Judge rejects IHD bid to end city's lawsuit

SANDPOINT — A 1st District Court judge shot down Independent Highway District arguments to withhold revenue from the city this week.

 In a ruling filed Monday, Judge John T. Mitchell found no merit in any of IHD’s arguments and denied its motion to dismiss the lawsuit.

It’s the latest development in a longstanding series of disputes between the two sides over tax revenue. The city sued IHD in August after the district asserted a 2003 joint powers agreement, which established that the city receive all tax revenue collected by the district, was unconstitutional. The next month, IHD counsel David Wynkoop filed to dismiss the lawsuit.  

In his ruling denying the dismissal, Mitchell parsed through each of the highway district’s five arguments claiming its 2003 agreement with the city was unlawful.

First, IHD claimed the agreement was invalid based on the Idaho Constitution’s prohibition of indebtedness beyond a political subdivision’s yearly revenue. City attorneys countered that the agreement does not constitute a debt. Mitchell agreed, pointing out that the district’s liability was not constitutionally prohibited.

“IHD will always receive more revenue than what it has apportioned to the city each year because it will receive levies from property in the city limits as well as levies from property outside the city limits,” the ruling states. “Because IHD has not incurred a liability that exceeds its revenue, the court must deny IHD’s motion to dismiss upon this basis.”

IHD also argued that Idaho Code 40-801 necessitates an even split of revenues between the district and the city. Attorneys asserted that a 50-percent split was the maximum amount allowed by law. Once again, Mitchell disagreed, calling the claim a “strained interpretation” of the code.

“The statute does not designate what is to be done with the other 50 percent,” Mitchell stated in the ruling. “Thus, interpreting the 50 percent amount as a minimum amount is much more logical than to interpret such as a limit.”

The time limit and termination method on the city and IHD’s joint agreement were more points of conflict. District attorneys argued the “perpetual” time limit and “mutual agreement” method of termination weren’t contractually valid. Mitchell rejected these claims as well.

“The fact that IHD 10 years later regrets entering into that agreement is of no import,” he stated.

Mitchell also saw no merit in the claim that the district should retain funds on the basis of Idaho Code 40-1333, which requires cities to compensate highway districts for maintenance or construction work.

“... It has nothing to do with the facts of this case, because IHD has not counter-claimed against the city to recompense IHD for maintenance work,” he wrote in his ruling.

Finally, Mitchell rejected the IHD claim that the district received nothing of value from the 2003 agreement, calling it “especially inapt.”

“According to the agreement, the city benefited because it received the responsibility to maintain its own streets in addition to funds to do so,” the ruling states. “The highway district benefited because the city ceased its pursuit to legally dissolve the highway district within Bonner County.”

As a result of those considerations, Mitchell determined that the 2003 contract between the city and IHD was legal. He also questioned the appropriateness of IHD actions that led to the lawsuit in the first place.

“Rather than IHD bringing a declaratory action against the city where the IHD would continue to pay the city under the contract until those legal arguments are decided by a court, IHD instead chose to simply not pay under the agreement, leaving the city in the lurch financially and forcing the city to sue IHD,” he wrote in the ruling.

According to City Attorney Scot Campbell, the decision is another pillar supporting the city’s claim to lost revenue. City officials are hopeful lost funds will eventually be available for local services like snowplowing.

“Obviously, we’re very happy with the ruling,” Campbell said. “We’re looking forward to getting back to business as usual.”

While the ruling backs up the legality of the revenue arrangement between the city and IHD, it’s not a final decision, Campbell said. That means IHD officials and their legal counsel can’t appeal it.

The ball is now in IHD’s court to determine whether it’s worth pursuing the case to a final decision or not. According to Wynkoop, district officials are in the process of considering their next move.

“IHD will evaluate the decision and its options and proceed accordingly,” he said. “IHD remains hopeful that it can meet with the city and amicably resolve these issues.”