In Re the Denial of Eller Media Company's Applications for Outdoor Advertising Device Permits in the City of Mounds View ( 2003 )

OPINION

BLATZ, Chief Justice.

Appellant Minnesota Department of Transportation denied Respondent Eller Media Company’s application for six permits to construct revenue-generating billboards on a municipally owned golf course in the City of Mounds View. The denial was based on a determination that the locations requested were not suitable under the Minnesota Outdoor Advertising Control Act. Following a contested cáse hearing, an administrative law judge reversed that determination and recommended issuance of the permits. Pursuant to Minn.Stat. § 14.63 (2002), the Minnesota Department of Transportation (MNDOT) filed exceptions to that decision, and all parties requested oral argument before the Commissioner of MNDOT (commissioner). The commissioner denied the application for permits.¹ Eller Media and Mounds View appealed, and the court of appeals reversed and directed MNDOT to issue the requested permits. Because we conclude that the commissioner’s denial was supported by substantial evidence, we reverse the court of appeals and reinstate the commissioner’s findings of fact, conclusions of law, and order denying the permits.

In 1982, Mounds View adopted a comprehensive zoning plan. The comprehensive plan did not allow for billboards in any of the city’s zoning districts. In 1984, the large majority of city-owned property was rezoned into Public Facilities (PF) districts. As defined by Mounds View, the purpose of a PF district was “to provide for land areas, waterways and water areas owned, controlled, regulated, used or proposed to be used by the City.” Mounds View, Minn., Mounds View Zoning Code § 1118.01 (2000). Permitted uses in the district were limited to:

□ public buildings and uses

□ public parks, playgrounds, athletic fields, parking areas, and golf courses

□ public sewers, water lines and water storage areas

□ public streets, easements and other public ways, highways and thoroughfares

□ treatment and pumping facilities and other public utility and public service facilities.

Id. at § 1118.02. A portion of city-owned property that would later become part of the golf course inadvertently remained zoned “Industrial” (I).

In 1988, the State of Minnesota conveyed land to the City of Mounds View via a quitclaim deed. The deed contained a provision that the property deeded would revert to the state if it was not used by Mounds View for a public purpose. At the time the land was conveyed, the state property was zoned as a Conservancy, Recreation, and Preservation (CRP) district. On this property Mounds View opened a municipal golf course, The Bridges, in 1995. The property was located north of Highway 10 and was financed by a revenue bond in the amount of $3,090,000. Although the golf course was profitable, it was unable to make its full debt payment in 1998 and 1999, necessitating the use of general fund revenue to supplement golf course revenue.

As established in the record, when The Bridges was developed it was similar to for-profit golf courses in Minnesota. Its golf fees were equal to or higher than comparable area golf courses and it was advertised as a “scenic executive length course in [a] nature park setting.” Pictures included in the advertisements typically showed picturesque tree-lined views and one of the signature bridges giving the course its name. One of the main purposes of the golf course, as adduced by the ALJ at the contested case proceeding, was to be a revenue producer for Mounds View. Golf course revenues were kept separate from general city funds.

Following difficulty with making bond payments solely from golf course revenue, Mounds View began consideration of whether to allow billboards on the golf course. The Mounds View City Council first discussed this possibility at the March 8, 1999 city council meeting. The minutes of that meeting note that revenue from the billboards could offset the bond payments and reflect the city council’s view that “some type of zoning action from the planning commission would likely be necessary” to allow billboards on the golf course property.

At the May 10, 1999 city council meeting, one council member mistakenly reported that the golf course was in a PF district rather than its correct location, a CRP district. The city council minutes note that the PF district “requires a MNDOT permit to erect billboards [b]ut generally, MNDOT only approves permits if located in a commercial or industrial district. So a Code amendment would be needed to obtain a permit from MNDOT.”

Several months later, at the September 13, 1999 meeting, a member of the planning commission reported that the planning commission had researched the billboard proposal. The planning commission discovered that Mounds View’s current sign code did not allow any signage within the PF or CRP districts. In apparent response to the planning commission’s concerns, the Mounds View City Attorney stated that if the code was amended, the city could place billboards on the golf course and still remain within the “public purpose” restriction of the granting deed. Finally, one council member stated that any ordinance allowing billboards should include a provision for the removal of the billboards once the bonds were paid off.

