BY FREDA MIKLIN
Metropolitan (Metro) districts are mostly used to finance the construction of public infrastructure, usually for a residential development, that would otherwise be paid for by a governmental entity or private developers. They are considered quasi-governmental because they fall under the Colorado law (Title 32) that governs special districts and the bonds they issue are treated like government (tax-exempt) bonds. A metro district must be approved by the local government (city or county) in which the impacted area is located, although that local government has no responsibility for the repayment of the bonds. Yes, it’s complicated.
Metro districts have been legal since 1949 but started to become popular with residential developers in the 1980s because they allowed them to pass on the cost of building water, sewer, sometimes roads, and other infrastructure for new developments to the future homeowners in those developments The costs are passed onto homeowners as a mill levy on their property tax bills.
Historically, a positive aspect of that arrangement was that property taxes were fully deductible as an itemized deduction. That changed in 2017 with the passage of the Tax Cuts and Jobs Act which imposed a limit on the amount that a married couple filing jointly could deduct for all state and local income, sales, and property taxes combined of $10,000 per year. Prior to that, the amount of the itemized deduction for all state and local taxes of all types was unlimited.
Another aspect of metro districts is that they are sometimes used in lieu of a homeowners’ association in some neighborhoods to pay for regular maintenance of common areas, including pools, clubhouses, landscaping, etc. In that situation, the fact that revenue is generated through property taxes results in simpler administration of neighborhood expenses than a homeowners’ association that must bill for and collect dues monthly or quarterly.
The argument for metro districts is that they are fair because they result in infrastructure costs being paid by the people (homeowners) who benefit from them, rather than all taxpayers, in the case where the infrastructure is paid for by the city in which the project is located.
In recent years, metro districts have gone further than building basic infrastructure, providing parks, trails, recreation centers, swimming pools, etc., enhancing new neighborhoods with better amenities than they would have otherwise had.
Another point often made in favor of metro districts is that it would not be financially feasible for some projects to be built if the developer had to pay all these costs out of pocket or obtain private financing to do so before selling any homes.
Those who question the use of metro districts would say that, until recent times, it was expected that developers paid the cost of needed infrastructure before they could market homes, and that is what they did. Presumably, that cost was built into the price of homes sold or lots for building, but homeowners didn’t get a surprise when they saw their property tax bill because metro districts were not discussed or disclosed in the contracts with which they bought their property.
Metro district mill levies can add a significant amount to homeowners’ annual property taxes. In the Marvella development in Centennial, a home valued at just under $1.1 million by the county assessor has a property tax bill of $14,000, of which nearly half is for the Marvella Metropolitan District. Taxes on a home five minutes away in Greenwood Village, not in a metro district and valued at $1.8 million by the county assessor, are just over $10,000.
Over the years, it also became common for parties closely related to developers, such as board members of the metro districts they created, to sometimes buy the tax-exempt bonds issued by the metro district at above-market interest rates, paid, in effect, by homeowners. With no practical disclosure requirements, some viewed that as unfair enrichment to related parties to developers.
Viewed objectively, the biggest problem with metro districts is the historical lack of required disclosure leading to a lack of understanding by the people most impacted by them.
In 2023, two bills were introduced in the legislature to address growing concerns raised about this issue. Senate Bill 23-110, Transparency for Metropolitan Districts, passed and signed into law April 3, 2023, effective August 7, 2023, requires that service plans for metro districts submitted to a city or county on or after January 1, 2024, must include:
The maximum mill levy that may be imposed for the payment of bonds issued by the metro district;
The maximum debt that may be issued by the metro district.
After January 1, 2024, purchasers of property within a metro district must be provided disclosure about the metro district, including its website.
Beginning this year, active metro district boards with residential units in their boundaries must hold an annual meeting at which they include a presentation regarding the status of public infrastructure projects and outstanding bonds. They must also provide a detailed review of their current financial statements and an opportunity for members of the public to ask questions about the metro district.
House Bill 23-1090, sponsored by State Rep. Mike Weissman and State Sen. Robert Rodriguez, would have prohibited the purchase of bonds issued by a metro district by any entity with respect to which any member of the district’s board of directors “has a conflict of interest necessitating disclosure.” It was passed in the House but died when it was postponed indefinitely in the State Senate.