The city of Hailey’s planned appeal of a federal bankruptcy court decision that disallows the city from collecting $2.5 million in additional annexation fees from Old Cutters Inc. has drawn criticism from developer John Campbell and his supporters.
The court decision in December also invalidated the city’s requirement that Old Cutters include 20 affordable-housing units in the partly built 108-unit subdivision east of downtown.
Campbell, president of Old Cutters, has circulated a petition that he said he will present to the Hailey City Council next week, asking the city to abandon the appeal because it would stifle development in the subdivision and result in further legal expenses for the city.
“If the city does not appeal, I see only good things going forward for Hailey,” Campbell said in an interview.
He said he has seven commitments to build custom homes in Old Cutters, and expects three more to be finalized next month. He said the construction would inject up to $30 million into the local economy this summer.
Campbell said he plans to initially finance the sales of lots for the homes, which are under contractual agreements for mortgages upon their completion. However, he said that under the approved bankruptcy agreement, unless the appeal is dropped by the city, proceeds from the lot sales will go into escrow for possible payment of annexation fees to Hailey in the future.
“I’m not going to finance these [homes] if the proceeds of sales of the lots wind up in escrow,” he said.
In granting Old Cutters’ motions for summary judgment, federal Judge Jim Pappas called Hailey’s annexation fees of $3.8 million, included in a 2006 annexation agreement, “unquestionably in excess of” the amount required to compensate the city for actual costs resulting from the annexation.
“The city made an agreement it did not have the legal authority to make,” Campbell said. “That’s why it was undone by the judge. If the city had not acted outside its powers, they would have won and I would have lost.”
Hailey City Attorney Ned Williamson said the city would appeal the decision, perhaps by the end of January.
“It’s an extremely important decision,” Williamson said. “If it’s allowed to stand, I believe it will have a significant chilling impact on annexations in the future. Cities will be less likely to annex if an applicant can change the terms of an agreement after the fact.
“I see this as a contract case. It is about the sanctity of a contract.”
Campbell said that if the decision stands, the city would be restricted in the way it charges annexation fees.
“The city will have to go back to doing business the way it used to, charging the developer what it will cost the city, not some random uplifted number,” he said.
Williamson said the appeal would most likely be filed in federal district court, but questions could be asked of the Idaho Supreme Court in the process.
Tony Evans: firstname.lastname@example.org