Understanding drainage district legal procedures, requirements and financing

By

Loren G. Flaugh

Part II

            Foremost on the Tuesday, Nov. 29, 2016 O’Brien County supervisor’s agenda was the public hearing for the Drainage District (DD #5 Cleanout Project.  Decisions on 3 matters related to the project were approved. 

The Board set a 5% per annum interest rate on all financial matters directly related to the DD.  The Board approved a 10 to 20 year installment re-payment plan where landowners can pay back the estimated $200,000 cost for the project over time.  The Board then approved the engineer’s preliminary report.

Present at this hearing was Pocahontas attorney Jim Hudson with the Hudson Law Firm.  Jacobson-Westergard & Associates PE Richard Hopper, with 35 years of farmland drainage experience, prepared the preliminary engineer’s report.  Detailed information was presented to about 25 landowners in attendance.  Hudson said his firm has considerable legal expertise with farmland drainage matters going back to 1953 when his father started the firm.  Hudson said he took over the law firm from his dad.

Hudson said the first statutory language related to farmland drainage issues appeared in the Iowa Code in 1906.  That’s about when some DDs started forming as legal entities, especially in his part of the state and further east.   Iowa has over 3,200 established DDs.  

“Pocahontas County has over 200 DDs due to the ‘flat as a pancake’ topography,” Hudson noted.  “Northwest Iowa’s topography is more favorable with less need for DD formation.”

Hudson said that all DD procedures and regulations can be found in Iowa Code Chapter 468. “When it started out, it was a mess.  Information was hard to find.  It was convoluted, upside-down and backwards,” Hudson explained. 

Hudson briefly explained who those parties were with involvement with DD matters.   The supervisors act as the DD trustees by statute with the county auditor being the DD clerk.  Other parties involved are an attorney, an engineer, farmland drainage contractors and the landowner.

“As trustees, the supervisors manage the property for the bene fit of the beneficiaries.  All you landowners are the beneficiaries.   The supervisors do not have a dog in the fight,” Hudson said. 

In passing, Hudson mentioned how landowners can manage their own DD by electing their own trustees.  He said he doesn’t advocate this administrative method, but he wanted landowners to be aware of it anyway.

 “DD #5 is a separate legal entity from O’Brien County.  You DD #5 landowners are the stakeholders.  You pay for everything and determine everything that goes on in the DD.

Filing a petition triggers activity in the DD.  Every landowner in the district is entitled to adequate drainage.  If you do not have it, you can petition the Board to have an engineer appointed.  The engineer will survey the landowners to see what their concerns are and then he files a report.  The Board then sets a hearing date. 

Today is that hearing date.  There has been absolutely no decisions made, whatsoever, on this project and couldn’t be made until today.  Nothing has been done without landowners present.  Everything is done in public meetings,” Hudson bluntly stated.

He said hearings may be held to acquire more right-of-way along the ditch for reasons like storing excavated dirt.  Hearings are held when more land needs to be annexed into the DD, even from adjoining Osceola County.   Those landowners can attend these DD hearings, but they cannot file written objections.  There’ll be a bid letting hearing and eventually a completion hearing.

At that completion hearing, the engineer will advise you if work was done outside of the ROW and causes crop damages or other damage.  You can then file a claim for those damages.  You can also have crop losses for a few years into the future.  The DD pays full value for those losses, he said.

“Once the project is completed and after we annex additional land, the DD will be re-classified.  Each 40-acre tract will receive an assessment and classification.  The total cost of the project will be spread out over that.  But, we’ll wait until after annexation is done because there’ll be many more acres that’ll benefit from all this work in the facility.  They need to help pay for it,” Hudson insisted. “It’s not fair to you DD #5 landowners, if they’re using you’re facility without helping to pay the cleanout costs.”

Hudson even explained how DDs #8 and #12 in Osceola County are contiguous to DD #5 O’Brien County.  With the common outlet for this vast watershed at the south end of DD #5, those other two DDs, even though they’re in another county, could also be assessed for their fair portion to help defray the DD #5 cleanout costs.

Hudson explained the critical difference between a DD repair project and a DD improvement project. “A repair project is defined as maintaining and restoring a DD facility to its original design capacity and efficiency.  A repair is mandatory under Iowa Code Chapter 468.  If a landowner objects, an objection does not override a repair.

The only time a DD Board can be sued is if they do not make the repair, or the Board doesn’t act on the recommendation for the repair.  Then you landowners can sue your own DD with a writ of mandamus to force the Board to make the repair.  It’s the only time a DD can be sued,” Hudson cautioned.  “In essence, you’re suing yourself, if you want to force the repair.”

“If a DD improvement project is recommended, then that’s done to increase the design capacity, efficiency or to increase the longevity of the facility.  With an improvement, then the landowners have the right to object by a legal filing called a remonstrance.  That means when more than 50% of the landowners by population who also own more than 70% of the land area object, then the improvement cannot go forward,” Hudson advised.