In order to facilitate the placement of billboards on the golf course property, a series of ordinances were introduced to amend the city code. On September 13, 1999, Mounds View had a public hearing and first reading of Ordinance 637. Ordinance 637 sought to amend the city code to allow signage, including billboards, within the CRP and PF zoning districts. Similarly, the first reading of Ordinance 644, which created a limited-use district along Highway 10 where billboards would be permitted, occurred at a November 22, 1999 meeting. In discussing this second proposed ordinance, a planning commission member stated that portions of the golf course were zoned CRP and PF, and the current ordinance would not allow any signage in those districts. He further noted that billboards were not allowed in any district in Mounds View² and that the planning commission had unanimously approved a resolution recommending that the city council deny Ordinance 644 for the following reasons:

1. Large billboard signs are not appropriate uses of property within CRP and PF zoning districts. These districts are intended to provide recreational opportunities, open space and protect the natural environment where possible. Large advertising signs are not consistent with that intent and are more appropriate to commercial and industrial zoning districts.

2. Large billboard signs can be visually distractive * * ⅜.

3. The City Attorney has advised city staff that the city cannot limit billboards to city-owned properties only.

4. A permit will be required from the State of Minnesota to locate billboards along state and federal highways. State statutes restrict such signs to commercial and industrial zoning districts only. The contemplated sites for additional billboards are not zoned commercial or industrial.

The city council, recognizing that Mounds View was faced with “escalating bond payments,” approved the first reading of Ordinance 644, creating the limited use district along Highway 10.

A second reading of the same ordinance, now amended to include an automatic termination date for the billboards at the bond payoff date, was approved at the December 13, 1999 meeting. Before voting for adoption of the ordinance, the may- or explained that the billboards were for “the specific purpose of raising additional revenues for the period of time during which the bonds are outstanding.” Some city council members voiced concern about the existence of billboards after the bonds were paid off. In deference to the concern raised, the city attorney explained that the city council could allow billboards as an interim use only, and require that the use expire after fifteen years or upon the expiration of the lease, whichever occurred sooner. One council member spoke in opposition to the billboards, noting that Mounds View was “doing well in eliminating the billboard located on the Rent All facility on Highway 10, and the city was attempting to eliminate the billboard located across the street from City Hall.”³

After the final approval of the limited-use ordinance, Mounds View solicited proposals for billboards on the golf course. In January 2000, Eller Media submitted a proposal to Mounds View and at the February 14 city council meeting, a motion passed to authorize staff to negotiate an agreement with Eller. At the same meeting, the city council again considered Ordinance No. 637. Ordinance No. 637, as originally introduced, proposed to permit billboards in the PF and CRP districts. During the course of the meeting, the ordinance was amended to allow billboards in Planned Unit Development (PUD) districts. The amendment was made at the urging of the city attorney, who advised that the addition of the PUD district was needed to ensure that Mounds View “was not singularly zoning one piece of property, in order to avoid concerns regarding ‘spot zoning.’” In addition to Ordinance 637, Ordinance 644 — which limited the billboards to the area north of Highway 10 where the golf course was located — was also finally adopted.

A third ordinance, No. 665, was discussed and adopted at the March 27, 2000 city council meeting. That ordinance rezoned the golf course from a mixture of I-1 (an industrial zone designation) and CRP zones to PF. The minutes of various city council meetings reflects that throughout the discussion regarding billboards, council members had been mistakenly assuming that at least a portion of the golf course was zoned PF in addition to the CRP.⁴ This mistake required an ordinance that effectuated the rezoning of the golf course in its entirety to PF. Ordinance 655 expressly stated that Mounds View had determined that the previous “zoning classification of certain parcels associated with [T]he Bridges Golf Course [were] inconsistent with the zoning code and the proposed Comprehensive Plan.”

The city council minutes of March 27, 2000, reflect that council members discussed the outstanding debt on the golf course ($3.1 million) and the potential revenue from 15 years of billboards ($5 million). At that same meeting, the city council passed two additional ordinances authorizing Mounds View to require and to issue interim permits for billboards. The city council also approved an interim use permit for Eller Media’s proposed billboards on the golf course.

