Parties make their cases in appeal of City Center lawsuit

Three-judge panel has until Feb. 11 to rule


Clint Riese
News Editor

A three-judge panel from the Minnesota Court of Appeals did not immediately render a decision after hearing oral arguments Nov. 13 in the case involving the Forest Lake City Center. Judges Margaret H. Chutich, Michelle A. Larkin and John R. Rodenberg have until Feb. 11 to rule whether the city of Forest Lake’s Economic Development Authority had the legal authority to issue lease revenue bonds for the capital improvement purpose of building a city hall and public safety facility.

The Lakes Area Business Association, Cameron Piper, Cassandra Piper and William Anderson contend that state statute required the city to use capital improvement bonds. Unlike lease revenue bonds, issuance of this type of bond is subject to public approval via a reverse referendum. Regarding the Forest Lake City Center, which is currently under construction with an estimated total project cost of $18.6 million, residents presented the city with a petition signed by more than 1,000 residents.

The case commenced on Jan. 28. The lawsuit was heard in 10th Judicial District Court on March 1, and on March 21 Judge John C. Hoffman granted summary judgement in favor of the defendants, ruling the bonding mechanism used was legal and that no referendum was required. The plaintiffs filed an appeal on April 22.

Appellant case

Much of the hearing last week centered around Chapter 475 and Chapter 469 of the Minnesota Statutes. Chapter 475 addresses capital improvement bonds and their election requirements, while Chapter 469 addresses the functions and powers of economic development authorities.

In his 15-minute address which opened the hearing, the attorney for the appellants, Frederic Knaak, described Chapter 475 as the exclusive means of funding capital improvement projects.

He said city officials complicated the nature of the City Center project in order to avoid the provisions of the capital improvement bond statute. Referencing Star Wars, Knaak said respondents are using the Jedi Knight argument: “These are not capital improvements. These are not the droids you are looking for,” he said with a wave of his hand, imitating Ben Kenobi’s brainwashing technique from the movie.

Knaak said Chapter 475 is “clearly prevalent” over the economic development authority statute.

“We have not argued if it is legal to build a city hall. … This has to do with whether or not a city can do that without an election if a sufficient number of people seek an election, and we think the statutory language could not be more clear,” he said.

Knaak compared past issuers of lease revenue bonds for similar purposes to teenagers stealing car stereos. He likened the respondents to a boy he overhead complaining about getting caught.

“Well, all my friends got to swipe stereos,” Knaak recalled the boy saying. “Why can’t I?”

Lease revenue bonds are not backed by the full faith and credit of the city, and the bonds do not constitute debt because the issuing party does not have to pay the bond or the interest on it except from the project’s revenue.

Responding to questioning from Judge Rodenberg on what would occur should the EDA fail to receive its lease payments, Knaak said that through lawsuits certain to happen, the buck ultimately would stop with the taxpayers.

Respondent case

In the 15 minutes allowed the respondents, attorney James Thomson made his case for the legality of the lease revenue bond issuance.

He started by pointing out that the statute regarding elections for the authorization of obligation contains several exceptions. One exception to the election requirement is for other laws which permit the issuance of obligations without an election. Statute 469.103, governing economic development authority revenue bonds, fits that exception, Thomson said.

Capital improvement bonds and lease revenue bonds were created for different reasons and their unique features provide flexibility to municipalities, Thomson said.

“It’s not OK because everyone is doing it. It’s OK because legislation was created in 1987,” he said of the bond-issuing powers of economic development authorities. “Just because the Legislature gave two (options) and a government chooses one or the other, it doesn’t make it a scheme. It makes it legal.”

Further, Thomson argued, the use of lease revenue bonds makes sense because the City Center project involves private development. Parcels sharing the municipal building’s parking lot are being marketed for retail or commercial use, so not all of the financing proceeds would have qualified as capital improvement purposes.

As he did at the district court level, Thomson characterized the appellants’ argument as more of a complaint than an accusation.

“There is a remedy,” he said. “If appellants don’t like it and feel that anytime a government entity issues bonds for a lot of money, – however that’s determined – it should get voter approval, the Legislature should (be their recourse).”

Appellant rebuttal

In the five-minute appellant rebuttal which closed the hearing, Knaak contended that the city could have split the project’s public and private components and used separate financing methods.

He also reinforced his argument that the law makes it clear that the respondents were required to use capital improvement bonds.

However, much of Knaak’s allotted time was spent responding to the judges rather than to the respondents’ points.

Judge Rodenberg referenced the statute providing that revenue bonds are not debt.

“We can’t just start with a blank piece of paper and start writing laws us three think are good,” he said of the panel.

Judge Chutich bluntly stated her take on the relationship of the relevant statutes from Chapter 475 and Chapter 469.

“I don’t see that these two laws are conflicting,” she said.