Local, TABOR, Taxes, Weld County

Colorado’s debt-laden metro districts need a dose of sunshine

Quick. If you are a Coloradan, what is a metro district, and do you own property in one? An even trickier question is how much debt you may have incurred on behalf of one. If you don’t know, you’re probably not alone and you may not even know where to look. The dramatic rise in metro districts — 86 percent in the last 20 years — along with little oversight has increasingly led to concerns over transparency, rising debt levels, violations of Colorado’s Taxpayer’s Bill of Rights (TABOR), and the holding of elections. Now may be the time for reform.

Created by state statute in 1973, metropolitan (metro) districts are special taxing districts that serve more than one purpose. They are functionally similar to special districts, which are a subset of local government designed to provide one specific purpose. Metro districts, on the other hand, serve two or more purposes. Some are also considered to be development districts, to provide extra funding for housing and other development projects.

We here at Independence Institute did some math, and the numbers are pretty alarming. The state’s 1,633 metro districts have a combined debt of well over $19 billion. That comes out to roughly $3,500 for every man, woman, and child in the state. For those paying the bills, the debt per taxpayer is closer to $10,200. To put that $19 billion into perspective, Colorado state government’s General Fund revenue is expected to be only $12.2 billion in fiscal year 2018.

But the debt is not evenly shared because metro districts are not spread evenly across the state. Municipal residents are more likely to be burdened with a significantly higher portion of debt. Some have more than $100 million in debt, like Sand Hills Metro District in Weld County in northeast Colorado.

Sand Hills is actually the poster child for the dangers of metro districts. It currently has $319 million in long-term debt, and is in bankruptcy court. It has not held a proper election since 2012, and has had less than the required 5 board members for a few years. Additionally, all board members are also members of the same development company. These board members are currently embroiled in a corruption lawsuit regarding their investments in metro districts. Allegedly, this company used districts like Sand Hills as collateral to finance their own private development projects.

Another problem is that districts are given a certain limit to how much debt they may issue, known as debt authorization. Think of it as a very high limit on a long-term credit card. For 126 out of the 1,633 districts, this number is well over $1 billion.

In Colorado, the Taxpayer’s Bill of Rights (TABOR) amendment requires a public vote to increase taxes or debt; in other words, governments must ask permission first.  But metro districts have found a clever way around obtaining meaningful consent.  Many districts have multiple subsections, usually labeled as (District Name) 2, 3, 4, etc. These extra districts have no function but to levy extra taxes and transfer them back to the main district. Each individual district is technically within TABOR regulations, but the total district expenditure is increased without the consent of all district voters.

A structural issue with metro districts is that those charged with oversight sometimes have a vested interest in increasing debt and expenditures. As mentioned above, Sand Hills Metro has four out of four board members coming from the same development company, and this is unfortunately not out of the ordinary. In these cases, it seems like the fox is guarding the henhouse.

There is no question that some communities use metro districts in a positive manner. For example, the town of Johnstown in northern Colorado used a metro district to finance a new housing development, reducing housing prices and encouraging home ownership. Even then, however, there is the downside of significantly higher property taxes than those outside the district. The mayor of Johnstown pointed out that you don’t have to live under a metro district. “If you don’t want to be in a metro district, don’t move there.” However, the sheer number of metro districts in the state makes that easier said than done.

If the board of a district is reasonable, responsible, and transparent, then taxpayers can have some faith in the district. However, if that isn’t the case, what remedy exists for those in that kind of district?

According to Colorado state statute, the Department of Local Affairs (DOLA) is tasked with metro district oversight. However, in reality DOLA’s main function is as the repository of financial documents and election information submitted by districts, and to make the information available online. They do not have the power to enforce compliance with Title 32 (the statute creating and regulating special districts), and in fact, no one does.

In some cases, this has created a kind of regulatory Wild West, in which there is very little oversight, and the oversight that does exist is essentially toothless. Some districts do not submit their financial data in a timely manner. Others don’t submit data at all and are not penalized, which makes it very difficult for potential homebuyers to stay fully informed.

Rising debt, possible corruption cases, and lack of checks and balances are all concerning problems, but they don’t mean that we should totally scrap all metro districts. They can be used for good, especially as an option for decentralized government, but they still require a few reforms. Meaningful transparency is an absolute must. Enforcement of statutory requirements must follow as a close second. Lastly, remember the golden rule of wrangling unruly government: making your voice heard at the voting booth.

Andrew Marchesseault is a research associate for the Local Colorado Project at the Independence Institute, a free market think tank in Denver, and co-author of a forthcoming study on metro districts.