Hudson discussed matters related to future annexation, primarily the 7,100 acre area west and north of DD #5.  “Annexation is done in 40-acre tracts.  The engineer must determine if land outside the current DD boundary is receiving, has received or will receive a material benefit from the DD #5 facility, it is subject to annexation.  That big watershed to the northwest should be annexed into DD #5.  So, we’ll annex that land,” Hudson bluntly stated. 

“There’s two ways to do it, voluntarily or by force.  But, either way, it’s there, and it should be done to create the proper sized DD.  Almost all the DDs in the state were initially formed smaller than what they should’ve been back near the turn of the century.”

Another issue of concern is the condemnation authority inherent in a DD under Iowa Code.  “Cities, towns, the State of Iowa and other public entities can condemn land for a public purpose.  DDs can condemn land for a semi-public purpose for their facilities, said Hudson.  The landowner receives a fair market value for that land.  I don’t anticipate this happening, but we could,” said Hudson.

Re-classification of land in DD #5 will lead to another hearing.  Hopper explained, “Every 40-acre tract will pay its relative benefit.  Each tract with a higher need for drainage is given a factor of 100.  A tract with the least need for drainage is given a low number like 1 or 0.  Everything in between is then compared.  Even the county roads in the DD will pay an assessment.  Hard-surface roads pay a higher assessment then gravel roads due to more water runoff.  So, everybody like churches, schools and businesses pays,” Hudson explained.

Regarding objections, Hudson said, “Drainage is very fair in its process, procedures and design to fully review all of your concerns and questions in its own public manner.  So, this makes a public record that’s placed in DD #5’s file.  You can appeal any final decision within 20 days even to district court in O’Brien County.  A judge reviews the appeal.  But, the project still moves forward.  If you don’t like what the judge rules, you can appeal it to the Iowa Supreme Court.  You have that right as landowners.”

Hudson explained how assessments are determined.   “After the classification hearing, the results are turned over to the auditor and the county treasurer and they’ll come up with a levy.  The levy for drainage assessment is exactly the same way, is exactly the same authority and exactly the same collection and payment as the levy for real estate taxes.

So, when you get your assessments, which will come sometime after the project is over, you’ll get a notice with your assessment.  The assessment can be paid one-time all up front without interest when you get it.  You can pay it in the spring or the fall without interest.  The last method is by an installment plan with a simple interest rate applied.  That delayed payment plan can be no less than 10 years or more than 20 years for paying off the assessment,” Hudson explained.

Hudson explained how warrants have become the preferred way to pay of the expenses accrued by a DD, even though a DD may not have any funds in its account.  Once sufficient funds accumulate in the DD account, then those holding the warrants can cash then in with a 5% interest added.  Landowners, private investors, banks, the drainage contractor and even the County can hold warrants. 

“Warrants are not taxable on state and federal tax returns.  It’s the same taxation as a municipal bond.  Warrants are extremely secure,” Hudson pointed out.

“Crop damages during construction may be paid by the DD to the landowner with a warrant.  You can spend that warrant to pay your assessment, or you can keep it as an investment or you can sell it.  People stand in line to buy drainage warrants.  Banks don’t like them because they go out too far.  But, investors just love them because of the taxability and the security,” Hudson insisted. 

            Hopper briefly summarized the DD #5 cleanout report by explaining what could be annexed into the DD.   “This will come later.  The whole idea now is to get this repair done.  We have calculated in a 2 inch coefficient which means the ditch will handle 2 inches of runoff throughout the entire watershed in a 24 hour period,” Hopper said.

            Hopper explained the method he used to determine how the ditch was probably built in 1921.  The ditch originally had a 6’ wide bottom at the north end.  The ditch was 10’ wide 2 miles south.  A mile further south, the ditch was 12’ wide.  The last 6,900’ at the south end was 14’ wide.  Reshaping the bottom and side slopes will restore the ditch to the capacity and efficiency it had in 1921.

            His firm took elevations across the ditch and made cross-section drawings at regular intervals.  They looked at flow lines and any tile or pipe that needed repair along the ditch.  Hopper said he allowed time to lower an 84” diameter pipe that’s used for a road crossing about a foot.  He said that needs more investigation.

            “With no annexation of additional land into DD #5, the estimated cost of the project per acre comes to about $57.80.  With the annexation of about an additional 7,100 acres total, then that brings the estimated per acre cost down to about $21.00. 

            We prepared the preliminary report, submitted it to the Board and they need to accept it or deny it.  That decision needs to be made.  We feel the repairs are needed,” Hopper concluded.

            Hudson and Hopper then held a lengthy Q & A sessions with many, many thoughtful questions asked.