Opinion
No. 4-108 / 03-0667
Filed May 25, 2005
Appeal from the Iowa District Court for Polk County, Donna L. Paulsen, Judge.
Westmarc Cablevision appeals, and the Director of the Iowa Department of Revenue and Finance cross-appeals, from separate portions of the district court's ruling on judicial review concerning taxability of property owned by Cedar Falls Municipal Utilities. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH DIRECTIONS.
Mark Schuling of Brick, Gentry, Bowers, Swartz, Stoltze, Schuling Levis, P.C., Des Moines, for appellant/cross-appellee.
Thomas J. Miller, Attorney General, and James Miller, Assistant Attorney General, for appellee/cross-appellant.
Ivan T. Webber of Ahlers Cooney, P.C., Des Moines, for intervenor.
Considered by Zimmer, P.J., and Miller and Hecht, JJ.
Westmarc Cablevision, Inc. (Westmarc) appeals from the district court's ruling on judicial review which affirmed in part and reversed in part the decision of the Director of the Iowa Department of Revenue and Finance (the Director) and concluded that both cable property owned by the Cedar Falls Municipal Utilities (CFMU) located inside the city limits of Cedar Falls and cable property owned by CFMU located outside the city limits of Cedar Falls are exempt from property taxes. The Director cross-appeals from the district court's ruling, seeking reversal of only the portion of the district court's ruling which found that CFMU's property outside the city limits is exempt from property tax. We affirm in part, reverse in part, and remand to the Director for further proceedings.
I. BACKGROUND FACTS AND PROCEEDINGS.
This case reaches us on the essentially undisputed facts set forth by the trial court as follows. By referendum in 1994 the City of Cedar Falls established its communications utility as a part of CFMU. It provides high-speed data, internet access, and cable television service. It charges a fee for providing these services and is in competition with other private providers, which provide all of the same services. CFMU provides such services for a fee or exchanged services, to the following locations outside the city limits of Cedar Falls: city of Grundy Center; city of Waterloo; Black Hawk County Courthouse; Iowa Communications Network (ICN); Covenant Hospital; Allen Hospital; television station KWWL; Origix-S B tek; and VGM Technologies.
CFMU has some equipment and leases some realty outside the city limits of Cedar Falls. It attempts to obtain customers through market research and promotions and created a position of marketing coordinator with duties including marketing communications services. Marketing is done to maximize customers through media and public presentations for the purposes of adding new customers and retaining existing customers. Although CFMU was not under franchise, its Board of Trustees signed a resolution stating it would honor the terms of a franchise issued by the City of Cedar Falls to a competitor to provide service to the city of Cedar Falls. CFMU operates its business at a loss.
On June 17, 1999, Westmarc filed an application with the Director pursuant to Iowa Code section 427.1(16) (1999) requesting that the property tax exemption for the cable television system property owned by CFMU be revoked. On June 16, 2000, CFMU filed a motion for summary judgment and Westmarc resisted. Summary judgment was granted to CFMU by an administrative law judge (ALJ) on June 18, 2001. Westmarc appealed to the Director who reversed the grant of summary judgment, finding that issues of material fact existed with respect to whether the property under exemption is being used for a non-public purpose and for pecuniary profit. The Director remanded the case to the ALJ for a full evidentiary hearing.
We note that Westmarc's application to the Director asserted only that Cedar Falls was operating a cable television system for pecuniary profit, and did not claim the system was not devoted to a public purpose. However, no issue concerning this discrepancy between Westmarc's asserted ground for revocation and ensuing decisions appears to have been raised at any point in the progress of this case.
The evidentiary hearing was held December 20, 2001. A proposed decision was filed by an ALJ on March 27, 2002, finding all of CFMU's cable property tax exempt. Westmarc appealed to the Director. The Director issued a decision on August 12, 2002, affirming in part and reversing in part the ALJ's decision. The Director concluded that CFMU's cable property within the city limits of Cedar Falls was tax exempt and affirmed that portion of the ALJ's decision. However, the Director determined that CFMU's property outside the city limits was subject to taxation, finding that such property was not devoted to a public purpose, and reversed that part of the ALJ's decision.
