1. This matter came on for an expedited hearing before this court sitting en banc on March 24, 1978, upon the appeal by the city of Minneapolis and Mart Plaza Hotel, Inc., pursuant to Rule 103.03, Rules of Civil Appellate Procedure, from a judgment and order of the Hennepin County District Court dated February 16, 1978.
2. Appellants seek reversal of the order permanently enjoining and restraining them from "implementing or in any manner carrying out the parking facility agreement, the management agreement, and the option agreement contained in the contract entitled `Contract for the Lease and Development of Certain Land in Development District No. 51 (Loring Park)'" which had been negotiated between the city of Minneapolis and Mart Plaza Hotel, Inc., and approved by the Minneapolis City Council and Albert Hofstede, Mayor of the city of Minneapolis.
3. After carefully reviewing the evidence before us and the oral presentations of counsel, we are persuaded that the trial court erred in permanently enjoining and restraining appellants from implementing the challenged agreements, and we hold:
(a) That the management agreement was not subject to the competitive bidding requirements of Minn.St. 471.345;
(b) That L.1971, c. 677, rather than Minn.St. c. 472A, governs the procedure to be followed by the city of Minneapolis in approving contracts for the development of disposition parcels within the Loring Park Development District; and
(c) That we can find no basis to interfere with the decision of the Minneapolis City Council that the construction of the hotel/mart and parking ramp complex supports a public purpose.
THEREFORE, IT IS HEREBY ORDERED, that the judgment is reversed and the permanent injunction is dissolved.
A formal opinion will follow.
SHERAN, C. J., took no part in the consideration or decision of this case.
Considered and decided by the court en banc.
This is an appeal from a judgment of the district court permanently enjoining and restraining appellants from implementing the parking-facility agreement, the management agreement, and the option agreement contained in the contract entitled "Contract for the Lease and Development of Certain Land in Development District No. 51 (Loring Park)." The contract had been negotiated between the city of Minneapolis and Mart Plaza Hotel, Inc. (developer), and approved by the Minneapolis City Council (city council). Because we believe that we should not interfere with the determination by the city council that this contract serves a public purpose and because the city complied
In 1971, the legislature enacted L.1971, c. 677, which authorized the cities of Minneapolis and Robbinsdale to create development districts, to issue general obligation bonds to carry out development programs, and to utilize tax-increment financing to pay off the interest and principal on such bonds. In 1974, L.1971, c. 677, § 2, was amended to permit the city of Minneapolis to acquire land or easements by eminent domain. L.1974, c. 357, § 2.
During the same session the legislature also enacted L.1974, c. 485, codified as Minn.St. c. 472A, which authorized other municipalities to create development districts and to utilize tax-increment financing for urban redevelopment. The statement of purpose in § 472A.01 is similar to that delineated in L.1971, c. 677, § 1, and the major differences between the two acts are the procedural steps required under § 472A.07 when a development district is being established. In order not to interfere with existing development, the legislature included a savings clause, § 472A.13.
The purpose of tax-increment financing of urban redevelopment is to create economically productive property where none presently exists by providing inducements to private commercial development. The municipality, either with or without the power of eminent domain, acquires all the property in an area in which the value of real estate is declining or there is a high proportion of underutilized or tax-delinquent land. Pursuant to a development plan for the area, the municipality then delineates a number of new disposition parcels which it markets to private developers. Inducements to such private development include promises to construct certain support facilities or various other types of incentives affording substantial savings to the developer. Once the land becomes productive, the increment over the prior tax revenues is utilized to pay off the interest and principal on the bonds issued to finance the redevelopment, and the municipality retains in its general treasury the amount equal to the former tax revenue from the area. After the bonds are paid off, the area is expected to remain economically productive, providing substantially increased tax revenues for municipal government.
