CHICAGO -- A district court judge has ruled against antigambling activists who contended that the Polk County, Iowa, Board of Supervisors was illegally paying debt service on $40 million of bonds issued to finance a horse racing track.
One of the plaintiffs, Paul Stanfield, said the ruling will be appealed to the Iowa Supreme Court.
The activists' class action lawsuit, filed last July by Mr. Stanfield and Marilee Reetz on behalf of all Polk County taxpayers, sought to void a lease-purchase agreement between the county and the Racing Association of Central Iowa, owner of Prairie Meadows racetrack near Des Moines.
The lawsuit claimed the lease-purchase agreement violated state law prohibiting a government unit from pledging its taxing powers to pay debt service on industrial revenue bonds issued for the benefit of a private entity.
"We think, in effect, the lease-purchase agreement constitutes a general obligation debt of the county, in violation of the law," Mr. Stanfield said.
In addition, the lawsuit contended that loans that have been made by the county to offset the track's operating deficits were a violation of the state constitution's prohibition on government units assuming liabilities of private corporations.
However, Polk County District Court Judge Richard Mohr ruled last Friday that payments made by the county to the racing association under the lease-purchase agreement are considered track revenues and are appropriate for use in paying debt service on the bonds. He added that the lease-purchase agreement did not constitute indebtedness of the county under Iowa law.
Judge Mohr concluded that the loans made to the track were legal under an Iowa law that allows such loans to promote economic development.
"Those who disagree with the supervisors' judgment in this regard find their remedy at the polling place, not in the courts," the judge wrote.
Mr. Stanfield maintained that the court took too narrow a view of the legal issues involved. "We think it's a very appealable decision," he said.
The plaintiffs must appeal the decision to the Iowa Supreme Court within 30 working days of last Friday's ruling. Mr. Stanfield said they would do so.
The track was built in 1984, after the county issued $40 million of industrial revenue bonds on behalf of the racing association. The bonds had a one-year maturity, and the proceeds were placed in escrow.
In 1986, after efforts to remarket the bonds with a longer maturity date failed, the board of supervisors entered into the lease-purchase agreement with the racing association to provide additional security for the bonds, said James Koolhof, Polk County comptroller.
The agreement states the county's annual lease payment will consist of the difference between the annual $3.9 million debt service payment and track revenues derived from a 6% state wager tax dedicated to debt service on the bonds.
Mr. Koolhof said the county's lease payment due this November will be about $1.5 million. He added that the total loans and net lease payments made to the track so far amount to $8.15 million.