by reason
of economic duress. In Iowa, a party claiming economic duress must
prove the following elements: (1) a party involuntarily accepted the terms
made by another party, (2) circumstances permitted no other alternative,
and (3) such circumstances were the result of coercive acts of the other
party. Fees v. Mut. Fire & Auto. Ins., 490 N.W.2d 55, 59 (Iowa 1992)
(citing Turner v. Low Rent Hous. Agency, 387 N.W.2d 596, 598–99 (Iowa
1986)). Assuming arguendo duress can be proven, Asbury is not in
position to make that argument. We follow the Restatement’s rule
concerning the effect of duress on the enforceability of a contract: “If a
party’s manifestation of assent is induced by an improper threat by the
other party that leaves the victim no reasonable alternative, the contract
is voidable by the victim.” Turner, 387 N.W.2d at 598 (quoting Restatement (Second) of Contracts § 175(1), at 475 (1981)) (emphasis
added). Asbury cannot be the victim because it is not a party to the
Agreement. The property owners who are parties to the Agreement have
neither joined this lawsuit nor withdrawn their consents. As it stands,
Asbury may not allege coercion on behalf of the property owners.
Consequently, it was error to conclude Dubuque coerced the property
owners into consenting to annexation.
IV. Conclusion
In sum, we find Dubuque substantially complied with Iowa law in
its annexation of the land in question. We reverse the district court and
affirm the CDB’s decision. Section 368.7(3) allows Dubuque to offer a
partial exemption from city property taxes in an 80/20 annexation. At
the time of the annexation, Iowa law did not require Dubuque to give all
property owners in the proposed territory the property tax incentive. 21
Consequently, Dubuque was permitted to condition the partial tax
exemption on consent to annexation. Pursuant to home rule power,
Dubuque properly offered additional incentives, such as reduced cost for
sewer hook-up, to the property owners. Finally, Asbury may not allege
on behalf of property owners in the proposed territory that the property
owners’ consents to annexation are voidable due to economic duress.
REVERSED.
All justices concur except Hecht, J., who takes no part.