The City of Storm Lake sued Buena Vista County in Buena Vista County District Court last week for over $5 million for tax-increment financing revenues that were misappropriated over the last 11 years.
A 12-page lawsuit filed Friday by the city’s law firm, Dorsey & Whitney of Des Moines, alleged the county auditor’s office misappropriated at least $5 million from three of the city’s urban renewal areas since 2013. The city accused the auditor and other county officials of three civil charges: misappropriation, unjust enrichment and failure to perform required duties. The auditor allegedly misappropriated the revenue. The assessor allegedly failed to properly classify the parcels that were supposed to be in city TIF districts – they weren’t. The treasurer allegedly failed to distribute the tax revenue Storm Lake’s TIF districts were owed. And all county departments allegedly failed to ensure “proper training of its officials regarding their duties regarding (Storm Lake’s) TIF districts.”
“Storm Lake was damaged by the county’s actions and failures because it did not receive the proper amount of tax revenue that was generated from the increment added in its (tax-increment financing) districts in the total amount of over $5 million,” reads the lawsuit, filed by Bill Miller and Angela Dralle of Des Moines. “Among other things, Storm Lake was not able to fund projects or retire debt incurred for urban renewal projects in those TIF districts, which were created for that express purpose.”
County Attorney Paul Allen declined comment on the lawsuit. Katie Graham, a Des Moines attorney representing the county, declined comment on the city’s lawsuit. The county hired Graham’s firm, Nyemaster Goode of Des Moines, to handle its TIF litigation.
The lawsuit accuses the county of more than a decade of misappropriation,, a claim that was introduced by Storm Lake Finance Manager Brian Oakleaf during a city council meeting in December 2022. It also claims the county board of supervisors and the Buena Vista County Attorney’s Office “acted in bad faith.” They repeatedly failed to acknowledge a misappropriation of taxpayer money, exceeding $5 million, according to the lawsuit. And for filing an insurance claim with Iowa Community Assurance Pool, the county’s insurer in November 2022 that they knew would be denied.
The county sought coverage for assessment and collection of the misappropriated TIF revenue, a policy exclusion the supervisors and the county attorney’s office were allegedly aware of, according to the lawsuit.
“The county further acted in bad faith when it failed to submit an insurance claim to its officer and employee errors and omissions carrier and failed to pursue coverage under that policy,” the lawsuit reads.
Allen filed the claim with ICAP in November 2022, around the time when the city first discovered the misappropriated TIF revenue. ICAP wrote to Allen last April that its insurance policy couldn’t cover a claim of “disproportionately low allocation of tax revenues starting in 2016.”
The county sought coverage under its public officials liability coverage, according to correspondence between county officials and ICAP. The correspondence was obtained through an open-records request that was filed by The Storm Lake Times Pilot and the City of Storm Lake, which asked the county to file the claim. A complex claims manager for ICAP wrote to the county that its public officials liability coverage doesn’t apply because no “wrongful act” occurred when the TIF revenues were miscalculated. A wrongful act, per the county’s insurance policy, involves either property damage or an accident, neither of which were alleged, according to ICAP.
Hence the county is paying for its defense out of pocket. A running tally of the legal bills paid by the city and county weren’t made immediately available.
What the mistakes were:
An explanation of TIF provided by the City of Des Moines.
Improper base values
The industrial park’s base value grew, which shouldn’t happen under TIF rules. Parcels are subject to have two values: a frozen base value that doesn’t change and an increment value that grows over time.
In 2012, the industrial park’s frozen base value, or the amount of taxable value not subject to tax-increment financing, was $8.6 million. A year later the county changed the frozen base value to $9.2 million, “without Storm Lake’s knowledge or consent,” the lawsuit alleges.
Miller claims the base value shouldn’t have been changed. Only the values subject to tax-increment financing, or increment values, can be changed. Revenues generated from increment values are distributed back to the city to pay back debt incurred against the TIF district. To date, the city’s debt against its TIF districts exceeds $25 million, an amount the city claims is much larger than it should be.
Miller claims the industrial park’s base value was changed again in 2016 after the county changed its tax-computing software. The county contracted with Tyler Technologies to bring the county’s property tax records to the state property tax management system at that time. During this conversion process, the county allegedly inflated base values to more than $12.7 million, which wasn’t supposed to happen.