In May 2000, Eller Media submitted six permit applications to Michael Constant, the MNDOT employee in charge of advertising control for the west metro area. The application requested permits for installation of billboards in the Mounds View PF district that now encompassed the whole of the golf course. On June 9, 2000, Constant denied Eller Media’s applications for billboard permits on the basis that the proposed billboard locations did “not meet the requirements of the Minnesota Outdoor Advertising Control Act.” No further explanation was given.

Eller Media challenged the denial of the permits in a contested case proceeding before an administrative law judge (ALJ). Mounds View formally intervened in the proceeding. In contrast to MNDOT’s initial determination, the ALJ recommended that the permits be issued. The ALJ’s report was submitted to the Commissioner of MNDOT. Following submission of arguments, the commissioner denied the permits on three separate legal bases: (1) the zoning actions undertaken by Mounds View were “spot zoning” — that is, done primarily to permit billboards, and were therefore not recognized as legitimate under 23 C.F.R. § 750.708(b); (2) to the extent that the operation of the municipal golf course could be considered commercial, it was an incidental use of Mounds View’s PF zone, and therefore the signs were barred under 23 C.F.R. § 750.708(d); and (3) the PF-zoned golf course area was not a “business area” under Minn.Stat. § 173.08, subd. 1(8) and § 173.02, subd. 17 (2002) and therefore billboards were not allowed under state law.

Eller and Mounds View appealed. The court of appeals held that the commissioner had erred and that the golf course area was indeed a' business area under Minnesota’s statutory scheme, and that MNDOT had misinterpreted federal law controlling billboards. In re Eller Media Company’s Applications for Outdoor Advertising Device Permits, 642 N.W.2d 492, 500 (Minn.App.2002). Accordingly, the court of appeals directed MNDOT to issue the requested permits. Id. at 504. MNDOT petitioned this court for review.

This case presents us with the issue of whether a municipally owned golf course located in a public facilities zone can be considered a “business area” — a district most appropriate for commerce or industry — under Minn.Stat. § 173.08, subd. 1(8). Here, although the ALJ decided that the public facilities district was a business area, the commissioner concluded that it was not.

A. Standard of Review

Review of agency decisions following a contested case hearing is governed by Minn.Stat. § 14.69 (2002). The ALJ’s report is ordinarily not binding on the agency. City of Moorhead v. Minnesota Pub. Utils. Comm’n, 343 N.W.2d 843, 847 (Minn.1984) (quoting Hymanson v. City of St. Paul, 329 N.W.2d 324, 326-27 (Minn.1983)). Although the decision of the ALJ is entitled to some weight, the ALJ is subordinate to the agency. Id. As an ALJ takes no power away from the agency, the agency has the authority to reverse factual determinations made by an ALJ. Id.

Upon review, our court must exercise judicial restraint, lest we substitute our judgment for that of the agency. In re Excess Surplus Status of Blue Cross and Blue Shield of Minnesota, 624 N.W.2d 264, 277 (Minn.2001) (citation omitted). We will not disturb an agency’s decision as long as the agency’s determination has adequate support in the record as required by the substantial evidence test. See City of Moorhead, 343 N.W.2d at 847. The substantial evidence test is satisfied when there is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Matter of Request of Interstate Power Co. for Authority to Change its Rates for Gas Service in Minnesota, 574 N.W.2d 408, 415 (Minn.1998) (citation omitted). We retain the authority to review de novo errors of law which arise when an agency decision is based upon the meaning of words in a statute. See St. Otto’s Home v. Minn. Dept. of Human Services, 437 N.W.2d 35, 39-40 (Minn.1989).

