author: LAVORATO, Chief Justice.

text:
    Robert James HEGEMAN, Appellant, v. Robert KELCH, Carol Scott-Conner and R. Edward Howell, Appellees.
    No. 02-0380.
    Supreme Court of Iowa.
    June 11, 2003.
    Rehearing Denied Aug. 5, 2003.

      Robert James Hegeman, pro se.
    Thomas J. Miller, Attorney General, and George A. Carroll, Assistant Attorney General, for appellees.
   LAVORATO, Chief Justice.

Robert. James Hegeman, an employee of the University of Iowa Hospitals and Clinics (UIHC), appeals from a summary judgment ruling in which the district court held he was not entitled to relief under Iowa’s whistleblower statute against defendants, who were Hegeman’s superiors. At issue in this appeal is whether one of the superiors was a public official within the meaning of the statute. The district court ruled he was not and we agree.

The defendants cross appeal from the same ruling in which the district court held that there were factual issues on Hege-man’s common-law claim of constructive discharge. Because there is no accompanying claim to the constructive discharge action, we conclude that action must fail.

We therefore affirm on appeal, reverse on the cross-appeal, and remand with directions.

I. Background Facts and Proceedings.

Hegeman was director of emergency medical services at UIHC frbm 1992 to June 1997. The University of Iowa actually employed him, and he reported directly to the chair of the department of surgery, Carol Scott-Conner. At all times relevant to this case, the dean of the college of medicine was Robert Kelch. R. Edward Howell was the chief executive officer of UIHC.

In a November 1996 letter, Hegeman informed the dean “of serious problems that have developed in the relationship between emergency medicine and the department of surgery.” He expressed his various concerns about staffing and management of the emergency room and about the quality of emergency care at UIHC. From then on, the relationship between Hegeman and his superiors soured, culminating in his resignation in June 1997.

Later, Hegeman sued Kelch, Seotb-Con-ner, Siroos Shirazi (the vice-chair of the department of surgery at UIHC), and Howell. Shirazi was later dropped from the lawsuit.

The petition alleged that subsequent to Hegeman’s November 1996 letter and until his resignation, the defendants “took adverse action regarding” his employment at UIHC “in reprisal for” his disclosure or “in an effort to compel [Hegeman’s] resignation.” The petition set forth three counts. First, the' defendants’ actions were in contravention of the public policy expressed in Iowa Code sections 70A.28 and 70A.29 (1997) (Iowa’s “whistleblower” statute). Second, the defendants’ actions violated his constitutional right to free speech. Last, the defendants’ actions gave rise to a common-law tort of constructive discharge.

The defendants moved for summary judgment, arguing, among other things, that as a matter of law Hegeman (1) could not state a claim under chapter 70A because he did not report the alleged activity to a “public official” as intended by section 70A.28 and (2) was not constructively discharged. The district court agreed that the defendants were not “public officials” under Iowa law and granted the motion for summary judgment on the claim under the whistleblower statute. However, the court found that factual issues on the constructive discharge claim precluded summary judgment on this claim. Later, the court sustained the defendants’ second motion for summary judgment on Hegeman’s free speech claim.

Hegeman appealed from the district court’s ruling on the claim under the whis-tleblower statute. The defendants cross-appealed from the ruling on the constructive discharge claim.

II. Issues.

The district court found that none of the defendants were public officials under Iowa law. Hegeman only contests the court’s ruling that Dean Kelch was not a public official within the meaning of section 70A.28.

In their cross-appeal, the defendants contend the district court erred when it failed to grant them summary judgment on Hegeman’s constructive discharge claim. In support of their contention, the defendants argue that as a matter of law that claim fails.

III. Scope of Review.

We review a summary judgment ruling for correction of errors at law. Iowa R.App. P. 6.4; Sons of the Union Veterans of the Civil War v. Griswold Am. Legion Post 508, 641 N.W.2d 729, 731 (Iowa 2002). Summary judgment is appropriate under Iowa- Rule .of. Civil Procedure 1.981 only when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Iowa R. Civ. P. 1.981(3); Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530, 535 (Iowa 2002). We examine the record before the district court to determine whether any genuine issue of material fact exists and whether that court correctly applied the law. Sons of the Union Veterans, 641 N.W.2d at 731. Summary judgment is the appropriate remedy where questions of statutory interpretation are involved. Burton v. Univ. of Iowa Hosps. & Clinics, 566 N.W.2d 182, 185 (Iowa 1997).

IV.Dean as Public Official.

A. Applicable law. Iowa Code section 70A.28(2) provides in relevant part:

A person shall not discharge an employee from or take or fail to take action regarding an employee’s ... advantage in ... a position in a state employment system administered by ... a state agency as a reprisal ... for a disclosure of any information by that employee to a member or employee of the general assembly, or a disclosure of information to any other public official or law enforcement agency if the employee reasonably believes the information evidences a violation of law or rule, mismanagement, a gross abuse of funds, an abuse of authority, or a substantial and specific danger to public health or safety....

Iowa Code § 70A.28(2) (emphasis added). This provision protects state employees who affirmatively disclose to those designated in. the statute information evidencing “a violation of law or rule, mismanagement, a gross abuse of funds, an abuse of authority, or a substantial and specific danger to public health or safety.” Id.

Iowa Code section 70A.28(4) provides that a person who violates section 70A.28(2) commits a simple misdemeanor. See Iowa Code § 70A.28(4). Iowa Code section 70A.28(5) provides that section 70A.28(2) may be enforced through a civil action. See Iowa Code § 70A.28(5). Iowa Code section 70A.28(5)(a) provides that the person violating section 70A.28(2) is liable to “an aggrieved employee for affirmative relief including reinstatement, with or without back pay, or any other equitable relief the court deems appropriate, including attorney fees and costs.” Iowa Code § 70A.28(5)(a).

“State employee” and “employee,” as used in section 70A.28, are defined to include “persons employed by the state board of regents.” Iowa Code § 70A.28(8). The parties do not dispute that Hegeman was a “state employee” at all times. The issue, however, is whether Dean Kelch was a public official.

B. Iowa cases. Although there is no Iowa case law that answers the question whether a college dean is a “public official,” there has developed considerable Iowa case law addressing the “public official” issue generally. See, e.g., State v. Spaulding, 102 Iowa 639, 649-50, 72 N.W. 288, 291 (1897) (treasurer of the commissioners of pharmacy was not a “public officer” within the meaning of statute defining the crime of embezzlement of public money by a “public officer”); McKinley v. Clarke County, 228 Iowa 1185, 1186-87, 293 N.W. 449, 450 (1940) (addressing whether a county engineer was an “employee” or an “official” for purposes of determining widow’s eligibility for death benefits under the Workers’ Compensation Act); Whitney v. Rural Indep. Sch. Dist. No. 4 of Lafayette, 232 Iowa 61, 71, 4 N.W.2d 394, 398 (1942) (holding that a schoolteacher elected by the school board was an “employee,” not an “official,” and therefore entitled to’ benefits under the Workers’ Compensation Act).

In Hutton v. State, 235 Iowa 52, 16 N.W.2d 18 (1944), the court for the first time set forth the five “indispensable” elements required to make a public employment a public office: (1) the position must be created by the constitution or legislature or through authority conferred by the legislature; (2) a portion of the sovereign power of the government must be delegated to the position; (3) the duties and powers must be defined, directly or impliedly, by the legislature or through legislative authority; (4) the duties must be performed independently and without control of a superior power other than the law; and (5) the position must have some permanency and continuity, and not be only temporary and occasional. Id. at 54-55, 16 N.W.2d at 19.

Actually, as the court in Hutton noted, the five-element test had been around since Spaulding. See id. at 55, 16 N.W.2d at 19 (“While the definition in the Spauld-ing case is in different form and somewhat less comprehensive, the discussion therein recognizes the [five] elements listed.... ”). Iowa cases addressing the issue of “public official” since Hutton have used this five-element test to determine whether a position qualifies as that of a “public official.” See, e.g., State v. Taylor, 260 Iowa 634, 639, 144 N.W.2d 289, 292 (1966), Vander Linden v. Crews, 205 N.W.2d 686, 688 (Iowa 1973); State v. Pinckney, 276 N.W.2d 433, 435-36 (Iowa 1979).

From these cases, it is clear that the court, when applying the five elements to determine whether the position is that of a “public official,” places a great emphasis on two of the elements: (1) the statutory powers and duties of a position, and (2) whether that position exercised sovereign power. See, e.g., Spaulding, 102 Iowa at 649, 72 N.W. at 291 (concluding that the treasurer of the commissioners of pharmacy was not a public officer because the position of treasurer “was a creation of the commission ... and at all times subject absolutely to their control”); McKinley, 228 Iowa at 1189-91, 293 N.W. at 451 (concluding that county engineer was an “official” because he furnished a bond and took an oath of office; but more importantly because several statutes defining the powers and duties of the county engineer delegated certain sovereign powers to that position); Whitney, 232 Iowa at 71, 4 N.W.2d at 398 (holding that a schoolteacher elected by the school board was not an “official” because “[s]he was not required to give bond or take an oath. None of the statutes impose upon her the exercise of discretion in any way. They delegate no sovereign power to her”); Hutton, 235 Iowa at 56, 16 N.W.2d at 20 (concluding that conservation director was an “official” because several statutes “authorize[d] or require[d] the director of conservation to exercise certain sovereign powers for the benefit of the public independently and in his own right”); Taylor, 260 Iowa at 639, 144 N.W.2d at 292 (concluding that zoning officer was a public official within meaning of zoning ordinance because “[the zoning inspector’s] power and duty are not subject to the will and direction of any superi- or officer or body. He acts on behalf of the public and, in doing so, exercises a portion of the sovereign power of government”); Vander Linden, 205 N.W.2d at 688 (concluding that secretary of the board of pharmacy was a public official because the position of secretary was created by statute and inferring, without much discussion, that the legislature by statute conferred a portion of sovereign power to that position); Pinckney, 276 N.W.2d at 436 (concluding that the liquor properties manager for the Iowa beer and liquor control department was not a “public officer” within the meaning of a criminal statute because, most importantly, the legislature did not grant the director of the liquor council any authority to delegate unsupervised sovereign power to the properties manager).

C. Analysis. The district court concluded that Dean Kelch was not a public official under Iowa law because his duties “are under the' control" of a superior power other than the law,” the president of the university. The court did not discuss the other four elements for determining who is a public official.

