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‘Crazy quilt’ of special taxing districts in Colorado Springs under scrutiny

COLORADO SPRINGS–Last week Tim Hoiles, Publisher of the Fourth Estate News Bureau, sent an open letter to the Colorado Springs City Council, Mayor and staff saying, “The city council has approved an unmanageable crazy quilt” of special taxing districts.

He noted that there are 180 different districts in Colorado Springs and asked city leaders to “pause the approval of any new special district, of any kind, for at least one year while an independent and comprehensive review of special taxing districts is done.”

Special taxing districts are created under state laws that distribute taxing powers away from the city to legal entities created to fund and manage various projects using bond revenues and property taxes to pay for it.

Special districts offload the responsibility of managing the details of developments, business districts, water and sewer systems and many other functions that were traditionally the task of the city itself onto largely independent district boards of directors, who are sometimes the developers who originally owned the undeveloped land.

An example is the Interquest North Business Improvement District (INBD) on Interquest Parkway just east of I-25.

Under a state statute, the property owner, Nor’wood Development Group, petitioned the city to create the district where the Great Wolf Lodge, Cinemark Theaters and other businesses are now.

The purpose of the district is to fund, install and maintain infrastructure such as water systems, sewers, electrical systems, streets, parking lots and landscaping.

Once the district was formed and a board of directors elected by Nor’wood, the board was empowered to both issue bonds and collect taxes and fees to pay those bonds back.

In the case of INBD, the Board of Directors of the district were appointed by the property owner, Nor’wood Development, before any development took place.

The members of the District Board are officers or employees of Nor’wood Development.

No current small property owners or representatives of the businesses that lease land are on the Board, and a recent attempt by the board to exclude the new Scheel’s Sporting Goods store from the INBID so it wouldn’t have to pay property taxes was halted when a representative of two of the businesses found out about it and complained to City Council.

Before the exclusion petition could be fully discussed and voted on by the Council it was withdrawn.

One of the first actions of the 5-member board was to eliminate term limits for board members, followed by “de-TABORing” the district so that any excess tax revenues collected can be retained.

Then it set the property tax mill levy to the maximum of 51 mills authorized by the City Council when the district was formed. That levy has remained in place ever since, despite INBID having more than $4 million in the bank.

The City Council is the official oversight authority for all city special taxing districts, and districts must file annual budgets and operating plans that are supposed to be reviewed by the city and approved by the City Council.

But Hoiles says of the city’s oversight efforts, “Hundreds of millions of dollars flow through these districts annually with no oversight or accountability. Collectively, the city has granted billions of dollars of bonding authority” to special districts citywide.

A 2009 Special Districts White Paper prepared by city staff cited 15 reform recommendations that would bring more transparency and accountability to the process. Hoiles says in his letter, “Those recommendations fell into a black hole and were never seen again.”

Special taxing districts have great power over the lives of residents living and working in them, and when they fail, they can fail to the detriment of the residents and businesses.

On August 26, the city held a public meeting about the Briargate Special Improvement Maintenance District (BSIMD) in response to ongoing problems in the district. Created in 1983, the BSIMD is supposed to maintain rights-of-ways and landscaping.

Failures in maintenance and the resulting deterioration due to shortfalls in funding have taxpayers wondering where their property taxes have gone.

Another point of contention is that roughly one-fifth of the homes physically within the boundaries of the district pay no additional property taxes due to the way the district evolved over time.

The district collected about $930,000 in property taxes in 2018.

The city is trying to get residents to agree to create a new district that would include all residences and reset the mill levy to deal with the increase in maintenance costs.

About 30% of the district’s budget goes to irrigation. Eric Becker, Special Improvement Maintenance District Administrator for the city says water costs have doubled in the last 10 years.

Some special districts in the city have defaulted on their bonds because development did not occur as expected or the tax base is too small.

The Lowell Metropolitan District, southeast of Nevada Ave. and Rio Grande St., defaulted on $2 million in principal and interest payments from 2015 to 2017.

The district has low-income housing run by nonprofit agencies that are property tax exempt and other properties have not been developed, keeping property values low.

While bondholders suffer the losses, which are a risk they take when buying bonds, the default makes it hard to refinance the debt and less likely that vacant lots will be developed because it’s a higher credit risk.

Hoiles notes that with more than 180 special districts with taxing power run by individual boards, some of which are never reelected and have little oversight from the city, can cut residents and business owners completely out of the decision making process, risking taxation without representation.

“Without proper city oversight, how sure are we that the districts are delivering the public benefits stated in their service plans?”

The complete letter from Hoiles is found here.

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