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Colorado Springs City Council information presentation raises concerns about special districts

COLORADO SPRINGS–At its work session Monday, the Colorado Springs City Council heard the second in a series of seven educational presentations by Comprehensive Planning Manager Carl Schueler focused on how special districts are created, managed and overseen by the city.

According to Schueler, in 1997 there were a total of 20 special districts in the city. By 2008 the number had increased to 88, and as of the meeting there are 106 districts.

Types vary from commercially-related Special Improvement Maintenance Districts (SIMD) to General Improvement Districts (GID) and Business Improvement Districts (BID), as well as Metropolitan Districts that primarily serve residential developments. There are also other kinds of districts including fire protection and flood conservancy districts.

The largest increase over time is in the residentially-focused metropolitan districts.

Districts, in a broad sense, can impose taxes, fees, rates, tolls and charges, issue debt (bonds) to fund public improvements, enter in to contracts and intergovernmental agreements, own property, and provided services like grounds maintenance. They are quasi-governmental entities created by state statute, but approved by and under the general supervision of the city.

In recent years special districts have largely taken the place of homeowner’s associations (HOA).

Councilman Bill Murry voiced concerns with granting taxing power to property developers that may cause problems for residents.

“You’re seeing more and more of these bonds being financed by the developer,” Murray said.”But if they already had the money, why are they financing their own bonds, tax free, at a higher interest rate? I guarantee you that I can take you every developer right now and there is not an attendant reduction in that cost because of what we did.”

Councilman Andy Pico said that special districts are more economical for developers than HOAs, and that in his opinion the homeowner or business owner pays for the cost of development and public infrastructure one way or the other.

“What this does is give [developers] a means to access to municipal tax-free bonds to do that with,” said Pico. “But the homeowner is ultimately the person who is going to pay for it. This is not doing something that’s out of line or any such thing.”

Councilman Don Knight took issue with Pico’s statement.

“I do disagree with you that the end cost to the homeowner is going to be the same,” said Knight.

Pico responded, saying, “Of course there’s a reduction in costs, that’s why they do it. And it adds to their profit margin at the top end, and that’s not a bad thing. There’s no skullduggery in that.”

“To the extent that he’s able to lower his costs he may get an increased profit out of it, an increased incentive to build more houses, build more houses you lower the price,” Pico continued. “You want affordable housing, you make it possible for the developer to build at a lower cost, and that will give him the incentive to build more.”

Knight responded, “If you can shift some of the burden of the developer to another financial mechanism that does not necessarily equate that the cost of the home will be lower versus the [higher] profit margin of the developer.”

Murray believes developers wearing both the developer and district board hats potentially leads to higher costs to the end user.

In many cases the specter of conflicts of interest are caused by developers passing rules and policies as well as incurring financial obligations as the district board on terms that can be beneficial to them as the developers, but which add hidden costs to taxpayers.

A case in point is the practice of a developer/district board creating a “reimbursement agreement” in which the district agrees to reimburse the developer (the same people) for the costs of installing the public improvements at some future date in lieu of the board issuing bonded debt and paying for the improvements itself by doing the contracting and management of the work.

In one existing case the district owes 8% interest on developer expenditures from the time they are made until the board fully reimburses the developer, but there is no requirement in the agreement that obliges the developer to submit the paperwork that turns the public improvements over to the district at any particular time.

The upshot is that the developer is accruing 8% interest on outstanding bills to the district until it turns the infrastructure over, which the developer can delay simply by not submitting the required paperwork to the district for as long as possible. This allows the developer to impose future obligations on taxpayers in the district to pay that extra 8% to the developer, even if the district has the money or bonding authority to pay off the debt immediately.

Below is the schedule for briefing sessions:
Session 1- Held on September 23, 2019
· General district overview
· State and County-wide district context
· 2006 Special District Policy
· BIDs
· Review of future sessions, topics and proposed schedule

Session 2- Held on October 21, 2019)
· Metropolitan Districts

Session 3- November 7, 2019
· Metropolitan district follow-up- statutory findings
· Special district submittal, review and approval processes
· GIDs

Session 4- November 25, 2019
· LIDs and SIDs
· Mill levies and Gallagher adjustments

Session 5- December 9, 2019
· SIMDs
· Special district financial obligations, debt authorizations and debt issuances

Session 6- January 13, 2019
· District powers and functions in addition to debt issuance
· District boards and elections/ TABOR

Session 7- January 27, 2019
· Contacts, annual reports, audits, data and disclosure
· District dissolution, or conversion to resident boards

Past presentations are available on-line here

Future meetings may be watched online either on the Colorado Springs City Council Facebook page or through the Granicus link on the above linked website.

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