' In support of his contention that the first element is present — the position must be created by the constitution or legislature or through authority conferred by the legislature — Hegeman makes the following argument. The legislature delegated to the board of regents the authority to create officers for the university. See Iowa Code § 262.9(2) (“The board shall ;.. elect ... officers”). The board created the position of- dean of the college of medicine.. See Iowa Admin. Code r. 681-12.1(3) (“The dean of each college is its chief administrative officer.”) Therefore, Dean Kelch’s position was created by authority conferred by the legislature.

While Hegeman is correct that the legislature delegated to the board of regents the authority to create officers for the university, it is not clear from the statute whether the position of “dean” is equivalent to that of an “officer.” Moreover, the statute and the rule related to it seem to conflict. The statute grants the board of regents the power to elect the president, treasurer, professors, instructors, officers and employees' of each university. Iowa Code § 262.9(2). However, the related administrative rule (specifically addressing the organization of the University of Iowa) indicates “the university has three statutory officers: president, secretary, and treasurer.” Iowa Admin. Code r. 681-12.1(2). The rule describes the president as “the chief administrative officer of the university” with “such authority and duties as have been delegated by the board of regents.” Id. The rule also indicates the president nominates and the board appoints vice presidents of the university. Id. It does not discuss the creation of any other positions at the university.

In addition, the rule Hegeman cites does not purport to “create” the position of dean. It simply states, “the dean of each college is its chief administrative officer.” Iowa Admin. Code r. 681-12.1(3). Thus, it does not appear from the applicable statute and rule that the board “created” the position of dean at all, let • alone through authority conferred by the legislature. Presumably, the university created the position of dean.

In support of his contention that the second element — a portion of the sovereign power of government must be delegated to that position — Hegeman argues as follows. The board delegated the power of sovereign, which it had been given by the legislature, to the dean when the board established that the dean is the chief administrative officer. Iowa Admin. Code r. 681-12.1(3).

We disagree. The rule does not “delegate” any power to the dean. The rule simply describes in very general terms the role of the dean of each college at the university. The only specific delegation of power in the statute or rules is the delegation of power to the president by the board of regents. Iowa Admin. Code r. 681-12.1(2). There is no record evidence to show that the dean exercises sovereign power.

As to the third element — the duties and powers must be defined, directly or indirectly, by the legislature or through legislative authority — Hegeman contends the board, through authority granted by the legislature, defined the duties of the dean of the college of medicine as those of “chief administrative officer.” Contrary to Hegeman’s contention, the description of the dean as the “chief administrative officer” is insufficient to meet the requirement that the duties and powers must be defined by the legislature or through legislative authority. We find no other statutes or rule discussing powers or duties of the dean. Cf. McKinley, 228 Iowa at 1190, 293 N.W. at 451 (citing numerous code sections referring to powers and duties of county engineer), Hutton, 235 Iowa at 56, 16 N.W.2d at 20 (citing several statutes outlining powers and duties of conservation director); Taylor, 260 Iowa at 640, 144 N.W.2d at 293 (ordinance described in detail the powers and duties of zoning inspector); Vander Linden, 205 N.W.2d at 688 (citing statues outlining duties of secretary of board of pharmacy examiners).

The fourth element — -the duties must be performed independently and without control of a superior power other than the law — has been described as “the hallmark of a public office.” Pinckney, 276 N.W.2d at 436. As to this element, Hegeman takes issue with the district court’s conclusion that Dean Reich’s duties were under the control of the university president, “a superior power other than the law.” Hegeman contends that as the chief administrative officer, the dean had sovereign authority and could not be supervised by the university president, “who is not a physician” and therefore “is not qualified to exert supervision over the physician head of a faculty of physicians all of whom are engaged in teaching and practice of medicine.”

There is no record evidence to suggest that the dean acts independently “without control of a superior power other than the law.” Hegeman’s contention that the university president, a non-physician, could not supervise the dean of the medical school is without merit. Such a suggestion implies the university president could not supervise the dean of the law school or the dean of the college of engineering, because the president did not have the requisite expertise in these areas. Moreover, it implies that if the university president would have been a physician, supervision of the dean of the college of medicine would have been possible. The educational background of the university president should not be the determinative factor in establishing whether the dean was subject to the president’s supervision.

We conclude that four of the five elements required to make a public employment a public office are missing in this case. The district court was therefore correct when it concluded that Dean Kelch was not a “public official” within the meaning of section 70A.28. We therefore affirm the court’s ruling on this issue.

V. Constructive Discharge.

Left remaining is the stand-alone common-law tort action of constructive discharge. There is no dispute that Hege-man is an at-will employee. We recently decided that an at-will employee’s claim for constructive discharge, standing alone, is not an actionable tort. See Balmer v. Hawkeye Steel, 604 N.W.2d 639, 643 (Iowa 2000). Rather, there must be an accompanying claim that the discharge (1) was the result of illegal conduct, such as the violation of public policy or statutory law, or (2) constituted a breach of a unilateral contract of employment created through an employer’s handbook or policy manual. Id. We have no such accompanying claim here.

We therefore conclude that the claim should have been rejected as a matter of law as the defendants had contended in the district court. We therefore reverse the district court decision holding otherwise and remand for an order sustaining the defendants’ motion for summary judgment on this issue and dismissing Hegeman’s petition.

AFFIRMED ON APPEAL; REVERSED ON CROSS-APPEAL; REMANDED WITH DIRECTIONS.


source: Caselaw Access Project

author: NEUMAN, Justice.

license: Public Domain

text:
    Jill CAMACHO and Glen A. Stankee, Appellants, v. IOWA DEPARTMENT OF REVENUE AND FINANCE and State Board of Tax Review, Appellees.
    No. 01-2062.
    Supreme Court of Iowa.
    June 11, 2003.
    Rehearing Denied Aug. 5, 2003.

      Glen A. Stankee of Ruden, McClosky, Smith, Schuster & Russell, P.A., Fort Lauderdale, Florida, and Kris Holub Tilley of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellants.
    Thomas J. Miller, Attorney General, and Lucille M. Hardy, Assistant Attorney General, for appellees.
   NEUMAN, Justice.

The Iowa Department of Revenue and Finance sent tax assessments to petitioners, Jill Camacho and Glen Stankee, for taxes owed on distributions from an Iowa subchapter S corporation. Petitioners, who are both nonresidents, protested. First the agency, and then the district court on judicial review, affirmed the assessments. On appeal, Camacho and Stankee pose two arguments: (1) subchap-ter S corporation “nonbusiness” interest income should be allocated outside of Iowa for income tax purposes, and (2) if the interest income is taxable in Iowa, the tax scheme violates the Commerce Clause.

We conclude the interest income at issue is business income and, hence, taxable in Iowa. Finding no merit in petitioners’ Commerce Clause argument, we affirm.

I. Background.

The facts are undisputed. Stankee and Camacho each owned approximately two percent of Clark Farms, Inc., a subchapter S corporation domiciled in Iowa until its dissolution in 1992. During the tax years at issue here, all of the corporation’s income was derived from sources within Iowa. From 1985 to 1990, Clark Farms earned income through farming activities, rents, and installment contract payments on Iowa farmland. In 1991 and 1992, the corporation also sold farmland, generating income. At issue here is the interest earned on Iowa bank accounts in which the corporation deposited this income.

Throughout this time period, Stankee was a resident of Florida and Camacho (his sister) resided in Wisconsin. Neither was an officer or employee of Clark Farms.

This appeal involves three separate tax assessments by the Iowa Department of Revenue and Finance [hereinafter “department”]. Stankee received two separate notices that he owed Iowa income tax — one for the years 1985-1990 and one for 1991 and 1992. Camacho was similarly assessed for Iowa income taxes owed for the years 1991 and 1992. Protests were filed. In each case an administrative law judge (ALJ) determiped that the income from Clark Farms,- distributable to the shareholders pursuant to rules governing taxation of subchapter S corporations, was taxable" in Iowa. The decisions rested on the rule that because the income was Iowa source income to the corporation, it was also Iowa source income to the shareholders. The ALJs also rejected the petitioners’ contention that the tax violated the Commerce Clause.

On Stankee’s and Camacho’s intra-agen-cy appeals to the director of the department, the ALJs’ decisions were affirmed. The petitioners then appealed to the State Board of Tax Review. Again the assessments were upheld. The petitioners sought judicial review and the cases were consolidated for purposes of briefing and oral argument. The district court affirmed the decision of the agency in all three cases, and this appeal by Stankee and Camacho followed. Further facts will be detailed as they pertain to the issues on appeal.

II. Scope of Review.

Because this is an appeal from administrative agency action our review is for the correction of errors at law. IBP, Inc. v. Iowa Employment Appeal Bd., 604 N.W.2d 307, 311 (Iowa 1999).

III. Taxation of S Corporations.

The threshold question is whether Iowa law permits the state to tax a nonresident S corporation shareholder for interest income earned by the corporation on an Iowa bank account. Our analysis hinges on pertinent provisions of the federal and state statutes governing subchapter S corporations and defining business income.

A. Federal taxation of S corporations. Under federal law, certain business entities may elect to be taxed as S corporations, thereby allowing taxation similar to partnerships while maintaining limited liability for shareholders. Gitlitz v. Comm’r of Internal Revenue, 182 F.3d 1143, 1146 (10th Cir.1999), rev’d on other grounds, 531 U.S. 206, 121 S.Ct. 701, 148 L.Ed.2d 613 (2001); Beard v. United States, 992 F.2d 1516, 1518 (11th Cir.1993). As with a partnership, an S corporation does not generally pay income tax “as an entity” itself. Gitlitz, 182 F.3d at 1146. Instead, the corporation’s profits and deductions are “passed through” to the shareholders who then report their pro rata shares on their personal tax returns. Id. The fact that an item is passed through does not, however, change the character of the item. 26 U.S.C. § 1366(b) (1991). In other words, any item passed through to shareholders will be treated “as if such item were realized directly from the source from which realized by the corporation, or incurred in the same manner as incurred by the corporation.” Id.; see also Lorence L. Bravenec, Federal Taxation of S Corporations and Shareholders § 2.2, at 2-15 (2d ed. 1988) (“Each shareholder shall take into account in determining his income tax liability his pro rata share of each of the separately stated items of income, deduction, and credit and of the non-separately computed income or loss, with the characterization of each item unchanged by the passthrough.” (Emphasis added)).