This philosophy of development financing underlays the decision to create the Loring Park Development District just south of downtown Minneapolis. Acting pursuant to L.1971, c. 677, the city council established this district by a resolution dated June 9, 1972. At that time, there were 58 privately owned land parcels, many of which were economically unproductive. The goal of the Loring Park Development District was to renew the area by the private construction of additional residential units, convention and hotel facilities, and various other commercial enterprises. The city also planned to upgrade the public works and beautify the district by constructing the Loring Greenway. All of this development, the city council determined, would provide not only employment during the construction phase of the project but also additional permanent employment, increased tax revenues, and a more productive tax base for the district and the city. In April 1973, the city held the first of four bond sales, and in August it began acquisition of the land, first by purchase and, after April 1974, by eminent domain proceedings. The district was then replatted into 14 disposition parcels which were to be offered to developers willing to construct structures that would conform to the alternative land uses outlined in the development program.
The Loring Park Housing Interim Report, adopted by the city council as a development program, was a very general statement
By July 1, 1974, the cutoff date for the operation of the savings clause of c. 472A, only 16 of the 58 parcels within Loring Park had been acquired, primarily because the power of eminent domain had not been conferred until April 1974. Because the city's legal counsel advised it that the new statute did not govern already existing development districts which had prepared development plans, the city continued to conform its program for Loring Park to the requirements of L.1971, c. 677.
In June 1974, the city sent out Invitations for Development Proposals. In September 1974, Letoh Associates responded by proposing to construct a hotel on parcel 2D if the city were willing to build a 750-car, public parking ramp on parcel 2E. The city commissioned Laventhol & Horwath to evaluate this proposal. Their report to the city council noted that, although it might be financially superior to have residential development of these parcels, substantial benefits would accrue from the construction of a hotel and that the Letoh proposal was consistent with the overall objectives of Loring Park. The report also discussed the need for cooperation between the city and the developer in arranging financing for such a project and the fact that municipal construction of a parking ramp could serve as an incentive for hotel development. Despite the generally favorable evaluation, no contract materialized.
In 1976, Convention Hotel Associates, the predecessor of appellant Mart Plaza Hotel, Inc., proposed to construct a hotel and trade mart on parcel 2D if the city would build a 750-car, public parking ramp on parcel 2E. In October 1976, the city council issued to it a letter of intent, which was renewed in July 1977. The proposal and the development contract were discussed in two city council committees in December 1977, and the contract was unanimously approved by the council on December 16, 1977. After Mayor Stenvig vetoed this resolution, all interested parties were permitted to present their positions on the proposal to the full city council.
Among its terms the contract provided that the city would construct a public parking facility, the lower level of which would be rented by the developer for use as a convention hall. The city also agreed to design the parking ramp to be compatible with the hotel and to ensure that tennis facilities for hotel guests could be erected by the developer on its roof. Another part of the contract contained a management agreement under which the developer was to manage the parking ramp for a term of 20 years, and the developer was granted a 50-year exclusive option to purchase the parking ramp and convention hall. The city, however, retained exclusive control over the ramp. The rates, hours, and methods of operation were to be set by the city, and the hotel, the trade mart, and their
At the time this contract was approved by the city council, the city had sold approximately $24 million in bonds to finance land acquisition, relocation, and public improvements within Loring Park. Three private developments had also already begun — the 330-unit condominium development at Twelfth and Nicollet called 1200 On the Mall, the Fine & Harris Greenway Gables townhouse development on parcels 2A and 2B, and the 306-unit Nicollet Towers housing project on parcel 2F. Letters of intent had also been issued by the city council for parcels 1A, 1E, 2C, 2F, and 2G.
