Iowa Supreme Court Affirms Only the Benefit of Drainage System Repair Pertinent in Reclassification, not the Cost

The case is Union Pacific Railroad Co. v. Drainage District 67 Bd. of Trustees, No. 20-0814 (Iowa Sup. Ct. May 6, 2022).

On May 6, 2022, the Iowa Supreme Court affirmed that a drainage district improperly reclassified the benefits of a drainage tile repair project. A reclassification commission assessed the benefits conferred upon the railroad company at 100 percent because compliance with federal railroad safety regulations essentially doubled the cost of the project. The Court determined that only the benefit of the drainage repair project, not its cost, could be considered during reclassification.

Background

More than 100 years ago, a railroad company built a railway within a drainage district. The drainage district originally assessed the railroad a 5.81 percent benefit rate from the tiling system. In 2018, the district learned that the tile system needed substantial repairs. The district determined that compliance with federal safety regulations preventing erosion at the railroad crossing could double the overall cost of the repair project.

Finding that the original assessment would result in “painfully large assessments” against some agricultural landowners, the district appointed a commission to reclassify the benefits received by each tract of land. Finding that one-half of the costs of the repair were due to the federal safety requirements and that the railroad received all of the benefits of this compliance, the commission apportioned 100 percent of the costs of compliance against the railroad.

The railroad objected, claiming that the commission erroneously based its decision on the cost of the repair instead of the benefits of the repair. The drainage district approved the reclassification, and the railroad appealed to the district court. The district court granted the railroad’s motion for summary judgment, finding that the commission based its reclassification of benefit decision “on matters which were not benefits or were otherwise not proper subjects of consideration in making the reclassification….” The Iowa Court of Appeals affirmed, holding that the cost of compliance was not a relevant factor when assessing drainage costs. The Court of Appeals ordered the railroad company’s property to be assessed at the original 5.81 percent benefit rate. The Supreme Court granted the drainage district’s request for further review.

Costs and Expenses v. Benefits

To pay for a repair in a drainage district, the district will assess costs to the landowners in the district proportionally according to the benefit each parcel receives from the drainage system. See Iowa Code § 468.67. If the current assessment is “generally inequitable,” the drainage district must order a reclassification based on the benefits attributable to the drainage system repair. Consequently, the land receiving the most benefit receives the highest assessment. Fulton v. Sherman, 238 N.W. 88, 90 (Iowa 1931) (emphasis added).

The Court determined that “benefits” and “costs and expenses” are two different concepts. When a classification commission makes a report on the benefits to a railroad company “[a]ny specific benefit other than those derived from the drainage to agricultural lands shall be separately stated.” Iowa Code § 468.44. Additionally, the reclassification commission must consider the “benefits of any character.” Iowa Code § 468.65. The cost of construction, however, is not the equivalent of a benefit. See Polluck v. Board of Sup’rs, 138 N.W. 415, 416 (Iowa 1912).

The benefit of the repair may be based on factors such as “the mileage of railroad tracks in the district, the past flood damage, the anticipated flood damage if the channel has not been improved, the interruption of the train traffic, and the costs of rerouting because of floods.” Cost savings is different from the costs of a repair. Cost savings arising because of a repair could be a benefit. The cost of the repair itself could not. 

Special Benefits

The Court next determined whether the railroad received a special benefit from the repair. Here, the railroad company benefitted from the diversion of water. It did not benefit from the high costs of repair. Any additional advantage, such as compliance with federal regulation, is a “necessary incident,” not a new or special benefit.

Lastly, the drainage district argued that by affirming the district court’s ruling, the railroad company had “carte blanche to demand whatever specifications they believe are necessary.” The Court rejected this argument, finding that the drainage district could only consider the benefits of the repair to the railroad company. This did not allow the railroad to demand specific repairs.

The Court affirmed that the drainage district improperly reclassified the benefits of the repair project. Although the Court of Appeals concluded that the railroad be assessed at the original 5.81 percent benefit rate, the Supreme Court determined that the drainage district could order a reclassification as long as it properly considers the benefits, not the costs, to each property.