B. Iowa taxation of S corporations. Iowa also recognizes S corporations for tax purposes. The governing statute is Iowa Code section 422.36(5) (1991). See also Iowa Admin. Code r. 701—40.13(422) (1991); Isaacson v. Iowa State Tax Comm’n, 183 N.W.2d 693, 695 (Iowa 1971). The statute provides:

Where a corporation is not subject to income tax and the stockholders of such corporation are taxed on the corporation’s income under the provisions of the Internal Revenue Code, the same tax treatment shall apply to such corporation and such stockholders for Iowa income tax purposes.

Iowa Code § 422.36(5) (emphasis added). The statute plainly requires the department to tax Iowa S corporations in the same manner as the federal government. That idea is further supported by our decision in Isaacson where we said “it is obvious the Iowa legislature intended and had as its purpose granting of the same special income tax privileges to a subchapter S corporation and its limited number of shareholders as granted under the Internal Revenue Code, 1954 as amended in 1958.” 183 N.W.2d at 695. Thus, in interpreting our tax code, we apply the pass-through provisions discussed above and treat all S corporation income as if earned directly by the shareholder from “the source from which realized by the corporation.” 26 U.S.C. § 1366(b).

It is against this backdrop that we consider the parties’ dispute over the treatment of shareholder interest income under Iowa’s tax code. Stankee and Camacho argue that, in keeping with federal tax law, we must look to the income allocation rules found in Iowa Code section 422.8(2) to properly calculate the tax liability of S corporation shareholders. The statute states, in pertinent part:

Nonresident’s net income allocated to Iowa is the net income, or portion thereof, which is derived from a businesstrade, profession, or occupation carried on within this state or income from any property, trust, estate, or other source within Iowa ... except that annuities, interest on bank deposits and interest-bearing obligations, and dividends are allocated to Iowa only to the extent to which they are derived from a business, trade, profession, or occupation carried on within the state.

Iowa Code § 422.8(2). The department responds that section 422.8 has no application to S corporation taxation. It contends that all of Clark Farms’ income is taxable to its shareholders in Iowa pursuant to section 422.36(5). On this point, we think petitioners have the better argument.

We observed in Isaacson that section 422.36(5) puts subchapter S corporation shareholders in a “special category” to which section 422.8(2) does not apply. 183 N.W.2d at 695. But our focus in Isaacson was on taxpayers who were trying to avoid paying Iowa taxes on any S corporation income. 183 N.W.2d at 694-95. The import of our holding in Isaacson was that section 422.8(2) may not be interpreted to treat S corporation dividends as if they were regular dividends and, therefore, the taxpayer was “not entitled to the $100 exclusion on the amount distributed to him.” Isaacson, 183 N.W.2d at 694. That is not to say section 422.8(2) has no application once the S corporation income is actually or fictionally distributed to shareholders, a matter to which we now turn.

C. Nonbusiness and business income. As noted at the outset, Stankee and Camacho quarrel only with the state’s assessment of taxes on the interest income derived from Iowa bank accounts. Because they characterize this income as nonbusiness income, they claim it is not subject to taxation in Iowa under section 422.8(2). The department argues it is business income and taxable.

Iowa Code section 422.8(2) allocates nonresident interest income to Iowa “only to the extent to which [it is] derived from a business, trade, profession, or occupation carried on within the state.” Iowa Code § 422.8(2). The question then, is whether or not the interest on the Clark Farms accounts would be considered “derived from a business, trade, profession, or occupation carried on within the state.” Iowa Code § 422.8(2).

Determining whether income is “derived from a business, trade, profession, or occupation carried on” in Iowa depends on a case-by-case factual assessment. Guiding the department — and ultimately the court on review — are examples provided in the Iowa Administrative Code pertaining to the taxation of nonresidents. Two particularly relevant examples are set forth below.

EXAMPLE D — An Illinois resident has Iowa farms. The Illinois resident invests the profits from the farms in a savings account in an Iowa bank. Several times a year, the taxpayer transfers part of the funds from the savings account to the taxpayer’s checking account to purchase machinery to be used in the farming operations. The interest income would not be included in income allocated to Iowa since the interest income is not derived from the taxpayer’s trade or business nor is the savings account utilized as a business account.
EXAMPLE F — A nonresident has a farm in Iowa which is the nonresident’s principal business, although this person is an Illinois resident. The nonresident has an interest-bearing checking account in an Iowa bank. This checking account is used to pay personal expenditures as well as to pay expenses incurred in operation of the farm. In 1982, the taxpayer will earn $550 in interest from the checking account. The interest would be included in net income allocated to Iowa since the interest is derived from the business, generated from a business account, and utilized in the business.

Iowa Admin. Code r. 701-40.16(5) (1991).

At this juncture it is important to note that the burden rests on the taxpayer to prove the department’s tax assessment was made in error. Clark v. Iowa Dep’t of Revenue and Fin., 644 N.W.2d 310, 315 (Iowa 2002); Iannone v. Iowa Dep’t of Revenue & Fin., 641 N.W.2d 735, 738-39 (Iowa 2002). Given the tax statutes before us, reversal would be warranted only if the income at issue was nonbusiness income. The petitioners bore the burden of proving that it was. See Clark, 644 N.W.2d at 315; see also Texaco-Cities Serv. Pipeline Co. v. McGaw, 182 Ill.2d 262, 230 Ill.Dec. 991, 695 N.E.2d 481, 484 (1998) (“An entity claiming that its income is nonbusiness income bears the burden of clearly proving this fact.”) Yet they made little to no record here detailing the use or function of the bank accounts at issue.

Based on the limited record before us, we are convinced the case more closely resembles Example F. The interest income was generated by bank deposits made up of proceeds from the rental and sale of Iowa farmland — the undisputed business of Clark Farms. The accounts were plainly owned by Clark Farms and evidently used for business purposes. Petitioners offered no countervailing proof of other use. Thus substantial evidence supports the department’s determination, affirmed on judicial review, that the interest generated by the accounts was properly classified as business income.

Our decision is reinforced by reference to tax code provisions governing the taxation of C corporations. Iowa Code section 422.32(6) defines business income as

income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations.

Iowa Code § 422.32(6). Nonbusiness income is everything else. Iowa Code § 422.32(7). Although perhaps not directly applicable to S corporations, these statutes provide additional support for the department’s position that the interest income at issue here is business income.

Because substantial evidence supports the department’s determination that the interest income on the Clark Farm bank accounts is business income, and hence taxable in Iowa upon distribution to shareholders, we turn to petitioners’ claim that such a tax scheme violates the Commerce Clause.

IV. Commerce Clause.

The second issue raised by Stankee and Camacho is whether taxing a nonresident S corporation shareholder on interest income earned by the corporation in Iowa violates federal constitutional norms. Specifically, petitioners argue Iowa’s tax scheme is not internally consistent, resulting in potential double taxation in violation of the Commerce Clause.

Our analysis begins with the presumption that Iowa’s tax statutes are constitutional. Hope Evangelical Lutheran Church v. Iowa Dep’t of Revenue and Fin., 463 N.W.2d 76, 79 (Iowa 1990). We will not declare a tax statute “unconstitutional unless it is so clearly and plainly in contravention of the constitutional limitations and its guarantees as to leave no reasonable doubt as to its unconstitutionality.” Id.

The United States Supreme Court has established a four-part test for determining whether a tax statute violates the Commerce Clause. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326, 331 (1977). Pursuant to this test, a tax scheme passes constitutional muster under the Commerce Clause if it (1) applies to an activity demonstrating a substantial nexus with the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to services provided by the state. Id. Only the second prong — fair apportionment — is at issue here.

The purpose of requiring state taxes to be fairly apportioned is to ensure that no state taxes more than its fair share of an interstate transaction. Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 588, 102 L.Ed.2d 607, 616 (1989). To determine whether a tax is fairly apportioned, the Supreme Court looks to whether the tax is both internally and externally consistent. Id. at 261, 109 S.Ct. at 589, 102 L.Ed.2d at 616. Petitioners take issue only with the internal consistency of the statute at issue here, section 422.8(2). “To be internally consistent, a tax must be structured so that if every State were to impose an identical tax, no multiple taxation would result.” Id. at 261, 109 S.Ct. at 589, 102 L.Ed.2d at 617.

Iowa Code section 422.8(2) pertinently provides:

[I]ncome received by an individual who is a resident of another state is not allocated to Iowa if the income is subject to an income tax imposed by the state where the individual resides, and if the state of residence allows a similar exclusion for income received in that state by residents of Iowa.

Iowa Code § 422.8(2). If every state had exactly the same statute, there would be no risk of double- taxation. Every state would offer the exclusion, and the income that could be. taxed in two states would only be taxed in the taxpayer’s state of residence. We are therefore convinced section 422.8(2) passes the internal consistency test. As the petitioners have proved no Commerce Clause violation, the district court committed no error in affirming the department’s tax assessment.

AFFIRMED.

      . Camacho also received a tax assessment notice for 1985-1990 but failed to timely apL ' peal the ALJ's decision.

      . Petitioners concede that any income from the sale or rental of Iowa farmland is taxable in Iowa.


author: LARSON, Justice.

text:
    Dabra OSTREM, Executor of the Sandra K. Biddle Estate, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
    No. 01-1384.
    Supreme Court of Iowa.
    June 11, 2003.
    Robert A. Wright, Jr., of Wright & Wright, Des Moines, for appellant.
    Henry A. Harmon and Michael A. Car-money of Grefe & Sidney, P.L.C., Des Moines, for appellee.
   LARSON, Justice.

This is a suit by the executor of the estate of Sandra K. Biddle against the driver of a vehicle that struck the Biddle car. The jury found against the plaintiff, and the plaintiff appealed the resulting judgment. We affirm.

I. Facts and Prior Proceedings.

Sandra Biddle was injured when a car driven by Martha Hiracheta struck the rear of the vehicle in which Sandra was a passenger. Ms. Hiracheta’s insurance policy provided $100,000 in liability coverage, but Sandra settled for $41,500 with Hi-racheta’s insurance carrier. Sandra then sued State Farm, the insurer of the car in which she was riding, claiming her damages exceeded the policy limits of Hirache-ta’s carrier.