The increment value fell to $2.8 million, a practical impossibility given the scope of development in the industrial park since the urban renewal area was created. The industrial park contains King’s Pointe Resort, Storm Lake’s major manufacturers and other major developments on the east side of town.
Miller claims the city lost more than $3 million of TIF revenue as a result of the software change.
“(T)he county offered no remedy for the numerous years of revenue that were improperly distributed within the county instead of to Storm Lake, including revenue that was improperly retained by the county itself,” the lawsuit reads. The TIF revenue should have paid off debt that was incurred against the TIF areas. The revenue was instead distributed to 17 levies that finance other governmental operations, like Storm Lake School District and Iowa Central Community College.
“Storm Lake was also damaged because it was forced to borrow money to fund TIF projects that should have been paid for with the TIF revenues from TIF districts,” the lawsuit reads.
County failed to add parcels to TIF districts
The county failed to add new parcels to TIF district areas, according to the lawsuit. In December 2022, Oakleaf’s office discovered that 83 parcels that should’ve been in the industrial park weren’t included.
“The exact values and names of the parcels that had not been included by the county and that were added by the county in or around December 2022 are within the sole possession, custody and control of the county,” the lawsuit reads.
The county allegedly failed to add all the parcels that were included in the amendments to the urban renewal area, causing the city to lose “at least $625,243 over 13 years,” according to the lawsuit.
Tyson Feed Mill, King’s Pointe and Bargloff Urban Renewal Area
The Tyson Feed Mill was added to the Industrial Park Urban Renewal Area by an ordinance in December 2019. The county allegedly failed to implement the ordinance, failed to freeze the base value of the property and failed to properly distribute the increment generated by the Tyson Feed Mill, according to the lawsuit.
Miller claims the city was forced to borrow money to fund TIF projects that should’ve been paid for with the revenue. The city had to borrow a $1.6 million loan to fund the Memorial Lift Station and paid over $335,000 in interest charges.
“In 2022 alone, the county failed to distribute at least $128,833 of TIF increment to Storm Lake that was generated from the Tyson Feed Mill TIF District,” the lawsuit reads. “Storm Lake suffered damages due to the county’s errors relating to the Tyson Feed Mill TIF District totaling at least $255,000 from 2000 to 2023.”
The county also failed to apply the correct TIF levy rate at King’s Pointe. In 2021, the county distributed 43% of the tax collected in the TIF district for a total of $93,600. But, the Iowa Department of Management estimated that 80% of the taxes collected from King’s Pointe should’ve been distributed to the King’s Pointe TIF area, or $174,400.
The King’s Pointe TIF District lost approximately $81,000 in 2021 alone, according to the lawsuit.
“On information and belief, the county deprived Storm Lake of up to $83,000 each year relating to this TIF District for at least nine years, totaling more than $684,000,” the lawsuit reads.
The Bargloff Urban Renewal area was also shorted TIF revenue. In 2010, the City of Storm Lake created the Bargloff TIF, which contains industrial developments in northern Storm Lake.
“Due to an error by county officials who did not understand that, pursuant to Iowa law, the ordinance was the only documentation required to direct the county to distribute TIF revenues from that district to Storm Lake, the county failed to properly implement the TIF ordinance and did not distribute the incremental revenue generated by the Bargloff TIF District to Storm Lake,” the lawsuit reads.
City wants county to pay for damages
Miller claims the city’s losses exceed $5 million for the miscalculations he and the city’s finance office were able to estimate.
But the losses could be much greater than what was outlined in the 12-page lawsuit. In an email to the Times-Pilot last week, Miller claimed the county destroyed records that could “fully develop” its damages claim. The county, for example, destroys records relating to TIF parcels if they’re over five years old.
“The county exercised control over the TIF increments that was inconsistent with and in derogation of Storm Lake’s interest in same,” reads the lawsuit, which asks for a damage amount yet to be estimated, attorney fees, court costs and other relief.
The county hasn’t formally responded to the lawsuit, filed in Buena Vista County District Court. The lawsuit doesn’t specify whether the city is seeking a bench trial or a jury of 12 Buena Vista County residents to hear the matter.