Westmarc filed its petition for judicial review of the Director's decision with the district court on August 30, 2002, contending the tax exemption on all of CFMU's property should be revoked and the court should reverse that portion of the Director's decision allowing the exemption for the property inside the city limits. CFMU filed its petition for judicial review on September 10, 2002, contending all of its property should be exempt from property taxes and the court should reverse the portion of the Director's decision finding its property outside the city limits did not qualify for an exemption. The district court consolidated the two matters, granted intervenor status to CFMU in Westmarc's case and to Westmarc in CFMU's case, and held a hearing on January 31, 2003.
In an April 1, 2003 ruling the district court reversed the portion of the Director's order that found the cable property outside the city limits was not tax exempt and affirmed the Director's conclusion that the cable property inside the city limits was exempt.
Westmarc appeals from the district court's decision, contending the court erred in determining all of CFMU's cable property, both inside and outside the city limits, is tax exempt. It argues all of the property should be subject to property tax. The Director cross-appeals, seeking reversal of that portion of the district court's decision which reversed in part the Director's decision and held that CFMU's property located outside the city limits is exempt from property tax.
II. SCOPE AND STANDARDS OF REVIEW.
The district court, exercising its power under Iowa Code section 17A.19 (10), acted as an appellate court to review for errors of law on the part of the agency. Grundmeyer v. Weyerhaeuser Co., 649 N.W.2d 744, 748 (Iowa 2002). In reviewing the district court's decision, we apply the same standards to determine whether the conclusions we reach are the same as those of the district court. Id. If they are the same we affirm, otherwise we reverse. Id. III. MERITS. A. Legal Framework.
We note that, contrary to the finding of the district court, because the director rendered his decision on August 12, 2002, the 1998 amendments to Iowa Code chapter 17A do apply. See Wal-Mart Stores, Inc., v. Caselman, 657 N.W.2d 493, 498 (Iowa 2003).
The Director has the authority under Iowa Code section 427.1(16) to determine whether municipal property is exempt or subject to real estate tax based upon the application of section 427.1(2). Section 427.1(2) exempts from taxation "[t]he property of a . . . city . . . when devoted to public use and not held for pecuniary profit. . . ." Generally, statutes exempting property from taxation are strictly construed and doubts are resolved in favor of taxation. Van Buren County Hosp. Clinics v. Bd. of Review, 650 N.W.2d 580, 586 (Iowa 2002).
This approach is followed because exemptions from taxation are generally disfavored as contrary to the democratic notions of equality and fairness, and exist solely due to legislative grace. Yet, this strict rule does not require a construction that is so narrow that it defeats the legislative purpose. We observe that our Iowa statute exempting [city] property from taxation is consistent with the traditional notion that government-owned property is immune from taxation when devoted to public use. Clearly, our legislature wanted to maintain this practice by establishing the municipal exemption.
Id. (internal citations omitted). The party claiming the exemption, here CFMU, has the burden to show that the property should not be taxed. Bethesda Found. v. Bd. of Review, 453 N.W.2d 224, 226 (Iowa Ct.App. 1990).
Our supreme court has previously recognized that the municipal exception under section 427.1(2) establishes a three-part exemption test: "`(1) the property must be owned by the [city]; (2) the property must be devoted to public use; and (3) such property must not be held for pecuniary profit.'" Van Buren County Hosp., 650 N.W.2d at 586(quoting City of Osceola v. Bd. of Review, 490 N.W.2d 539, 541 (Iowa 1992)). Thus, city property is not exempt from taxation solely because it is city property. Id.; City of Oskaloosa v. Bd. of Review, 490 N.W.2d 542, 545 (Iowa 1992). "Instead, the exemption depends on the manner and characteristic of the use of the property by the [city]. The property must be `devoted to public use' and not held `for pecuniary profit.'" Van Buren County Hosp., 650 N.W.2d at 586. "Under this standard, the exempt status of [city] or other governmental subdivision property will ultimately rest with the particular facts of each case." Id.
Clearly all the property involved here satisfies the ownership prong of the test and no party disputes this fact. However, as set forth above, city property is not exempt from taxation merely because it is city property. Id. Thus, this case turns on whether the city's cable property, inside and outside of the city limits, is devoted to public use and whether it is not held for pecuniary profit.
Three additional matters require preliminary mention. First, the district court identified the issues before it as whether the agency's findings were supported by substantial evidence, whether the agency erred in its application of the law, and whether the agency's action was unreasonable or an abuse of discretion. Although the parties on appeal frame additional and somewhat different issues, we confine our review to those claims of agency error identified and thus addressed by the district court.