Sandra died on April 16, 2001, from causes unrelated to the accident, and her estate was substituted as the plaintiff. The case was tried to a jury, which was advised in the marshaling instruction:

For Plaintiff to recover upon her claim, she must prove all of the following propositions:
(1) The parties have stipulated that the Plaintiff was insured by Defendant State Farm Mutual Automobile -Insurance Company for underinsured motorist coverage. As such, this element has been proven.
(2) Defendant Hiracheta is legally liable for Sandra Biddle’s bodily injuries as determined in accordance with Instruction Nos. 13.
(3) The nature and extent of the Plaintiffs damage.
(4) The Plaintiffs damages exceed the policy limits of Defendant Hiracheta’s insurance policy. The limits of Defendant Hiracheta’s insurance policy [were] $100,000.
If the Plaintiff has failed to prove any of these propositions, the Plaintiff is not entitled to damages. If the Plaintiff has proved all of these propositions, the Plaintiff is entitled to recover the amount by which the Plaintiffs damages exceeded the policy limits of Defendant Hiracheta’s insurance, subject to the limits of Defendant’s policy.

(Emphasis added.) During its .deliberations, the jury sent out three questions for the court, “we need a definition of mitigate,” “can we factor the earlier settlement from Ms. Hiracheta’s insurance co. into our discussion,” and “did she receive the $100,000.” None of the questions were answered, due to the unavailability of the court and the plaintiffs attorney.

The verdict form gave the jury spaces to answer questions and also spaces to indicate damages. Under question 4, the jury was to list “the amount of damages sustained by the plaintiff proximately caused by Martha Jane Hiracheta’s fault as to each of the following items of damage.... ” The jury then listed $3000 for past medical expenses and $80,000 for past pain and suffering, for a total of $83,000.

In the judgment entry, the court stated that the “verdict does not exceed the policy limit of $100)000 for Martha Jane Hi-facheta. Therefore, this underinsured motorist claim against Defendant State Farm does not result in a judgment for Plaintiff.”

Sandra moved to reform or amend the jury verdict and moved for a new trial. She claimed that the clear intent of the jury was to award her damages of $83,000 above the $100,000 policy limit. She also claimed, in the motion for a new trial, that the jury should have been instructed on lost wages. The court denied both motions, and the plaintiff appealed.

II. The Issues.

Two issues are raised on the plaintiffs appeal: (1) the court’s refusal to amend the verdict to show the $83,000 damages found by the jury were intended to be in addition to the $100,000 of liability limits under Hiracheta’s policy, and (2) the court erred in failing to submit lost wages as an element of damages.

III. Amendment of the Verdict.

The estate argues that the marshaling instruction made it clear to the jury that it was to award damages only if they “exceeded the policy limits of defendant Hiracheta’s insurance policy.” Therefore, when the jury returned a verdict for $83,000, it must have intended this to be in addition to the $100,000 liability under the tortfeasor’s policy. State Farm responds that this is not a logical assumption because, regardless of the reference in the marshaling instruction to the $100,000 of liability coverage, there was no statement in the instructions that would inform the jury that the damages found in its verdict form would be in addition to the $100,000 liability limits.

No doubt it would have been less confusing to the jury if the $100,000 had not even been mentioned in the court’s instructions, but it was. This information was conveyed to the jury at the request of the plaintiff and over the objection of the defendant. The confusion could have been avoided also if the verdict form would have said to “state the amount ... over and above the $100,000 limits of the Hiracheta policy,” but it did not.

The plaintiff asked the court to reform the jury’s verdict to, in effect, change it to read $183,000 instead of $83,000. The general rule is that

[a] trial court is vested with a very limited power to correct a jury verdict which is defective in form, but which in substance clearly and definitively expresses the jury’s intentions. The trial court can correct, remold, or reform such a verdict so as to express the jury’s clear and definitely manifested intention. The correction of a jury verdict may be appropriate in those exceptional situations where it is clear that there has been a mere ministerial error in reporting the verdict.

75B Am.Jur.2d Trial § 1886, at 619 (1992) (emphasis added) (footnotes omitted). Further,

[a] trial court may amend a verdict in matters of form, but not of substance. A change of substance is a change affecting the jury’s underlying decision, but a change in form is one which merely corrects a technical error made by the jury. The judge cannot, under the guise of amending the verdict, invade the province of the jury or substitute his verdict for theirs. After the amendment, the verdict must be not what the judge thinks it ought to have been, but what the jury intended it to be.

Id. at 620 (footnotes omitted).

Our cases have recognized the authority of the court, in very limited circumstances, to amend a jury verdict. For example, in Weatherwax v. Koontz, 545 N.W.2d 522 (Iowa 1996), the district court was asked to amend a verdict to increase the amount of it. In that case, there was evidence that jurors were confused about what they thought the amount of the verdict should be. Affidavits of jurors had been admitted by the trial court (a practice we have criticized) showing:

One juror stated a total figure of $961,340 was discussed, another claimed the figure was $697,000, and still others contended no damage amounts were agreed upon other than the [actual verdict of] $96,134.

Weatherwax, 545 N.W.2d at 525.

Under these confusing circumstances, we concluded “[t]he record falls far short of revealing any conclusive finding by the jury of a larger amount than that entered as a verdict. Here the motion for reformation of the verdict was correctly denied.” Id. Similarly, in Rutledge v. Johnson, 282 N.W.2d 111 (Iowa 1979), a case that involved the analogous remedy of recalling the jury to correct its verdict, we recognized in dictum the authority of the district court to reform a jury verdict if the “certain intention of the jury is evident....” Rutledge, 282 N.W.2d at 115; accord 89 C.J.S. Trials § 908, at 531 (2002) (“The court has the power to put a manifestly irregular or defective verdict in such form as to make it conform to the intention of the jury, and carry its findings into effect, where the intention can be ascer tained with certainty.” (Emphasis added.)).

Neither Weatherwax nor Rutledge discusses the standard for reviewing a district court’s ruling on a motion to amend a verdict, but in analogous cases involving additurs and remittiturs, we have said:

The district court may grant an aggrieved party a new trial when the jury awards excessive or inadequate damages, or when the verdict is not sustained by sufficient evidence, or is contrary to law. The district court has considerable discretion in ruling upon a motion for new trial based upon the ground that the verdict was inadequate .... [W]e will not ordinarily disturb its discretion to grant or deny the motion unless an abuse of discretion is shown.

Fisher v. Davis, 601 N.W.2d 54, 57 (Iowa 1999) (citations omitted); see also Maize v. Atl. Refining Co., 352 Pa. 51, 41 A.2d 850, 854 (1945) (amendment of verdict to show clear intent of jury is “a matter within the sound discretion of the court”).

An illustration of the proper amendment of a verdict is found in State v. Garrett, 516 N.W.2d 892 (Iowa 1994). In Garrett the verdict and the court’s instructions clearly showed an error in the verdict. The jury found the defendant guilty of criminal “mischief’ because that is the way the verdict was phrased when it should have been criminal “trespass.” We ordered the ease remanded with directions to the district court to amend the verdict. Garrett, 516 N.W.2d at 896.

We conclude our review of a court’s ruling on a motion to amend the verdict should be for abuse of discretion. Here, we conclude that the district court did not abuse its discretion in denying the amendment. While the instructions might well be characterized as confusing, the evidence presented certainly cannot be characterized as a “conclusive finding by the jury of a larger amount than that entered as a verdict.” Weatherwax, 545 N.W.2d at 525.

IV. The Loss of Wages Issue.

The plaintiff requested this instruction:

If you find Sandra Biddle is entitled to recover damages, you shall consider the following items:
(2) The reasonable value of lost wages from the date of the accident to the date of Sandra Biddle’s death.

The court did not give the requested instruction or any other instruction on lost wages, and the plaintiff raises this as an issue on appeal. The defendant responds (1) the plaintiffs evidence of lost wages was insufficient to submit the issue, and (2) the plaintiff failed ,to object to the court’s failure to submit lost wages as an element of damages. Iowa Rule of Civil Procedure 1.924 (formerly rule 196) provides in part:

Before jury arguments, the court shall give to each counsel a copy of its instructions in their final form, noting this fact of record and granting reasonable time for counsel to make objections, which shall be made and ruled on before arguments to- the jury. Within such time, all objections to giving or failing to give any instruction must be made in writing or dictated into the record, out of the jury’s presence, specifying the matter objected to and on what grounds. No other grounds or objections shall be asserted thereafter, or considered on appeal.

In State v. Wright, 274 N.W.2d 307 (Iowa 1979), we adopted a pragmatic view of this rule, holding that when a court gives only one set of instructions, rather than both a “preliminary” and “final” set as contemplated by rule-196, strict adherence to the procedure of rule 196 is not required. In Wright the defendant requested an instruction on the reliability of eyewitness testimony at the instruction conference on the record, just prior to jury arguments. The court refused the requested instruction, and the defendant raised the issue on appeal. We recognized that

[t]he purpose of requiring compliance with rule 196 procedure is to “fully (alert) the trial court to the point of law and question of fact on which he relies in urging the requested instruction be given.”

Wright, 274 N.W.2d at 312 (quoting State v. Tomlinson, 243 N.W.2d 551, 553 (Iowa 1976)). In Wright, despite the court’s failure to designate the instructions as “final” so as to trigger the rule’s requirement for specific objections, we held the instruction issue was properly raised in the district court because the

defendant advised the court what he wanted and why; the court ruled upon the matter before arguments to the jury; and it was all on the record. We conclude these instructions as to which the record was made were “final” instructions for purposes of determining sufficiency of defendant’s record on failure to give his requested instruction, and that the record so made was an “objection” sufficient to preserve the matter for appeal.

Id.

In the present case, no record was made on the failure of the court to instruct on lost wages. Although the plaintiff filed a requested instruction on lost wages, there is no showing that she alerted the court or opposing counsel to the issue. Merely filing a requested instruction, without making a record with regard to the matter, does not even amount to substantial compliance with rule 1.924, as in Wright.

AFFIRMED.


author: STREIT, Justice.

text:
    Karen FULTS and Wayne Siems, Appellants, v. CITY OF CORALVILLE, Appellee.
    No. 02-1857.
    Supreme Court of Iowa.
    June 11, 2003.
    Rehearing Denied Aug. 7, 2003.

      Bruce D. Nestor of De Leon <& Nestor, Minneapolis, Minnesota, for appellants.

      Dennis W. Johnson of Dorsey & Whitney, Des Moines, for appellee.
   STREIT, Justice.

