Iowa’s cities win key court battle with rural districts over water rights
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Iowa’s cities have scored a pivotal victory in a long-running legal battle between urban and rural interests over the delivery of water to undeveloped areas of the state.
The matter is still the subject of federal litigation, but last summer a federal judge asked the Iowa Supreme Court to address specific questions of state law that were a central part of the federal case.
The court was asked to rule whether Iowa rural water districts have a legal right to provide water service to areas that are within two miles of the city limits of an Iowa municipality, and whether a rural water district has the legal right to provide water service anywhere within the state of Iowa.
The questions are a key part of the federal litigation between the city of Johnston and the Xenia Rural Water District, which have been fighting for more than two years over the right to provide water service to areas just outside the Johnston city limits.
The city has argued that Iowa’s so-called “two-mile rule” gives it the exclusive right to serve areas just outside the city limits. The water district has argued that federal protections for rural water service allow the district to define its own service territory.
The Iowa League of Cities has advised the courts that their decision on the matter “will directly and immediately affect” development and projects that are now being discussed, or already under construction, throughout Iowa, and would immediately affect their decisions on whether to annex nearby land. For its part, Xenia warned that “the economic viability of the rural water utilities” would be threatened if cities were allowed to encroach on utilities’ service areas.
The city of Johnston operates its own water supply system, and the Xenia Rural Water District is a rural water provider operating in Polk County and other locations. Some portions of a 1,900-acre area that Xenia has wanted to serve are undeveloped or rely on well water. The area the two entities are fighting over includes 550 acres annexed by Johnston in 2018 and a portion of another 1,350 undeveloped acres that Johnston intends to annex.
Johnston has provided water service to portions of that area since 1995, if not earlier. While Xenia has no pipes in the ground or customers there, Xenia and Johnston began negotiating in 2018 over which entity would provide water service there because the U.S. Navy was planning to construct a facility in the area.
In September 2018, negotiations broke down after Johnston offered approximately $1.58 million to Xenia for its rights to serve areas that are more than two miles from the city limits. Xenia then took the matter to federal court, suing the city of Johnston for allegedly depriving Xenia of its rights under the federal law.
The federal court eventually ruled in Xenia’s favor in upholding its right to serve areas more than two miles outside of Johnston, and upholding Johnston’s right to serve the area within two miles of the city limits.
Xenia filed a motion for reconsideration, challenging the federal court’s interpretation of Iowa state law and arguing that the federal court’s decision would “have far-reaching effects” for rural water services throughout Iowa. Xenia also claimed that decades ago, when it reorganized into a rural water district from what was originally a nonprofit corporation, it retained all of the legal rights it possessed as a nonprofit, which included the right provide water service anywhere in the entire state.
Last August, the federal court entered an order that essentially asked the Iowa Supreme Court to provide its interpretation of state law.
On each of the questions put before it, the court ruled in Johnston’s favor. The court found that since 1987, Iowa law has granted cities the primary right to provide water service in areas within two miles of their city limits if they were not already being served by a rural water district.
A rural water district that wants to extend service to such areas must first request the city’s approval, the court ruled. “The two-mile rule was enacted to allow cities room to grow and also to resolve turf battles like this between cities and rural water districts,” the court stated, adding that the federal law “acts as a shield protecting a rural water district’s existing customers, not as a sword to strike down the state’s two-mile rule for new infrastructure.”
In its opinion, the Iowa Supreme Court said “elimination of the two-mile rule would undermine the legal certainty necessary to promote municipal investments in costly infrastructure — pipes in the ground, water towers, pumping stations, and the like.”
It noted that if rural water districts were allowed to capture certain customers already being served by cities, those cities would not be willing to invest in the necessary infrastructure to route water there.
“Creating such a disincentive would undermine the purpose of encouraging rural utility development,” the court stated.
The court also rejected Xenia’s argument that as a nonprofit it was entitled to pipes in the ground and serve water customers anywhere in Iowa, and added that, in any event, the nonprofit ceased to exist once Xenia reorganized as a rural water district.
Although the Iowa Supreme Court has weighed in on the key issues raised by the federal lawsuit, that lawsuit remains active in U.S. District Court. No action has been taken in the case since last August, when the judge referred the questions of state law to the Iowa Supreme Court.
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