" Substantial evidence" means the quantity and quality of evidence that would be deemed sufficient by a neutral, detached, and reasonable person, to establish the fact at issue when the consequences resulting from the establishment of that fact are understood to be serious and of great importance.
Iowa Code § 17A.19(10)(f)(1) (Supp. 1999). "Unreasonable" agency action means "action in the face of evidence as to which there is no room for difference of opinion among reasonable minds or not based on substantial evidence." Frank v. Iowa Dep't of Transp., 386 N.W.2d 86, 87 (Iowa 1986). An "abuse of discretion" is synonymous with "unreasonableness," is premised on lack of rationality, and focuses on whether the agency has made a decision clearly against reason and evidence. Id.
Second, while a cogent argument can be made that some of CFMU's outside-the-city property should be tax exempt and some should be taxable, the parties, the agency, and the district court have at all stages of this case treated all of the outside-the-city property as a unitary whole. We will therefore also deal with the outside-the-city property in that manner.
Third, the Director expressly adopted and incorporated into the final agency decision the ALJ's findings of fact, and by leaving intact the part of the ALJ's proposed decision which found CFMU's inside-the-city property to be tax exempt the Director implicitly adopted the ALJ's conclusions of law to the extent they relate to the inside-the-city property. The Director made additional findings of fact, and reached different conclusions concerning whether CFMU's outside-the-city property was devoted to public use. We therefore find it necessary and appropriate to set forth in some detail relevant portions of the ALJ's findings and conclusions and the Director's additional findings, and to summarize the Director's conclusions.
B. Agency Findings and Conclusions.
The ALJ's findings of fact, with citations to the record omitted, include the following:
The Communications Utility provides head end service to the city of Grundy Center. Head end service originates in the City of Cedar Falls at the communications center. This service is to send and receive the signals from the Grundy Center utility. The Cedar Falls utility does not own any property outside of the city that is required to provide this service. The wires are owned by another company, and Grundy Center owns the distribution equipment.
At the request of the Iowa Communications Network, the Communications Utility installed 36,601 feet of fiber optic cable that runs from the boundary of the City of Cedar Falls to Allen Hospital with branches off to the Waterloo Airport for the National Guard. The cost value of this property is $77,663.19. This cable is connected to the McLeod cable and is essential for the connection with the Blacks Building equipment.
The Communications Utility also owns a connection shelf at Covenant Medical Center worth $28,783.16 and a connection shelf in Allen Hospital with a cost of $17,871.27. The purpose of these pieces of equipment are [sic] to allow doctors in Cedar Falls and the staff at Sartori Hospital in Cedar Falls to share data and medical information with the other two regional hospitals located in Waterloo. Allen Hospital is the largest hospital in the metro area. At the time of its connection, Sartori Hospital was a municipal hospital and it requested that the Cedar Falls Communications Utility connect it up with Allen. Today Covenant also owns Sartori.
There is a 10 meg fiber termination at the Black Hawk County Courthouse which costs $3,955.49. This connection allows communications by the Cedar Falls police with the Court and its connections to the State of Iowa Judicial and Criminal information systems. It connects with the Waterloo City Hall and the county jail.
Television station KWWL is also connected. It sends local weather information to Cedar Falls television customers on a continual basis. The signal goes through leased cable and connects to the line in Waterloo owned by Cedar Falls Communication Utility.
The Communications Utility also owns equipment in the Blacks Building in Waterloo that costs $58,927.13. This equipment is the central connection with the outside world of communications. This is the cheapest and most reliable place for the Cedar Falls Utility to get the internet connections. This data is transmitted by McLeod's system to connect with the Cedar Falls system at Allen Hospital to go through the Cedar Falls cable from there to the Communications Utility building.
Two of the private businesses that use the high speed data are Origix-S B tek, and VGM Technologies. S B Tek, located in the Cedar Falls industrial park, communicates through the Blacks Building to its headquarters in Minneapolis. The connections to the ICN link the University of Northern Iowa, the city library and the high school and Hawkeye Community College to each other and the Cedar Falls system.