Property owners challenge a city’s amending two urban renewal areas to support the development of a hotel and conference center. The City of Coralville amended two distinct urban renewal areas to include the highway corridor connecting the two areas and consolidated both into one urban renewal area. To finance, in part, the hotel/conference center project, the city took out $33 million in notes and bonds. Property owners in the urban renewal area challenge the city’s inclusion of the highway corridor in the economic development area to support the creation of the consolidated urban renewal area. The property owners also argue the city exceeded its constitutional debt limitation in taking out $33 million in notes and bonds. Because we find the city complied with the urban renewal law of Iowa Code chapter 403 and the appropriations-backed “debt” does not constitute constitutional debt, we affirm.

I. Background and Facts

The City of Coralville established the Highway 6 Urban Renewal Area in 1992. Five years later, it created the Mall Urban. Renewal Plan Area to finance development of the Coral Ridge Mall. In 2001, the city amended its general plan to include a hotel/convention center (the “project”) to be built in the Highway 6 Urban Renewal Area. However, this area alone would not generate sufficient tax increment financing (TIF) revenue to fund the project. To resolve this problem, the city consolidated the two previously existing urban renewal areas to finance the project. The two areas were connected by Interstate 80. Each of the original urban renewal plans was modified to include the I-80 corridor, a strip of land along the interstate from the Coral Ridge Mall east to Highway 6. The addition of the Interstate 80 corridor to each of the previously existing urban renewal areas physically and visually connected the two urban renewal areas. The city called this newly created area the “Mall and Highway 6 Urban Renewal Plan Area” (the “plan”).

To finance the hotel project’s construction, the city approved a financing project of $20 million in notes and $13 million in bonds. The notes and bonds were contingent obligations subject to repayment only if the city would annually appropriate the funds necessary for repayment.

Plaintiffs Karen Fults and Wayne Siems are residents of the City of Coralville and owners of property in the Highway 6 .Urban Renewal Area (the “property owners”). The property owners filed a petition for declaratory judgment challenging the city’s financing of the project. The property owners argued the consolidation of the two urban renewal areas was invalid because the 1-80 right-of-way cannot be designated an urban renewal area for economic development. The property owners also challenged the city’s compliance with the statutory procedure for issuing the bonds and notes. Finally, the property owners asserted the city’s issuance of notes and bonds caused the city to exceed its constitutional debt limit. The property owners sought a declaration of the appropriate assessment to be used in setting the base valuation and the portion of taxes reserved to the respective taxing districts.

The district court ruled in favor of the city on each issue and dismissed the property owners’ petition. The property owners appeal contending the city’s designation of the 1-80 right-of-way as an economic development area was arbitrary, capricious, or unreasonable. The property owners also argue the annual appropriation debt constitutes debt subject to the debt limitation provision of the Iowa Constitution.

II. The Merits

On appeal, we examine two main issues. The property owners ask us to determine whether the district court erred in finding the city properly designated the 1-80 right-of-way as an economic development area. Our review of this issue is for correction of errors of law. Iowa Coal Min. Co. v. Monroe County, 494 N.W.2d 664, 668 (Iowa 1993). We also consider whether the district court erred in finding the city’s annual appropriation obligations do not constitute constitutional debt. As to the second issue, our review is de novo because constitutional issues are involved. Id.

A. Designation of the Urban Renewal Area

The property owners challenge the city’s inclusion of the 1-80 corridor as part of the consolidated urban renewal area. The property owners misconstrue the real issue before us by concentrating their argument on the legality of declaring the 1-80 corridor itself an economic development area. We do not review whether the 1-80 right-of-way as it stands alone complies with chapter 403, but rather whether the Mall and Highway 6 Urban Renewal Area (of which the 1-80 right-of-way is a part) is consistent with our state urban renewal law. Property owners have the heavy burden of showing the city’s designation of this urban renewal area was arbitrary, unreasonable, or capricious. Dilley v. City of Des Moines, 247 N.W.2d 187, 190 (Iowa 1976).

As we have said before, it is critical to examine the nature of the city council’s action to determine whether the city acted in conformance with the urban renewal laws of Iowa Code chapter 403. McMurray v. City Council, 642 N.W.2d 273, 277 (Iowa 2002). A municipality is vested with “all the powers necessary or convenient to carry out and effectuate the purposes and provisions of [chapter 403.]” Iowa Code § 403.6 (2001). In McMurray, we summarized the proper actions of a city council in achieving the purposes of our urban renewal statute as follows:

In general, the City Council acts in a legislative capacity. Chapter 403 grants city councils authority to carry out urban redevelopment, rehabilitation, and renewal projects. As such, the City Council’s action in designating this eco-nomie development area involved determination of legislative, not judicial, facts. Legislative facts are “generalized propositions of fact or policy guiding the exercise of legislative judgment.” (Citation omitted.) Moreover, legislative facts are not concerned with particular problems of individuals, but involve a determination of what is in the best interests of the public generally. Trager v. Peabody Redevelopment Auth., 367 F.Supp. 1000, 1002 (D.C.Mass.1973) ....
Such decisions by the city council involving legislative facts necessarily involve the exercise of considerable discretion. Legislative declarations, such as the one before us, are entitled to great weight. See, e.g., Miller v. City of Tacoma, [61 Wash.2d 374] 378 P.2d 464, 470 (Wash.1963).... Consequently, we have no power to interfere with the City Council’s legislatively given discretion to carry out the purposes of the urban renewal law. See, e.g., Dilley v. City of Des Moines, 247 N.W.2d 187, 192 (Iowa 1976).... Rather, we presume the City Council, as a governing body of elected officials, acted in the overall best interests of the public.

McMurray, 642 N.W.2d at 277. Bearing in mind the wide discretion city councils have in carrying out our urban renewal laws, we turn to whether the city in this particular case complied with the requirements of chapter 403.

Iowa Code chapter 403 provides that one reason a municipality may create an urban renewal area is to encourage general economic development for a community. Iowa Code § 403.2(3); see McMurray, 642 N.W.2d at 278 (citing Bowers v. Polk County Bd. of Supervisors, 638 N.W.2d 682, 697 (Iowa 2002)). In this instance, the city had already created two separate urban renewal areas. The Mall Urban Renewal Area already had substantial development, while the Highway 6 Urban Renewal Plan remained relatively unchanged. By resolution, the city council amended the Highway 6 Urban Renewal Area and the Mall Urban Renewal Area and created the Mall and Highway 6 Urban Renewal Area. The ■ city combined these two areas to use the success and stability of the Mall Urban Renewal Area to assist in the economic development of the Highway 6 Urban Renewal Area.

It is common for a municipality to amend urban renewal areas to respond to changing needs and circumstances. Once a city adopts an urban renewal plan, it may modify the original plan through additional resolutions. Iowa Code section 403.5(6) states,

Upon approval by the municipality of an urban renewal plan or of any modification thereof, such plan or modification shall be deemed to be in full force and effect for the respective urban renewal area, and the municipality may then cause such plan or modification to be carried out in accordance with its terms.

Iowa Code § 403.5(6). Property owners do not contend the city is prohibited from consolidating urban renewal areas, especially those areas that are not contiguous. No statute prohibits a municipality from combining tax revenues within the combined urban renewal areas to fund a new project. To the contrary, the record shows it is common for a municipality to consolidate existing urban renewal areas to finance development of the community within the expanded urban renewal area. Further, the record reflects that it is not unusual for a municipality to use a highway right-of-way to join urban renewal areas. It was within the city’s discretion to amend the original urban renewal areas and combine them to promote economic development in the Highway 6 area. The question is whether the city’s declaration of the consolidated areas as one economic development area to support the creation of the Mall and Highway 6 Urban Renewal Plan Area complied with chapter 403.

Before a municipality may designate an urban renewal area, it must pass a resolution finding the area' is a slum or blighted area, or an economic development area. The municipality must further find development in the area is necessary in the public interest. In this case, we are reviewing the creation of an economic development area to support the urban renewal designation. Iowa Code chapter 403 defines an economic development area, in part, as:

an area of the municipality designated by the local governing body as appropriate for commercial and industrial enterprises, public improvements related to housing and residential development, or construction of housing and residential development for low and moderate income families, including single or multifamily housing....

Iowa Code § 403.17(10).

The urban renewal statutes provide a “a municipality shall not approve an urban renewal project for an urban renewal area unless the governing body has, by resolution, determined the area to be a[n] ... economic development area ... and designated the area as appropriate for an urban renewal project.” McMurray, 642 N.W.2d at 279 (citing Iowa Code § 403.5(1)). A city council is under no statutory obligation “to make specific findings” before declarin'g an area as an economic development area suitable for designation as an urban renewal area. Id. “[T]he statute merely requires a declaration by the City Council in the resolution of necessity the area is suitable for economic development to support and stimulate commercial and industrial growth.” Id.

In the case before us, the city council complied with the provisions for declaring the property an economic development area within an urban renewal area. The city council stated the purpose of the Plan was

to encourage the continued stability and economic well-being of the City of Coral-ville through the support of economic development and redevelopment within the area.... The primary goals ... are to stimulate, through public action and commitments, private investments in development and redevelopment.

The Plan was to “encourage economic development by providing infrastructure improvements to accommodate development of a vital, dynamic and competitive regional commercial area for the City of Coral-ville and the surrounding region.” The city council also passed a resolution of necessity pursuant to Iowa Code section 403.4, stating “investigations have been conducted which show the desirability of expanding the urban renewal areas to add and include all property shown [including the 1-80 right of way] .... ” The resolution stated the Plan was “necessary in the interest of the public health, safety or welfare of the residents” of the city. The resolution said “sufficient need exists to warrant finding” the area of the 1-80 corridor “to be an economic development area....”

The city council further complied with the .remaining statutory requirements of chapter 403. The council submitted the proposed plan to the Planning and Zoning Commission for approval as required by Iowa Code section 403.5(2). The city held a public hearing on January 8, 2002, for the purpose of discussing the designation of the new Mall and Highway 6 Urban Renewal Plan Area. See id. § 403.5(3). Notice of the hearing was published as required.