On January 5, 1978, respondents, as taxpayers, commenced this lawsuit to challenge the city's proposed use of replatted parcels 2D and 2E. They requested declaratory and injunctive relief, seeking to void the "Contract for the Lease and Development of Certain Land in Development District No. 51 (Loring Park)" and to enjoin its execution. The trial court accepted their arguments and permanently enjoined and restrained appellants from implementing the parking facility agreement, the management agreement, and the option agreement contained in the contract. Specifically, the trial court held that the parking facility agreement was void because it involved the expenditure of public funds for private purposes and because the city had failed to follow the requirements of c. 472A prior to executing the contract, that the management agreement was void because the city had awarded the management contract without complying with the competitive bidding requirements of Minn.St. 471.345, and that the option agreement was void because it exceeded the powers conferred on the city by L.1971, c. 677. It is from the judgment of the district court that this appeal is taken.
Although the trial court held that the option to purchase the parking ramp included in the agreement was illegal and void, we do not believe that the question of its validity was properly before the court. It is clear from the record that the developer waived its option to purchase the public parking ramp. This waiver made the issue moot, despite respondents' contention that a bilateral contract could not be waived unilaterally. Thus, for the purpose of this decision we assume that no purchase agreement exists between the developer and the city under which the developer could exercise an option to purchase the public parking ramp after the expiration of its 20-year lease.
1. The major issue presented in this appeal concerns the legality of the decision by the city council that a public purpose would be served by its erection of a public parking ramp to induce a private developer to construct a hotel and trade mart complex on the adjoining property. The trial court found that this expenditure was for a private purpose. We believe that the reason the trial judge erred in reaching this conclusion was because he focused solely on the decision to construct the parking ramp rather than looking at the public benefits that would flow from the development contract for the coordinated construction of a convention hotel and a public parking ramp.
The public purpose doctrine which permits the expenditure of public funds only in furtherance of a public purpose is well-settled law in Minnesota. Minnesota Housing Finance Agency v. Hatfield, 297 Minn. 155, 210 N.W.2d 298 (1973); City of Pipestone v. Madsen, 287 Minn. 357, 178 N.W.2d 594 (1970); Port Authority of City of St. Paul v. Fisher, 275 Minn. 157, 145 N.W.2d 560 (1966); Housing & Redevelopment Authority of St. Paul v. Greenman, 255 Minn. 396, 96 N.W.2d 673 (1959); Visina v. Freeman, 252 Minn. 177, 89 N.W.2d 635 (1958); Thomas v. Housing & Redevelopment Authority of Duluth, 234 Minn. 221, 48 N.W.2d 175 (1951); Erickson v. King, 218 Minn. 98,
Because "public purpose" is an elusive concept, whether a particular expenditure serves a public purpose requires case-by-case disposition. We have also recognized that "public purpose" should be broadly construed to comport with the changing conditions of modern life. City of Pipestone v. Madsen, supra; Housing & Redevelopment Authority of St. Paul v. Greenman, supra. Consistent with this approach, we pay great deference to the initial legislative determination that a particular project serves a public purpose, Port Authority of City of St. Paul v. Fisher, supra, and we presume that public officials are properly performing their duties when they make such decisions. As the Ohio Supreme Court recently stated in State ex rel. Taft v. Campanella, 4 Ohio O.3d 423, 426, 50 Ohio St.2d 242, 246, 364 N.E.2d 21, 24 (1977):
This presumption necessarily makes the scope of review of such governmental decisionmaking extremely narrow, and a reviewing court should overrule a legislative determination that a particular expenditure is made for a public purpose only if that determination is manifestly arbitrary and capricious.
Such a narrow scope of review also comports with the general rule governing judicial review of municipal decisionmaking declared in Douglas v. City of Minneapolis, 304 Minn. 259, 272, 230 N.W.2d 577, 586 (1975):
Thus, once the legislature authorizes tax-increment financing by a municipality, declares such financing to serve a public purpose, and enumerates the type of projects that may be so financed and that such projects will serve a public purpose, these declarations are given great weight by the courts. Furthermore, the city, in implementing the powers delegated to it by the legislature, is also vested with broad discretion in determining whether particular projects will serve a public purpose. While such decisions are reviewable, they can only be set aside if it is established that the city's action is manifestly arbitrary and capricious because the projects primarily serve a private interest.