In discussing whether CFMU's property was "held for a public purpose" the ALJ stated, among others, the following conclusions of law:
The legislature has authorized the municipalities to have a communications utility. It is recognized as a public purpose. The property within the city that is used for the utility is exempt.
The fact that [the CFMU] now is in competition with private systems is not a factor in determining its taxability.
The Iowa Supreme Court has recently held that the State cannot prohibit a City from operation of a cable system which can include telephone services. Iowa Telephone Ass'n v. City of Hawarden, 589 N.W.2d 245 (Iowa 1999). This is another recognition of the public purpose of municipal communications utilities.
There can be no question that some of the functions of the cable system exist for a public purpose. Allowing the Police Department to have fast and accurate communications with the offices in the County Court House, Jail, National Guard, state criminal justice information system, and public safety is a public purpose. Allowing doctors in a Cedar Falls municipal (now private) hospital, and in a clinic to have fast access to medical records, information, and other doctors in the other metropolitan hospitals is a public purpose. As previously discussed, providing taxpayers with good and reasonable cable television and internet access has been recognized as a public purpose. Economic Development is a public purpose and the communications ability is working well for growth in the Cedar Falls industrial park.
In discussing whether CFMU's property was "held for a pecuniary profit" the ALJ stated, among others, the following conclusions of law:
The City of Cedar Falls had a municipal reason to extend a fiber line to Allen Hospital. At the time the line was built, Sartori was a municipal hospital. The line still serves the function of providing Cedar Falls doctors in the hospital and a clinic a direct connection with doctors and medical records in Allen and Covenant Hospitals. The line has an extension to the airport to serve the National Guard. Service to the National Guard enhances the Cedar Falls police powers in an emergency. If the Guard owned the line, it would be exempt as military property.
The other primary purpose of the line to Allen Hospital is to connect with the Blacks Building equipment. This connection is completed through someone else's line. Without this line, the citizens of Cedar Falls would not have the cable television signals and would not have the data and internet connections. The fiber cable line in Waterloo clearly serves the function of providing communications to the citizens of Cedar Falls and is therefore exempt.
The equipment in the Blacks Building is the equivalent of the electric plant referred to in [ City of Muscatine v. Swickard, 232 Iowa 1175, 6 N.W.2d 23 (1942)]. It was explained that the connections in the Blacks Building is the most economical and reliable means in the region to connect with all of the signals to operate the cable television, data, and internet systems. Without the equipment in the Blacks Building, the citizens of Cedar Falls would not have the communications service or would have to pay more for the service.
The equipment in the courthouse makes the connections to the court system, Waterloo City Hall, and the county jail. All of these would have a clear public purpose for the coordination of police services and joint municipal operations. The connection to the television station exists for the sole purpose of a local weather channel. This is a specific benefit to the residents of Cedar Falls.
Since the use of the property of the Cedar Falls Communications Utility is all used for the benefit of the citizens of Cedar Falls, it is tax exempt municipal property. The petition is dismissed.
After adopting and incorporating the ALJ's findings of fact, the Director made the following additional findings of fact (with the Director's citations to the record omitted):
1. Grundy Center, City of Waterloo, Black Hawk County Courthouse, ICN, Covenant Hospital, Allen Hospital, KWWL, Origix-S B tek and VGM Technologies are located outside of the city limits of Cedar Falls.
The ALJ found, in a finding adopted by the Director, that Origix-S B tek is located in the Cedar Falls industrial park, but also found that Origix-S B tek is located outside the City of Cedar Falls.
2. All services provided by the Respondent in the various communities are available from private providers.
3. The Respondent pursued providing services to other communities outside the city limits of Cedar Falls based on the fact that revenues would exceed expenses in the provision of those services.
The testimony cited by the Director in support of this finding states only that in deciding to provide "head-end" service to other communities (presumably the City of Grundy Center and the city offices of the City of Waterloo, as those two are the only two communities identified in the record) CFMU's board of directors did "take into account whether revenue would be in excess of expenses as a result of adding that service."
4. The Respondent provides services, leases line or space to Grundy Center, City of Waterloo, Black Hawk County Courthouse, ICN, Covenant Hospital, Allen Hospital, KWWL, Origix-S B tek and VGM Technologies.
5. The Respondent charges fees or exchanges services with Grundy Center, City of Waterloo, Black Hawk County Courthouse, ICN, Covenant Hospital, Allen Hospital, KWWL, Origix-S B tek and VGM Technologies for the services, leases or space provided by the Respondent.