The property owners make a final effort to challenge the motives behind the city’s designation of this economic development area to support the urban renewal plan. However, we have consistently said we do not examine “the motives of those exercising legislative power in a manner which is not manifestly arbitrary, capricious, or unreasonable.” Dilley, 247 N.W.2d at 192; accord McMurray, 642 N.W.2d at 280 (“It is’ not within our province to decide whether the City made a good or bad decision in designating this economic development area.”). In 1985, the legislature gave municipalities authority to adopt an urban renewal plan based solely upon the existence of an economic development area. The reason behind this amendment to chapter 403 was to “stem economic decline and promote economic growth.” McMurray, 642 N.W.2d at 281; see also 1985 Iowa Acts ch. 66, § 1 (codified at Iowa Code § 403.2(3) (1987)). Given this stated purpose of the urban renewal statute, we conclude the city’s action in this case was reasonable.

In designating the Mall and Highway 6 Urban Renewal Plan Area, the city promoted one of the main goals of chapter 403, i.e., to encourage and assist various industrial and commercial enterprises in locating to the State of Iowa. See McMurray, 642 N.W.2d at 281-82. It was reasonable for the city to consolidate two urban renewal areas in an effort to increase the viability of both areas and the proposed project. Including the 1-80 corridor in the consolidated urban renewal area was also reasonable. The record shows the city took such action to “improve the appearance of the corridor,” to “enhance the identity of the metro area,” and to “complement adjoining areas.” The land use plan indicates, as a general planning goal, the city hoped to “enhance the community image” with the 1-80 corridor by improving the aesthetics along the corridor and linking the Iowa City and Coralville developments. The property owners have shown nothing more than their disagreement over whether the urban renewal area is viable. Their disagreement is insufficient to render the city’s action unreasonable. As such, they have not met their burden to prove the city’s action was unreasonable, arbitrary, or capricious.

In sum, because the city council followed the requirements of the Iowa Code in designating the consolidated property an economic development area, we will not interfere with the city’s decision. It was a matter based upon public policy and we will not second-guess whether it was a “good or bad decision.” See id. at 280. Because the property owners have failed to show the city’s actions in designating the economic development area were arbitrary, capricious, or unreasonable, we affirm.

B. Constitutional Debt Limitation

The second issue is whether the annual appropriation obligations to repay the debt on the bonds and notes constitute constitutional debt subject to the limitation of article XI, section three of the Iowa Constitution. Property owners contend the TIF plan at issue, including the notes and bonds, cause the city to exceed its constitutional debt limitation. The property owners also argue the city failed to comply with the requirements of Iowa Code sections 384.24(3)⅛) and 384.25(2) (2001) for a public hearing on the matter. The city argues its repayment obligation is conditional on yearly appropriations and is therefore not subject to the constitutional debt limitation.

We begin our discussion considering whether the city complied with the public hearing requirements related to financing issues for urban renewal areas. The applicable code provisions state, in part,

Before the council may institute proceedings for the issuance of bonds for an essential corporate purpose, a notice of the proposed action, including a statement of the amount and purposes of the bonds, and the time and place of the meeting at which the council proposes to take action for the issuance of the bonds, must be published as provided in section 362.3. At the meeting, the council shall receive oral or written objections from any resident or property owner of the city. After all objections have been received and considered, the council may, at that meeting or any adjournment thereof, take additional action for the issuance of the bonds or abandon the proposal to issue the bonds.

Iowa Code § 384.25(2).

The property owners argue the notice published in January 2002 did not contain information of the contingent nature of the loans or of the effect the loans may have on the municipal credit rating. However, absent in the statute quoted above is any language that the city shall provide notice of these particular matters. The city was required to substantially comply with the statutes. See Green v. City of Cascade, 231 N.W.2d 882, 885 (Iowa 1975) (substantial compliance is required for the valid issuance of municipal general obligation bonds by a city). The city has substantially complied with the notice provision. The notice precisely stated the amount of the proposed bonds, the urban renewal purpose, and the public’s right to petition. Further, the notice expressly stated repayment of the notes and bonds is “subject to the right of nonappropriation by the City Council each fiscal year.” We now turn to the critical issue which is whether the notes and bonds constitute constitutional debt. If we find these loans are subject to the constitutional debt limitation, the city would exceed its debt limit.

The Iowa Constitution limits municipalities to indebtedness no greater than five percent of the total value of property within the corporate limits of the municipality. Iowa Const, art. XI, § 3. The city has a debt limitation of approximately $50 million. The city presently has $39 million in outstanding constitutional debt. Both parties agree that the $33 million of bonds and notes financing the project, or either part of it, would exceed the city’s debt limitation, if considered constitutional debt.

The Iowa Constitution imposes a limitation on the amount of debt a political subdivision may create to “prevent the general taxes of a political subdivision from becoming overburdened by obligations.” Richards v. City of Muscatine, 237 N.W.2d 48, 64 (Iowa 1975); accord Banta v. Clarke County, 219 Iowa 1195, 1200-02, 260 N.W. 329, 336 (1935) (purpose of constitutional debt limitations is to confine indebtedness within certain limits). If there is no legally enforceable obligation to continue repayments in the future, such “debt” is not considered constitutional debt. Constitutional debt exists only when it

appear[s] such contingency is sure to take place irrespective of any action taken or option exercised by the city in the future. That is, if a present indebtedness is incurred or obligations assumed which, without further action on the part of the city, have the effect to create an indebtedness at some future day, such are within the inhibition of the constitution.
But, if the fact of indebtedness depends upon some act of the city, or upon its volition to be exercised or determined at some future day, then no present indebtedness is incurred, and none will be until the period arrives, and the required act or option is exercised, and from that time only can it be said there exists an indebtedness.

Burlington Water Co. v. Woodward, 49 Iowa 58, 62 (1878); accord Windsor v. City of Des Moines, 110 Iowa 175, 187-88, 81 N.W. 476, 478 (1900). A city’s “debt” is not considered constitutional debt where “none of its resources or property can be taken for, or subjected to, the payment of any bond.” Interstate Power Co. v. Town of McGregor, 230 Iowa 42, 56, 296 N.W. 770, 777 (1941). Where the holder of the security has no recourse against the city in the event of non-payment, there is no debt in the constitutional sense. See Employers Ins. Co. v. State Bd. of Exm’rs, 117 Nev. 249, 21 P.3d 628, 632 (2001).

To determine whether the city has bound itself to repay its debts, we look to the document creating the claimed obligation. The loan agreement for the notes read,

The Notes are special, limited obligations of the City, payable from amounts on deposit in the City’s Debt Service Fund, and other revenues and funds, to the extent lawfully available for such purpose, but subject to nonappro-priation in any fiscal year. The Notes do not constitute a general obligation of the City or other financial obligation of the City for any fiscal year and shall not constitute debt within the meaning of any constitutional debt limitation. The Notes shall not directly or indirectly obligate the City to make payments thereon during a fiscal year beyond those for which funds have been appropriated by the City Council for such fiscal year.
In the event that the City Council ... does not budget and appropriate funds for any fiscal year in an amount sufficient to meét the payments of interest and principal due under the Notes during such fiscal year ..., the City’s obligations under the Notes shall terminate and become null and void on the last day of the fiscal year for which the necessary funds were appropriated.

(Emphasis added.) The bonds contained substantially similar language indicating the city’s repayment of the bonds was “subject to nonappropriation in any fiscal year.”

There is nothing in the agreements creating the notes and bonds that binds the city to any particular future course of action. Each year, it is the option of the city council , to appropriate the necessary money for repayment. If the city council does not appropriate, money for this purpose, the city is not bound to repay the remaining amount on the notes and bonds. These notes and bonds are debts only if each year the city council says they are debts. This is the very essence of debt that does not constitute constitutional debt. The repayment of a debt that is not certain to take place regardless of future events is not subject to the constitutional debt limitation. The contingency provided for in the case before us, i.e., appropriation of funds for repayment, can hardly be said to be “sure to take place irrespective of any action taken or option exercised by the city in the future.” See Woodward, 49 Iowa at 62.

Property owners argue the practical effect of the language creating the notes and bonds is that the city has “pledged” to repay the money. Specifically, property owners assert “[w]hen a future city council faces the decision of whether to cause [a nonappropriation] to happen, it will both morally and practically be in a position where it must continue to appropriate general tax revenues.” Property owners predict a certain disastrous result of nonap-propriation; the city’s inability “to borrow money for even essential city services or of having that money at higher interest rates.” Given these claimed consequences of a nonappropriation, the property owners, in essence, argue the city has morally bound itself to repay the notes and bonds. Because of the likelihood of repayment, the property owners urge us to expand the definition of constitutional debt to include appropriations-backed debt. We are not persuaded by their contention.

“A moral obligation ... is not in and of itself ‘debt.’ ” Schulz v. State, 84 N.Y.2d 231, 616 N.Y.S.2d 343, 639 N.E.2d 1140, 1148 (1994). “[T]his is an extra-legal consideration urged on the basis of an undemonstrated detrimental effect of a possible default upon the State’s general reputation and credit rating.” Wilmington Med. Ctr., Inc. v. Bradford, 382 A.2d 1338, 1349 (Del.1978). That is, the constitutional debt limitation provision of our constitution applies to legally enforceable obligations, not to moral obligations. See In re Okla. Capitol Improvement Auth., 958 P.2d 759, 768 (Okla.), cert. denied, Fent v. Okla. Capitol Improvement Auth., 525 U.S. 874, 119 S.Ct. 174, 142 L.Ed.2d 142 (1998); State ex rel. Kane v. Goldschmidt, 308 Or. 573, 783 P.2d 988, 993 (1989). Though the consequences that could follow from the city’s nonappropriation may serve to assure creditors of repayment, this assurance does not constitute a legal obligation. Id. Even if the practical effect of these agreements is that the city will repay the notes and bonds, this does not affect our analysis as long as the city cannot be held legally responsible for the debt for a year other than one in which funds have been appropriated. See Mun. Bldg. Auth. v. Lowder, 711 P.2d 273, 279 (Utah 1985). The claimed expectations of the notes and bonds holders do not create cognizable debt because these beliefs do not impose an enforceable duty or liability upon the city. See Dykes v. N. Va. Transp. Dist. Comm’n, 242 Va. 357, 411 S.E.2d 1, 10, cert. denied, Tower v. N. Va. Transp. Dist. Comm’n, 504 U.S. 941, 112 S.Ct. 2275, 119 L.Ed.2d 201 (1992).