B. The Federal Highway Beautification Act and Minnesota’s Outdoor Advertising Act

The Federal Highway Beautification Act (FHBA) provides for control of the installation and maintenance of outdoor advertising signs in areas adjacent to the interstate and primary highway systems. 23 U.S.C. § 131(a) (2000). The purposes of the FHBA are to protect the public investment in highways, to promote the safety and recreational value of public travel, and to preserve natural beauty. Id. The Minnesota Outdoor Advertising Control Act, Minn.Stat. § 173 (Minnesota Act), is similarly designed to accomplish the purposes set forth in the FHBA and to bring the state in compliance with federal law. Minn.Stat. § 173.01 (2002). The Minnesota Act restricts outdoor advertising devices to those areas where “business and commercial activities are conducted.” Id. Thus, relevant to our analysis in this case is the following definition of a business area, set forth in section 173.02, subd. 17: “[A]ny part of an adjacent area which is (a) zoned for business, industrial, or commercial activities * * MinmStat. § 173.02, subd. 17 (2002).

The Minnesota Act also requires the commissioner to comply with federal law, rules, and regulations relating to billboard control. Minn.Stat. § 173.185 (2002).⁵ Accordingly, Minnesota’s laws are interpreted in conjunction with the federal laws they were enacted to implement. The FHBA defines commercial and industrial zones as “those districts established by the zoning authorities as being most appropriate for commerce, industry, or trade, regardless of how labeled.” 23 C.F.R. § 750.703(a). It also prohibits what is commonly termed “spot zoning,” or zoning that is not part of a comprehensive zoning plan and is done primarily to permit outdoor advertising. 23 C.F.R. § 750.708(a). Further, the FHBA makes clear that if a zone is one in which limited commercial or industrial activities are permitted merely as incidental to a primary, noncommercial/industrial land use, the zone will not be considered a commercial or industrial zone for outdoor advertising control purposes. 23 C.F.R. § 750.708(d). Aside from these limitations, the States retain full authority to zone areas for commercial or industrial purposes. 23 U.S.C. § 131(d).

C. Zoning and the City of Mounds View’s Comprehensive Plan

A zoning statute or ordinance is one which, by definition, regulates the building development and uses of property. Orme v. Atlas Gas & Oil Co., 217 Minn. 27, 13 N.W.2d 757, 761 (1944). Municipalities use zoning to regulate land use particularly because it is impractical to deal with each use made of land and buildings. McQuillin Mun Corp § 25.07 (3rd ed.2000). ' Therefore, the creation of districts or zones and the classification of those districts is a vital part of any zoning plan. See State ex rel. Berndt v. Iten, 259 Minn. 77, 81, 106 N.W.2d 366, 369 (1960) (citations omitted). These districts serve the paramount purpose of encouraging the most appropriate use of land. See Village of Euclid, Ohio v. Ambler Realty Co., 272 U.S. 365, 388, 47 S.Ct. 114, 71 L.Ed. 303 (1926) (noting no serious difference of opinion exists regarding validity of laws designed to minimize dangers of fire, overcrowding, and collapse, and necessity of excluding offensive trades from residential districts); Iten, 106 N.W.2d at 369 (observing that it is not unreasonable for a legislative body to assume that separation of the commercial and residential areas would insure better use of municipal services) (citation omitted).

Mounds View’s comprehensive plan creates a number of districts, including several business districts, a CRP district, a PF district, and others not relevant to our consideration here. In establishing such districts, Mounds View executed the policies and goals underlying its comprehensive land plan. See SuperAmerica Group, Inc., a Div. of Ashland Oil, Inc. v. City of Little Canada, 539 N.W.2d 264, 266-67 (Minn.App.1995); Minn.Stat. § 462.357, subd. 1 (2002). The various sections of the comprehensive plan are to be construed together, as they relate to the same subject matter and to each other. Chanhassen Estates Residents Ass’n v. City of Chanhassen, 342 N.W.2d 335, 339 (Minn.1984).

Mounds View’s designation of business and commercial districts and the uses assigned therein must be viewed with an eye toward the federal and state laws prohibiting the placement of billboards in areas not considered primarily business or commercial in nature. Here, Mounds View has established several types of business districts, allowing such diverse uses as grocery stores, motels, restaurants, boat sales, bowling alleys, and department stores. Mounds View’s comprehensive plan states that the purpose of the business districts is to provide for the establishment of various types of commercial and service activities.