Laws 1971, c. 677, § 1, sets out the public purpose to be served by tax-increment financing of redevelopment by the city of Minneapolis:
This statement of public purpose is reiterated almost verbatim in Minn.St. 472A.01. Since the city council has determined that these purposes will be served by the developer's construction of a hotel and trade mart and that the city's construction of a public parking ramp is essential to the developer's decision to construct, under the restricted standard of review a court can only overturn the city's decision if it is found to be manifestly arbitrary and capricious.
There are numerous statutes that declare the construction of public parking ramps in Minneapolis to be in the public interest, L.1971, c. 677, § 1; Minn.St. 472A.01 and 459.14, and respondents do not challenge the construction of the ramp per se.
Despite the trial court's decision that the city acted improperly in attempting to induce the developer to build the hotel, inducements are routinely permitted by the courts. The legal effect of the construction of a parking ramp is no different from such inducements to commercial redevelopment as the city's sale of the land to a developer at substantially less than its cost of acquisition or its market value or the city's installation, at no cost to the developer, of such utilities as sewer and water. We have gone so far as to approve the condemnation of land by a public authority and its later sale or lease to private developers, Housing & Redevelopment Authority of St. Paul v. Greenman, 255 Minn. 396, 96 N.W.2d 673, and the construction of buildings by the public authority to be leased to private persons, City of Pipestone v. Madsen, 287 Minn. 357, 178 N.W.2d 594; Port Authority of City of St. Paul v. Fisher, 275 Minn. 157, 145 N.W.2d 560; Visina v. Freeman, 252 Minn. 177, 89 N.W.2d 635; Erickson v. King, 218 Minn. 98, 15 N.W.2d 201, as permissible inducements to lure the private sector into the redevelopment plan.
The trial court also appears to have concluded that the contract terms permitting the developer to lease both the air rights above the parking ramp and the lower level, as well as those providing for structural compatibility between the ramp and the hotel, were additional evidence of the essentially private purpose of the agreement between the city and the developer. All of these ancillary agreements, however, are permissible under L.1971, c. 677, and other statutes. The city is clearly authorized to lease air rights over the public parking ramp, L.1971, c. 677, §§ 2 and 9(d); §§ 472A.03 and 472A.10(d); L.1971, c. 425, and the lower level of the parking ramp, L.1971, c. 677, §§ 2 and 9(c); §§ 472A.03 and 472A.10(c); L.1971, c. 425. Furthermore, these are both proper inducements to
The trial court erroneously held that the construction of a public parking ramp served primarily a private, rather than a public, purpose because it was persuaded to view the parking ramp in a vacuum. When the ramp's financing is separated from the dominant purpose of the entire development contract between the city and the developer, the benefits to the developer would appear to outweigh the public benefits and permit the court to conclude that this was an illegal expenditure of public funds. When the development contract is viewed in its entirety, however, the parking ramp becomes a necessary adjunct of a project which, according to the city council, is crucial to the success of the entire development district. Under the proper standard of review, the trial court could only have disregarded the testimony of the city's expert regarding the public benefits to be derived from the construction of the hotel and ramp complex — a $26,000,000-hotel; $1,200,000 in taxes from land that at present generates no taxes; an increased tax base; 700 new jobs; increased liquor taxes and hotel taxes; the revitalization of Minneapolis as a convention and tourist attraction; and the assurance the Loring Park Development District would be successful — if the city's reliance on such evidence were completely unreasonable. Since respondents introduced no evidence that such was the case, the city's reliance on this evidence in approving the proposed uses for parcels 2D and 2E cannot be disregarded. These enumerated public benefits upon which the city council relied preclude a conclusion that its decision to accept the development contract was based on whim or caprice or was completely unsupported by the evidence.
Respondents attempted to demonstrate that the construction of a hotel on parcel 2D was not the best financial utilization of the property. They argued to the trial court that the construction of a hotel and ramp complex would not return sufficient tax or leasehold revenues to even pay the interest on the bonds that were sold to acquire the land and finance the construction of the ramp and that it was commercially unwise for the city to use the land for hotel rather than residential development.