Moreover, the fact the city has designated a “Debt Service Fund” does not turn this situation into one of an unconditional obligation to repay the notes. The money in the Debt Service Fund is from the initial proceeds of the sale of the notes and . bonds. It was set aside to pay interest on the notes and bonds from the date of signing until December 2004 (the expected opening of the hotel and conference center). The Debt Service Fund does not include any revenue derived from city taxes. The monies in this fund do not constitute “debt” because the monies are comprised of proceeds from the initial sale rather than monies that must be replenished by taxation. See St. Charles City-County Library Dist. v. St. Charles Library Bldg. Corp., 627 S.W.2d 64, 67 n. 1 (Mo.Ct.App.1981). Unlike the Debt Service Fund, the city’s supplemental debt reserve fund does contain tax revenue. However, nothing in the loan agreement states the money in either of these debt reserve funds is set aside for repayment in the event of a nonappropriation. According to the terms of the agreement, the funds are subject to nonappropriation just as all other revenue and funds available for repayment are subject to this condition.

Finally, property owners’ argument that the city is attempting to do indirectly what it may not do directly is similarly unavailing. If the express terms of the city’s agreement do not offend the constitution, then the purpose alone will not render the agreement unconstitutional. See Lowder, 711 P.2d at 280.

The notes and bonds clearly indicate the only way the city incurs an obligation to repay the money is an affirmative act authorizing an appropriation in each fiscal year. There is no language indicating the city “shall pay” the money back. The city’s obligation is restricted to the fiscal year within which the city council appropriates money for repayment. At the end of that fiscal year, the city has no obligation or liability under the loan agreement for the notes and bonds. In other words, the creditors in this case do not have a right to receive and enforce payment. The agreements are designed to give future city councils the flexibility to continue repayment, depending upon the city’s budgetary needs in any given fiscal year. Such condition of repayment compels our conclusion that the notes and bonds do not constitute constitutional debt. Simply because the city council in any given fiscal year may appropriate money for repayment does not. convert the “debt” into a legal obligation to pay. Because the property owners have failed to meet their burden to prove the notes and bonds constitute constitutional debt and are subject to limitation, we affirm.

III. Conclusion

We affirm the district court’s decision in all respects. The city complied with the requirements of chapter 403 in designating the consolidated area an economic development area to support the urban renewal plan. The bonds and notes issued by the city to fund the project do not constitute constitutional debt because repayment is expressly conditioned upon the city council’s appropriation of funds for repayment in each fiscal year. The loan agreements clearly state the city’s obligation under the loan terminates and becomes null and void on the last-day of a fiscal year in which the necessary funds were appropriated.

AFFIRMED.

      . Tax increment financing is the power to fund public improvements granted to a municipality by the legislature. . Iowa Code § 403.19 (2001). This method of public financing "presupposes that redevelopment will’ increase property values, and hence increase the tax base, of properties in the project area.” City of El Monte v. Comm'n on State Mandates, 83 Cal.App.4th 266, 99 Cal.Rptr.2d 333, 334 (2000). The municipality may fund public improvements "in an area slated for redevelopment by recapturing, for a time, all or a portion of the increased property tax revenue that may result if the' redevelopment stimulates private reinvestment.” Princeton City Sch. Dist. Bd. of Educ. v. Zaino, 94 Ohio St.3d 66, 760 N.E.2d 375, 378 (2002). The property taxes that are generated from the base value of the area are distributed to the various taxing entities. The incremental taxes generated from any increased property value above the base value, i.e. the excess, are allocated to the city to finance the public improvement in the urban renewal area. In the instant case, the excess TIF revenues generated by the Highway 6 urban renewal area, on its own, would be insufficient to finance the construction of the hotel/conference center. By consolidating the two urban renewal areas, the surplus TIF revenues from the expanded urban renewal area would provide sufficient revenue to fund the project.

      . The property owners do not' challenge the designation of either the Highway 6 Urban Renewal Area or the Mall Urban Renewal Plan Area.

      . Our holding is supported by the majority of jurisdictions upholding some form of appropriations-backed debt. See Lonegan v. State, 176 N.J. 2, 819 A.2d 395, 404 n. 2 (2003) (citing Opinion of the Justices, 335 So.2d 376, 379-80 (Ala.1976); Carr-Gottstein Props, v. State, 899 P.2d 136, 143-44 (Alaska 1995); Dean v. Kuchel, 35 Cal.2d 444, 218 P.2d 521, 523-24 (1950); Glennon Heights, Inc. v. Cent. Bank Trust, 658 P.2d 872, 878-79 (Colo.1983); Wilmington Med. Ctr. Inc. v. Bradford, 382 A.2d 1338, 1346-48 (Del.1978); State v. Sch. Bd. of Sarasota County, 561 So.2d 549, 552-53 (Fla.1990); Sheffield v. State Sch. Bldg. Auth., 208 Ga. 575, 68 S.E.2d 590, 594-95 (1952); In re Anzai, 85 Hawai'i 1, 936 P.2d 637, 640-43 (1997); Berger v. Hewlett, 25 Ill.2d 128, 182 N.E.2d 673, 674-75 (1962); Book v. State Office Bldg. Comm’n, 238 Ind. 120, 149 N.E.2d 273, 286-89 (1958); State ex rel. Fatzer v. Armory Bd., 174 Kan. 369, 256 P.2d 143, 146-51 (1953); Wilson v. Ky. Transp. Cabinet, 884 S.W.2d 641, 645-46 (Ky.1994); Edgerly v. Honeywell Info. Sys., 377 A.2d 104, 108 (Me.1977); In re Request for Advisory Opinion Enrolled Senate Bill 558, 400 Mich. 175, 254 N.W.2d 544, 546-547 (1977); St. Charles City-County Library Dist. v. St. Charles Library Bldg. Corp., 627 S.W.2d 64, 67-69 (Mo.Ct.App.1981); Ruge v. State, 201 Neb. 391, 267 N.W.2d 748, 750-52 (1978); Employers Ins. Co. of Nev. v. State Bd. of Exam’rs, 117 Nev. 249, 21 P.3d 628, 631-33 (2001); Schulz v. State, 84 N.Y.2d 231, 616 N.Y.S.2d 343, 639 N.E.2d 1140, 1148-50, cert. denied, 513 U.S. 1127, 115 S.Ct. 936, 130 L.Ed.2d 881 (1995); Martin v. N.C. Housing Corp., 277 N.C. 29, 175 S.E.2d 665, 678-79 (1970); Haugland v. City of Bismarck, 429 N.W.2d 449, 454-56 (N.D.1988); In re Okla. Capitol Improvement Auth., 958 P.2d 759, 767-775 (Okla.), cert. denied, Fent v. Okla. Capitol Improvement Auth., 525 U.S. 874, 119 S.Ct. 174, 142 L.Ed.2d 142 (1998); State ex rel. Kane v. Goldschmidt, 308 Or. 573, 783 P.2d 988, 993-96 (1990); Kelley v. Earle, 325 Pa. 337, 190 A. 140, 144-47 (1937); Opinion to the Governor, 112 R.I. 139, 308 A.2d 802, 807 (1973); Caddell v. Lexington County Sch. Dist. No. 1, 296 S.C. 397, 373 S.E.2d 598, 599-600 (1988); McFarland v. Barron, 83 S.D. 639, 164 N.W.2d 607, 609-11 (1969); Ragsdale v. City of Memphis, 70 S.W.3d 56, 63-70 (Tenn.Ct.App.2001); Tex. Pub. Bldg. Auth. v. Mattox, 686 S.W.2d 924, 928 (Tex.1985); Mun. Bldg. Auth. of Iron County v. Lowder, 711 P.2d 273, 277-81 (Utah 1985); Dykes v. N. Va. Transp. Dist. Comm’n, 242 Va. 357, 411 S.E.2d 1, 8-10(Va.), cert. denied, Tower v. N. Va. Transp. Dist. Comm’n, 504 U.S. 941, 112 S.Ct. 2275, 119 L.Ed.2d 201 (1992); Dep’t of Ecology v. State Fin. Comm., 116 Wash.2d 246, 804 P.2d 1241, 1245-46 (1991); Dieck v. Unified Sch. Dist. of Antigo, 165 Wis.2d 458, 477 N.W.2d 613, 617-21 (1991)).


text:
    Latonya POOLE and Ricky Mallard, Individually and as Parents and Next Friends of their Minor Children, Xzavier Mallard, Quvondrick Mallard, and Victor Mallard, Appellants, v. HAWKEYE AREA COMMUNITY ACTION PROGRAM, INC. and Mercy Facilities, Inc., Appellees.
    No. 01-1332.
    Supreme Court of Iowa.
    July 16, 2003.

      James C. Larew of Larew Law Office, Iowa City, for appellants.
    Joseph T. Moreland of Hayek, Hayek, Brown & Moreland, L.L.P., Iowa City, for appellees.
   LARSON, Justice.

These plaintiff-parents sued the owner and manager of their rental property on behalf 'of their children for damages allegedly caused by exposure to lead on the rental property. The district court rejected the claim, and we affirm.

I. Facts and Prior Proceedings.

Latonya Poole and Ricky Mallard, on behalf of three of their children, Xzavier, Quvondrick, and Victor Mallard, sued Mercy Facility, Inc. and Hawkeye Area Community Action Program, Inc., as owner and manager, respectively, of the Iowa City home in which the Poole-Mallard family lived. The plaintiffs allege that, during the three-month period the family lived there, the children were exposed to high levels of lead. Latonya sued for breach of contract and breach of implied warranty of habitability, demanding both compensatory and punitive damages. Ricky sued for loss of consortium but later withdrew that claim. The district court heard the case, without a jury, from March 27 until April 7, 2000. The court entered a ruling on August 14, 2001, finding against the plaintiffs on all claims.

II. Issues Raised.

The plaintiffs complain that the district court erred in (1) delaying its ruling for an unreasonable length of time, (2) admitting school records of nonparty siblings, and (3) finding insufficient evidence to support the plaintiffs’ claims.

III. The Sixteen-Month Delay.

In January 2001 counsel from both sides jointly wrote to the court to inquire about when a ruling might be expected. The court responded in March 2001, saying the ruling would be completed as soon as possible and stated reasons for the delay. The ruling was filed on August 14, 2001, approximately sixteen months after the case was submitted.

The plaintiffs argue that, because of the delay in ruling, the case should be reversed and remanded, or in the alternative, it should be reviewed by us under a de novo standard. They offer limited case support for a remand but offer no legal support for a de novo standard of review.

We have established a goal of resolving submitted issues in sixty days, and to that end, we have adopted a rule providing that all trial court judges and magistrates

shall report monthly to the supreme court, through the office of the state court administrator, all matters taken under advisement in any case for longer than 60 days, together with an explanation of the reasons for the delay and an expected date of decision.