6. The Respondent has equipment outside the city limits of Cedar Falls which includes, but may not be limited to: fiber; line; OC3 shelving; fiber termination equipment; and "head-in" equipment.
7. The Respondent leases realty outside the city limits of Cedar Falls.
8. The Respondent created a marketing coordinator position whose duties were to market communications.
9. The Respondent attempts to obtain customer[s] through market research and promotions.
10. The Respondent attempt[s] to maximize customers through media such as flyers, television ads, radio ads, billboards, newsletters, and public presentations.
11. Marketing is done to maximize customers by adding new customers and retaining existing customers.
12. The Respondent was not under franchise, but the Respondent's Board of Trustees signed a resolution stating the Respondent would honor the terms of the franchise for the City of Cedar Falls to honor the terms of a competitor to provide service to the City of Cedar Falls.
13. The Respondent provides services only to a portion fo the residents of the City of Cedar Falls and has intentionally excluded certain residents from the city of Cedar Falls from the availability of services.
As one reason for concluding CFMU's outside-the-city property was not "devoted to a public purpose" the agency concluded CFMU failed to uphold the resolution it signed "by not providing services to all of the City of Cedar Falls." The evidence shows that there are only approximately forty to forty-five individual residents CFMU does not reach who are within the city limits. The evidence further clearly shows, however, that under the terms of the franchise agreement by which CFMU by resolution agreed to operate, CFMU is not required to serve these potential customers. Thus, to the extent the agency relied on CFMU's alleged failure to uphold the resolution, it erred.
14. The Respondent operates its business at a loss.
15. The Respondent does not pay any property tax on its plant and equipment.
This finding is merely an acknowledgement of the fact a property tax exemption had been granted, the very basis of the proceeding culminating in this appeal.
In his conclusions of law the Director noted that CFMU had the burden to prove its property was entitled to tax exemption, concluded CFMU had not met its burden to prove the second part of the three-part exemption test (donated to public use) as to its outside-the-city property, found it unnecessary to determine whether CFMU met the third prong (not held for pecuniary profit) as to its outside-the-city property, and ordered that property tax be imposed on CFMU's outside-the-city property.
C. Devoted to Public Use.
Based on the agency's findings of fact and conclusions of law the agency concluded that CFMU's inside-the-city property is devoted to public use, a determination affirmed by the district court on judicial review. It further concluded, however, that CFMU's outside-the-city property was "not devoted for a public purpose." On judicial review the district court reversed in part, concluding the agency erred in reaching this latter conclusion.
By the "agency's findings of fact and conclusions of law" we mean not only the Director's separately-stated findings but also the findings of the ALJ adopted by the Director, and not only the Director's separately-stated conclusions but also the conclusions of the ALJ which the Director implicitly adopted in leaving intact that portion of the ALJ's proposed decision which concluded CFMU's inside-the-city property was exempt from taxation.
The purpose of the Iowa Code section 427.1(2) public use exemption is to free citizens of a municipality from being taxed to pay taxes on their own property. City of Osceola v. Bd. of Review, 490 N.W.2d 539, 542 (Iowa 1992). The test for the "public use" element of section 427.1(2) is "whether the property in dispute is primarily used to carry on `reasonably necessary or essential facilities to the efficient operation and maintenance' of the public use for which the exemption is authorized." Van Buren County Hosp., 650 N.W.2d at 587 (quoting City of Osceola, 490 N.W.2d at 542).
In Van Buren County Hospital the appeal required our supreme court
to determine whether portions of a county hospital used as a medical clinic for physicians and a clinic for specialists, as well as portions of the hospital property used to provide employment placement services and agricultural health and safety instructional courses, were entitled to an exemption from property taxation pursuant to Iowa Code section 427.1[(2)] (1997).
650 N.W.2d at 582. In later discussing the specialty clinic the court stated
Although the specialty clinic is not tied to the future viability of the hospital to the same degree as the physician clinic, it does intimately relate to the ability of the hospital to provide the level of medical care needed in the community. Thus, like the physician clinic, the use of part of the hospital as a specialty clinic combines public and private use. The question turns to whether the private nature of the use is incidental or primary. Id. at 591 (emphasis added).