In contrast, Mounds View’s comprehensive plan establishes that in the PF district, where the golf course is located, only the following uses are permitted:

• public buildings and uses

• public parks, playgrounds, athletic fields, parking areas, and golf courses

• public sewers, water lines, and water storage areas

• public streets, easements, and other public ways, highways, and thoroughfares

• treatment and pumping facilities and other public utility and public service facilities.

Further, unlike the business districts, the PF district has an explicitly stated public purpose: to provide for land areas, waterways, and water areas owned, regulated, or controlled by the city. Distinctions between municipal and private property are a reasonable basis for zoning districts. See McCarter v. Beckwith, 247 A.D. 289, 285 N.Y.S. 151, 154 (1936); McQuillin Mun Corp § 25.123 (3rd. ed.2000).

Eller Media and Mounds View argue, correctly, that municipalities are statutorily authorized to engage in proprietary activities. See, e.g., Southern Minnesota Mun. Power Agency v. Boyne 578 N.W.2d 362, 364-65 (Minn.1998) (holding that legislature granted a municipal entity authority to run a utility like a private corporation). They further contend that a wide variety of activities are conducted in the PF zone, including operation of a water treatment plant, a city office complex, a water tower and golf course. This fact, in conjunction with the fact that the properties surrounding the golf course are in districts zoned industrial, warehouse, or office park, lead Eller Media and Mounds View to the conclusion that the PF district is zoned for business or commercial activities within the meaning of Minn.Stat. § 173.02, subd. 9. Finally, they contend that the PF zone is a district established as “most appropriate for commerce, industry, or trade” within the meaning of 23 C.F.R. § 750.703(a).

In drawing these conclusions, it is apparent that Eller Media and Mounds View rely on the uses of the area surrounding the PF district to inform their argument as to what should be allowed within the PF district. There is simply no support in zoning law for such a contention. Similar characteristics in adjacent and surrounding areas do not require that adjoining territories be zoned the same. Lockard v. City of Los Angeles, 33 Cal.2d 453, 202 P.2d 38, 45 (1949); cf. Geneva Inv. Co. v. City of St. Louis, 87 F.2d 83, 91 (8th Cir.1937) (holding that property in restricted area adjoining property in less-restricted area did not render the ordinance invalid), cert. denied 301 U.S. 692, 57 S.Ct. 795, 81 L.Ed. 1348 (1937). Attenuating their argument even further is the fact that much of the area that Mounds View and Eller Media direct us to consider is located in the City of Blaine, not Mounds View. As such, its character and zoning cannot be considered as relevant here, particularly as Mounds View would have had no authority to direct the zoning in a neighboring community. See, e.g. Cummings v. Lawson, 28 Or.App. 573, 559 P.2d 1316, 1317 (1977) (regarding zoning, any act by city beyond its jurisdiction has no effect and does not preclude other governmental bodies from exercising jurisdiction over the project). To conclude otherwise would eviscerate the very power given to elected municipal officials to govern within their jurisdiction and could create a domiiio effect with one governing body’s decisions affecting the zoning decisions in neighboring communities. This is neither the law nor sound public policy.

Finally, the mere fact that under Mounds View’s zoning scheme golf courses are permitted uses in both the PF and business districts does not render the PF district a commercial district.⁶ Indeed, golf courses are permitted in residential districts of most municipalities. See 3 Kenneth H. Young, Anderson’s American Law of Zoning § 17.30 (4th rev. ed.1996). For example, the city of New York permits golf courses in both residential and commercial zones. Id. That golf courses and residential homes may be compatible uses in a residential district does not support a conclusion that a residential district is a district zoned as “most appropriate” for commerce. This, however, is the analytical approach that is being urged upon our court in reference to Mounds View’s PF district.⁷

In summary,, we are cognizant that the overriding purpose of land use in Mounds View’s PF districts is the public character of the land use and dedication to public needs and access. The commissioner recognized as much in finding that the PF zone was not a business area, noting that merely by creating a PF district separate and distinct from that of commercial zones, “the city has recognized a difference between areas zoned for business and areas zoned for public purposes.” In the commissioner’s view, Mounds View “clearly knew how to zone for business, commercial and industrial areas and had specifically done so” in its comprehensive plan.