Thus, as long as it is not unreasonable for the city to conclude that the development it is approving will improve employment and increase the tax base, the degree to which it will do so and whether or not it is the best form of development are determinations left to the discretion of the governing council, which, absent proof of fraud, is presumed to be acting in the public interest. For these reasons, we hold that the trial court erred in its scrutiny of the city's decisions, thereby substituting its opinion for that of the city, which is contrary to its function in challenges to municipal decisions under the public purpose doctrine.
2. Respondents also contend, and the trial court agreed, that the city's failure to comply with the provisions of c. 472A, which had replaced L.1971, c. 677, as the governing statute in 1974, voids its contract with the developer. Whether the city's decision to continue to act pursuant to L.1971, c. 677, was improper depends on the applicability of § 472A.13,
Appellants argue that the city could ignore the requirements of c. 472A in determining how to utilize parcel 2E because "project or program" in § 472A.13 refers to the entire Loring Park Development District. Respondents and the trial court interpreted the terms more narrowly to include only specific projects within the district. Since the decision to construct a parking ramp was not made until after July 1, 1974, the trial court found that it was unprotected by the savings clause and that the city's failure to conform to the procedures outlined in c. 472A made the entire contract illegal and void.
Laws 1971, c. 677, § 3(b), defines development program as "a statement of objectives * * * for improvement of a development district * * *," and § 472A.02, subd. 5, is substantively identical. We are persuaded that this definition was intended by the legislature to exempt the entire development district. Other aspects of the new legislation support this conclusion.
Laws 1971, c. 677, § 3(b), also requires that the development program include "a complete statement as to the public facilities to be constructed within the district * * *." Although a public parking ramp is not mentioned specifically in either the extremely general interim report or the urban-design plan which supplemented it, the ramp is consistent with the objectives of the Loring Park Development District and its inclusion in the development program can be said to be merely a refinement of the development plan. This interpretation
After finding the construction a necessary adjunct, the court went on to state:
Since L.1971, c. 677, § 8, would appear to permit the program to be modified,
3. Finally, respondents contend, and the trial court found, that the management contract is void because the city failed to comply with the competitive bidding requirements of Minn.St. 471.345, the Uniform Municipal Contracting Law. According to that section, as amended by L.1977, c. 182, if the contract amount is estimated to exceed $10,000, it can only be let after soliciting sealed bids by public notice. § 471.345, subd. 3. The other prerequisite for the utilization of competitive bidding is that the contract involved be "an agreement entered into by a municipality for the sale or purchase of supplies, materials, equipment or the rental thereof, or the construction, alteration, repair or maintenance of real or personal property." (Italics supplied.) § 471.345, subd. 2. Respondents argue that the city should have used competitive bidding because the management contract contemplates maintenance costs in excess of $10,000, while appellants maintain that management agreements are not contracts within the meaning of the statute.
The reasons for requiring competitive bidding are discussed in Coller v. City of St. Paul, 223 Minn. 376, 387, 26 N.W.2d 835, 841 (1947):
See, also, Griswold v. County of Ramsey, 242 Minn. 529, 65 N.W.2d 647 (1954). In order to ensure that municipalities comply with the statute, this court has adopted the position that "as a matter of sound public policy, such a contract is void, without any showing of actual fraud or an intent to commit fraud, if a procedure has been followed which emasculates the safeguards of competitive bidding." 242 Minn. 536, 65 N.W.2d 652. Nevertheless, competitive bidding statutes are generally construed narrowly.
SHERAN, C. J., took no part in the consideration or decision of this case.
"* * * In the absence of some express legislative direction, indicating that a contract for a concession, as is here involved, must be let by competitive bidding, this court is powerless to include it therein. * * * The presumption obtains that the actions of public officials, in the performance of their official acts, are done in good faith and with honest motives."