The original cost of CFMU's outside-the-city property is $187,200.24, which is approximately one and one-half percent of its $11,025,129 investment in its communications utility plant in service. With the exception of this limited amount of outside-the-city property and the services provided for a fee or exchange services to and from the nine locations or entities identified early in this opinion, CFMU's property and activities clearly appear to be devoted to the public use of the residents, businesses, and public entities within the City of Cedar Falls. We find no error in the findings and conclusions of the agency which determined CFMU's inside-the-city property is devoted to public use, or in the district court's conclusions affirming the agency on this issue. Without further elaboration we affirm the district court's affirmance of the agency as to the public use of CFMU's inside-the-city property, and turn our attention to its outside-the-city property.
Here, as in Van Buren County Hospital, all or substantially all of the outside-the-city property is devoted to some public uses. The question is thus whether substantial evidence supports a finding, not made by the agency but necessarily implicit in its ultimate conclusion, that any private nature of the uses of the outside-the-city property is primary rather than incidental. For the following reasons we agree with the district court's conclusion and affirm it on this issue.
We have earlier identified the nine locations or entities to which CFMU provides services for a fee or exchanged services, and noted that only one and one-half percent of CFMU's communications utility plant in service is located outside the City of Cedar Falls. For the following reasons the material facts concerning the outside-the-city property and its functions and uses convince us, as they did the district court, that the agency erred in concluding that any use of the property which is of a private nature is primary rather than incidental to its public use.
None of CFMU's outside-the-city property is used to provide head end services to the City of Grundy Center. The ICN did request that CFMU install fiber optic cable into the City of Waterloo to allow the ICN to serve the National Guard at the Waterloo airport, and a portion of the 36,601 feet of cable installed at a cost of $77,663.19 was necessary to allow the ICN to do so. However, this cable is also devoted to many public uses and those uses dominate. Sartori Hospital, then a municipal hospital in Cedar Falls, requested that CFMU connect it to Allen Hospital in Waterloo. The cable, and connection shelves at Waterloo's Allen Hospital and Covenant Hospital which cost $17,871.27 and $28,783.16 respectively, have been and are being used to connect Cedar Falls physicians and Sartori Hospital staff to Allen Hospital and Covenant Hospital to share information and data. The Blacks Building in Waterloo is the cheapest and best location for CFMU to connect its customers to the internet, and CFMU owns $58,927.13 of equipment in the Blacks Building which serves that purpose. The 36,601 feet of cable to the Allen Hospital is essential to connect the CFMU to the Blacks Building equipment through McLeod cable. As noted by the agency, the 36,601 feet of cable is also used, through a $3,955.49 fiber termination at the Black Hawk County Courthouse, to connect the Cedar Falls police with the local court and its connections to the State judicial and criminal information systems as well as Waterloo City Hall and the Black Hawk County Jail. The cable is also used to connect to television station KWWL to provide current local weather information to Cedar Falls television customers. Finally, the cable link to the ICN links certain Cedar Falls entities such as the University of Northern Iowa, the Cedar Falls library, and the high school to the CFMU and to each other.
We conclude, as the district court did, that the record does not contain substantial evidence in support of a finding that any private nature of the use of CFMU's outside-the-city property is primary rather than incidental to its public uses. Only the high speed data services provided to Origix-S B tek and VGM Technologies appear to be for a purely or primarily private purpose. The very great majority of the remaining uses of almost all of the property is of a public nature. The material facts and overwhelming evidence concerning the outside-the-city property and its functions and uses convince us, as they did the district court, that the agency erred in implicitly concluding that any private nature of the use of such property is primary rather than incidental.
As previously noted, because the parties, agency, and district court have treated all of the outside-the-city property as a unitary whole rather than addressing any separately identifiable items of that property, we have done the same.