Accordingly, we presume that the comprehensive plan reflects the underlying policies and goals of the City of Mounds View. We further read the comprehensive plan and give each zoning district meaning. When we do so, it is clear that, by specifically designating a public facilities zone, Mounds View intended to make that district distinct from its business district. As such, the contention that the PF zone is “most appropriate” for business fails. Indeed, Mounds View’s and Eller Media’s attempt to frame the PF zone as a “business area” also fails under the Minnesota “zoned for business, industrial, or commercial activities” test.⁸

For the foregoing reasons, we reverse the decision of the court of appeals and hold that Mounds View’s public facilities district, a district that by definition designates municipal land for public use, can be considered neither a “business area” under Minnesota law nor a district “most appropriate for commerce, industry, or trade” under federal law. It is thus impermissible for Mounds View to place billboards upon the golf course property located in the public facilities zone.

Reversed.

1 . Here, the deputy commissioner was acting on behalf of the commissioner and will be referred to as the commissioner throughout this opinion. Pursuant to Minn.Stat. § 15.06, subd. 7, a deputy commissioner of MNDOT has "all the powers and authority of the commissioner unless the commissioner directs otherwise, and shall speak for the commissioner within and without the department or agency.” Minn.Stat. § 15.06, subd. 7 (2002).

2 . While Mounds View does not allow billboards in any zoning district, it does allow smaller signs in various districts. For example, residential districts may contain small signs related to the sale or lease of property, business districts may have signs no greater than 100 square feet total, and light industrial districts may have a pedestal sign not larger than 340 square feet. As noted above, the CRP and PF districts do not allow for any signs.

3 . The record does not provide additional information on these billboards. Presumably, they were in existence prior to the passage of laws restricting such signage and, as such, were grandfathered in.

4 . The genesis of this mistake appears to be rooted in the original rezoning of all city property to PF districts. This original rezoning apparently unintentionally omitted a piece of property upon which The Bridges became partially located and that was, at the time of rezoning, zoned I — 1.

5 . Minnesota Statute § 173.185 reads, in relevant part: "The commissioner of transportation shall comply with federal law and federal rules and regulations relating to billboard control on the interstate and primary systems

6 . Minnesota Statute § 173.02, subd. 17 defines a business area as one "zoned for business, industrial, or commercial activities.” The legislature's concern that a location be "zoned” for commerce plainly contemplates that there is, or realistically will be, sufficient commerce such that a local government would take steps to zone it accordingly, thereby providing for commercial development as a matter of right. Viewing the city’s proprietary activity on an isolated parcel of city property located in a public facilities zone as commercial zoning is clearly inconsistent not only with the outdoor advertising control law but also with the city's comprehensive plan.

7 . We are troubled by the dissent’s concern that comprehensive plans that allow for park-lands, golf courses, and open spaces in areas surrounded by businesses would compromise the goal of "utility in commercial and industrial areas.” Governing bodies have the right to meet the desires of their citizens for beauty and space — even in cities. To suggest otherwise is not only alarming but ignores the recent trend in municipal land use development. See, e.g., John T. Marshall, The Property Rights Movement and Historic Preservation in Florida: The Impact of the Bert J. Harris, Jr. Private Property Protection Act, 8 U. Fla. J.L. & Pub. Pol’y 283, 304 (1997) (discussing amendments to Florida’s comprehensive plan and noting that municipalities must ensure protection for natural resources, fight urban sprawl, and include a "future land use plan” sympathetic to both artificial and natural surroundings).

8 . We are also not persuaded by Mounds View's and Eller Media’s two arguments that because MNDOT permits have been issued to other governmental agencies and for a billboard located on a golf course located in the PF zone in the City of Eagan, a permit should issue here. First, the issue is not whether a governmental agency can be given a billboard permit. Rather, it is whether the zoning district properly allows for billboards. Secondly, the legality of the Eagan permit was never litigated and therefore never before an appellate court for review. Further, as set forth in MNDOT’s brief, the uses allowed in Eagan’s PF zone are different than those allowed in Mounds View’s PF zone. Finally, MNDOT has acknowledged that the Eagan permit may have been improvidently issued.