Iowa Ct. R. 22.10(1) (2002).

We have said this rule " “accommodates the twin demands of careful deliberation and the obvious necessity for reasonable celerity in resolving disputes,” State v. Raster, 469 N.W.2d 671, 673 (Iowa 1991), and was “designed to provide a system of accountability, promoting the orderly and expeditious disposition of all matters submitted to a judge or magistrate.” In re Carstensen, 316 N.W.2d 889, 893 (Iowa 1982). The district court, in response to the joint letter from counsel, explained that the illness of two judges and the press of priority matters, including involuntary hospitalizations, custody cases, and criminal matters, as well as the length and complexity of the case, caused the delay.

While the plaintiffs claim the delay diminished the ability of the court to recall the evidence, the detailed findings of the court belie that. This was a complex toxic-tort case. The court’s decision was thirty-six pages long, stating in detail the contentions of the parties, the law, and the evidence presented. The court explained the rationale for the ruling with detailed references to the evidence. While rule 22.10(1) anticipates the filing of decisions in sixty days, there are obviously cases that, through no fault of the court, will fall outside those parameters. This is one of them. In addition, the plaintiffs have failed to show how this delay should translate into either a new trial or a de novo review by this court, as they request. We reject this assignment of error.

IV. The School Records Issue.

The trial court referred to the school records of the older, nonplaintiff siblings and suggested genetics may have been partly responsible for the plaintiffs’ problems. The court stated: “[Plaintiff children] exhibit behaviors and experience educational frustrations similar to those exhibited and experienced by their older siblings.” The school records included psychological reports by clinical psychologists at the Grant Wood Area Education Agency, including assessments based on interviews with the children and tests performed on them; health development information, including questions of the children’s parents regarding routine medical matters; medical histories provided by medical personnel in Iowa and Florida; and reports on the children from school professionals in connection with an individualized education program provided under federal law.

The plaintiffs claim protection from disclosure based on two statutes, Iowa Code section 622.10 (2001) (privilege attached to medical, health care, school guidance counselor, and mental health professionals) and Iowa Code section 22.7(1) (confidentiality of school records).

A. Application of section 622.10. The privilege statute, Iowa Code section 622.10, provides:

A practicing attorney, counselor, physician, surgeon, physician assistant, advanced registered nurse practitioner, mental health professional, or the stenographer or confidential clerk of any such person, who obtains information by reason of the person’s employment, or a member of the clergy shall not be allowed, in giving testimony, to disclose any confidential communication properly entrusted to the person in the person’s professional capacity, and necessary and proper to enable the person to discharge the functions of the person’s office according to the usual course of practice ' or discipline.

(Emphasis ádded.)

The scope of section 622.10 is broad enough to include some of the records sought by the defendants in this case, including records of “mental health professionals,” which are defined by statute:

For the purposes of this section, “mental health professional” means a psychologist licensed under .chapter 154B, a registered nurse licensed under chapter 152, a social worker licensed under chapter 154C, a marital and family therapist licensed under chapter 154D, a mental health counselor licensed under chapter 154D, or an individual holding at least a masters degree in a related field as deemed appropriate by the board of behavioral science examin- , ers.

Iowa Code § 622.10(5).

The defendants contend these records should nevertheless be accessible because “it should have been obvious to the parents that the information obtained and results of the [psychological] evaluations were going to be shared with the school and the teachers,” and therefore were not intended to be confidential. They cite State ex rel. Leas in Interest of O’Neal, 303 N.W.2d 414, 420 (Iowa 1981) (holding privilege inapplicable in parent-termination case because communication between psychologist and patient was intended to be disclosed to others, and the examination was not for counseling or treatment).

Here, the school records were prepared for the purpose of sharing the information with others outside the professional relationship, specifically the schools, and thus they were not intended to be confidential. We said in Leas:

We do not believe that the communications between Dr. Moore [the clinical psychologist] and [the parents] were intended to be confidential; nor were the communications related to diagnosis or treatment. Dr. Moore’s psychological testing and interviews were part of a plan arranged at the request of the Department of Social Services for the purpose of making recommendations that would enable the [parents] to regain custody of [their daughter]. It should have been apparent to the [parents] that the Department would be apprised of the results of their evaluations. Therefore, the O’Neals cannot seriously contend that their communications with Dr. Moore were confidential in nature. Furthermore, the O’Neals’ counsel conceded that [Dr.] Moore’s examinations were solely for the purpose of evaluation, as opposed to diagnosis or treatment, at the termination hearing: “[T]here in fact, was no psychological counseling or treatment whatsoever or attempted.”

303 N.W.2d at 420. We conclude the school records were not rendered inadmissible by section 622.10.

B. The confidentiality claim. The plaintiffs also claim the school records were confidential under Iowa Code section 22.7, which provides:

The following public records shall be kept confidential, unless otherwise ordered by a court, by the lawful custodian of the records, or by another person duly authorized to release such information:
1. Personal information in records regarding a student, prospective student, or former student maintained, created, collected or assembled by or for a school corporation or educational institution maintaining such records ....

(Emphasis added.)

Chapter 22 is known as our Freedom of Information Act. See Howard v. Des Moines Register & Tribune Co., 283 N.W.2d 289, 299 (Iowa 1979). As the act was originally proposed, it made all records in the possession of public officials open for public view. Specific exemptions, such as the one for school records, were added by floor amendment. Id. (citing Note, Iowa’s Freedom of Information Act: Everything You’ve Always Wanted to Know About Public Records But Were Afraid to Ask, 57 Iowa L.Rev. 1163 (1972)). The broad scope of the chapter is apparent in section 22.2(1):

Every person shall have the right to examine and copy public records and to publish or otherwise disseminate public records or the information contained therein.

We have said that

[f]rom this [broad statement] we discern that the statute’s purpose is “to open the doors of government to public scrutiny — to prevent government from secreting its decision-making activities from the public, on whose behalf it is its duty to act.”

N.E. Council on Substance Abuse, Inc. v. Iowa Dep’t of Pub. Health, 513 N.W.2d 757, 759 (Iowa 1994) (quoting Iowa Civil Rights Comm’n v. City of Des Moines, 313 N.W.2d 491, 495 (Iowa 1981)).

The act establishes a liberal policy of access from which departures are to be made only in discrete circumstances. The specific exemptions in section 68A.7 (now 22.7) are to be construed narrowly.

Head v. Colloton, 331 N.W.2d 870, 874 (Iowa 1983).

The school records in this case clearly fall within the exception to the openness of public records because they are “records regarding a student ... maintained, created, collected or assembled by or for a school” under Iowa Code section 22.7(1). The issue is whether the records are subject to disclosure under the “unless otherwise ordered by a court” language of that section. The defendants argue that a subpoena is a court order within the meaning of section 22.7.

Cases involving lead poisoning in children have required a showing of relevancy and materiality to allow school records of nonplaintiff siblings. See, e.g., Anderson v. Seigel, 175 Misc.2d 609, 668 N.Y.S.2d 1003, 1005 (N.Y.Supp.1998). We believe a subpoena is a sufficient court order under section 22.7(1) to allow a party to obtain possession of records to allow a court an opportunity to assess their relevancy and materiality. Otherwise, a court would have to make those determinations in a vacuum without even seeing the records. Cf. In re Iowa State Commerce Comm’n, 252 Iowa 1237, 1244, 110 N.W.2d 390, 395 (1961) (“It clearly was not the legislative intent that the Commission first prove the fact to he determined [before the subpoena is issued].”).

Under Iowa Rule of Evidence 401 “ ‘[r]elevant evidence’ means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” See also State v. Rodriquez, 636 N.W.2d 234, 239 (Iowa 2001).

The plaintiffs seem to concede the school records are relevant; however, they argue “it’s not elose[ly] enough connected to allow a violation of the privacy interests that are attached,” apparently basing their argument on the probative value/prejudice determination of the court.

Despite this argument, the court held the records to be admissible, stating:

The Court recalls the testimony of Dr. Shapiro [a plaintiffs witness] and that of the other witnesses with regard to the genetic effect of IQ and the other aspects of the question in this particular case. The -court finds that Exhibits BE and BF [siblings’ school records] should be and are received. The objection is overruled.

This ruling, immediately following the plaintiffs’ argument that the evidence was not “close[ly] enough connected to allow a violation of the [plaintiffs’] privacy interests,” is at least an implied rejection of the probative value/prejudice argument.

Our review of such rulings is for abuse of discretion. Lovick v. Wil-Rich, 588 N.W.2d 688, 692 (Iowa 1999). An abuse may be found if there is no record to support the court's factual determination or when the ruling is based on clearly untenable reasons. Citizens’ Aide/Ombudsman v. Miller, 543 N.W.2d 899, 901 (Iowa 1996). There was other evidence already in the record, through the testimony of teachers, concerning the siblings’ performance in school. There was expert testimony that genetics may account for some of the symptoms exhibited by the plaintiffs, and the school records were probative on that question.

We conclude the court did not abuse its discretion in admitting the school records.

V. Sufficiency of the Evidence.

The findings of fact of a district court in a bench trial are affirmed if supported by substantial evidence, Hendricks v. Great Plains Supply Co., 609 N.W.2d 486, 490 (Iowa 2000), and we view the evidence in the light most favorable to the trial court’s judgment. Van Oort Constr. Co. v. Nuckolls Concrete Serv., 599 N.W.2d 684, 689 (Iowa 1999).

According to one study, ingestion of old, chipping paint and paint dust is the major source of lead for children. Ctrs. for Disease Control & Prevention, United States Dep’t of Health & Human Servs., Preventing Lead Poisoning in Young Children 18-19 (1991). The defendants strenuously argue that exposure of the children to lead occurred in Florida, not in the defendants’ property in Iowa City. There was evidence that suggested, based on the fact that Victor’s lead levels remained elevated after being treated in Iowa, that the lead had been stored in his bones, and this probably could not have happened in the short time he was in the Iowa City home. There was also testimony regarding possible lead contamination in Florida. In fact, one witness testified that the yard around their Florida home was just paint chips and glass. One expert testified that most lead ingestion occurs before the age of three; all of the plaintiff children were over that age when they came to Iowa. We believe that, viewing the trial court’s findings in the light most favorable to the judgment, there was substantial evidence to support it.

AFFIRMED.