D. Not Held for Pecuniary Profit.
1. Inside-the-city property.
The ALJ concluded that CFMU's inside-the-city property was not held for pecuniary profit. The agency on intra-agency appeal affirmed this determination and the district court on judicial review affirmed the agency. On appeal the agency and CFMU seek affirmance of the district court on this issue. Although Westmarc appeals from the district court's ruling, its brief focuses primarily on the second part of the three-part exemption test. Its argument as to the third, "not held for pecuniary profit," part of the test is that because CFMU does not provide services to all residences in Cedar Falls, because some of CFMU's property and services extend beyond the city limits of Cedar Falls, because CFMU hopes revenues from such services will exceed expenses, and because CFMU hopes its revenues will eventually equal or exceed its expenses, the primary purpose of its inside-the-city property is therefore "to provide communication services for the benefit of some private individuals not for all of the residents of Cedar Falls" and such property is therefore held for pecuniary profit. Although this argument may have a bearing on whether CFMU's outside-the-city property is held for pecuniary profit, we believe it has little or no bearing on whether CFMU's inside-the-city property is held for pecuniary profit.
We have previously noted, at footnote 5, the limited number of individual residents not reached by CFMU as well as the fact that CFMU has no obligation to provide services to them.
Upon our review for correction of errors of law we conclude the agency's findings of fact that relate to this issue are fully supported by substantial evidence in the record before the court when that record is viewed as a whole, we find no legal error in the agency's application of law to those findings, and we conclude the agency's action is not shown to be unreasonable or an abuse of discretion. The conclusions we reach on this issue are consistent with those of the district court. We therefore affirm the district court's affirmance of the agency's determination that CFMU's inside-the-city property is not held for pecuniary profit.
2. Outside-the-city property.
On appeal Westmarc asserts the district court erred in reversing the agency's determination that CFMU's outside-the-city property is taxable. Although this portion of Westmarc's brief appears to focus almost entirely on the second, "devoted to public use," part of the three-part exemption test, it might arguably be read as also addressing the third, "not held for pecuniary profit," part of the test. We therefore exercise our discretion in favor of not deeming this issue waived. See Iowa R. App. P. 6.14(1)( c) (Failure in the brief to . . . argue . . . an issue may be deemed waiver of that issue."). For the reason that follows we conclude the district court must be reversed on this issue, but on procedural rather than substantive grounds.
Our courts have a duty to refuse on their own motion to decide controversies that are not properly before them. Campbell v. Iowa Beer Liquor Control Dep't, 366 N.W.2d 574, 576 (Iowa 1985). When ruling in judicial review of agency action cases the district court is acting in an appellate capacity to correct errors of law as specified in Iowa Code section 17A.19(10) (formerly section 17A.19(8)). Anderson v. Iowa Dep't of Human Servs., 368 N.W.2d 104, 107 (Iowa 1985). "Fundamentally, in judicial review proceedings the district court exercises only appellate jurisdiction and has `no original authority to declare the rights of the parties or the applicability of any statute or rule.'" Black v. Univ. of Iowa, 362 N.W.2d 459, 462 (Iowa 1985) (quoting Pub. Employment Relations Bd. v. Stohr, 279 N.W.2d 286, 290 (Iowa 1979)) (emphasis in original).
In its ruling on judicial review the district court reversed the agency on this issue and held that CFMU's outside-the-city property was not held for pecuniary profit. The agency, however had not addressed this issue, concluding that CFMU's "failure to meet the second prong of the test for exemption under Iowa Code section 427.1(2) [as to its outside-the-city property] makes looking at the third prong of the exemption test unnecessary." Westmarc's and CFMU's petitions for judicial review had invoked the district court's appellate jurisdiction, and not its original jurisdiction, and they could not obtain an exercise of original jurisdiction in that appellate proceeding. Campbell, 366 N.W.2d at 577. Having reversed the agency on the second part of the three-part exemption test as to CFMU's outside-the-city property, the district court should have remanded the case to the agency to address the unaddressed third part of the test. See generally Meads v. Iowa Dep't of Social Servs., 366 N.W.2d 555, 559-62 (Iowa 1985) (holding the district court exceeded its authority in deciding issues the agency had not decided, and reversing in part and remanding for the agency to decide those issues).
We conclude the district court should not have addressed and decided this issue, which the agency found it unnecessary to address and decide. We further conclude the district court's decision on this issue must be reversed and the case remanded to the agency to decide whether CFMU's outside-the-city property is not held for pecuniary profit.
IV. Conclusion.
We reverse that portion of the district court's judicial review ruling which held that CFMU's outside-the-city property is not held for pecuniary profit and remand to the agency to decide that issue. In all other respects we affirm the decision of the district court. Costs on appeal are taxed three-fourths to Westmarc and one-fourth to CFMU.