Winona's controversial 30 percent rule continues to climb the tiers of the state court system. The restriction on rental licenses was argued before a panel of three Minnesota Court of Appeals judges last Thursday. Those judges will decide early next year whether Winona's rule is constitutional or not.
"You never know until you get the opinion" from the judges, but Thursday's hearing was promising for Attorney Anthony Sanders of the property rights group Institute for Justice. "The idea that you can't rent your house out and you go into foreclosure because your neighbor can [rent] – that really strikes everyone who owns a home, because they know they're only a few months away from not making the mortgage," he said.
Sanders is representing several Winona homeowners who were denied rental licenses by the city's 2005 rule that bars new rental licenses after 30 percent of the homes in a given block are licensed. One of those homeowners, Ethan Dean, says he nearly lost his house when he returned from a military tour of duty and wound up selling his house for tens of thousands less than it would have been worth with a rental license.
Supporters of the 30 percent rule say that it has preserved property values in central Winona, where student rentals might otherwise edge out stately family homes. The rule gives more stability to these neighborhoods, encouraging homeowners to invest in their properties by eliminating the fear that their block might fill up with rentals, they argue.
"We don't disagree that those are legitimate goals," but the rule the city used to promote those goals is unconstitutional, said Sanders. As in the district hearing, the Institute for Justice attacked the rule on three fronts: first, that is an unfair usurpation of property rights protected in the Constitution; second, that drawing the line at 30 percent is purely arbitrary and lacks a fair legal basis; and thirdly, that the rule violates due process by giving a minority of property owners within a block the power to determine whether or not their neighbors are able to receive rental licenses. Under the 30 percent rule, "your block is a little mini-republic where a minority of your neighbors can block you from getting a license" by getting one themselves, Sanders explained.
The attorney representing the city, George C. Hoff, also expressed confidence the judges were swayed by his argument in favor of the city's policy making.
Winona's 30 percent rule has become seminal in Minnesota municipal governments, with Mankato and Northfield following Winona's 30 percent lead, and West St. Paul enacting a 10 percent rule. "The court realizes that this is an issue that affects the entire state," Sanders said.
Last year, as the case went from district to appeals courts, the city tripled its budget for legal representation in such lawsuits. The city initially budgeted $60,000 for such legal fees in 2013, on par with spending in recent years, but the budget had to be increased to $180,000.
"Why was it so large this year?" asked Mayor Mark Peterson in a budget meeting this fall. City Manager Judy Bodway explained that the lawsuit reserve had to be tripled for the 30 percent rule case.
Sanders said not to expect the Court of Appeals ruling to be the end of the issue. Whichever side wins, he expects the case to go the Minnesota Supreme Court.