Lakewood City Council led by Dave Skilling, has held three working sessions on Metro District Abuse (as in Solterra and hundreds of other metro districts in Colorado, as reported by the Denver Post).
Monday night March 15 at 7:00 pm. the full council is going to have a hearing and study session on proposed reforms.
If you want to stop metro district abuse, this is the time.
This is Lakewood’s moment to address an issue that is literally costing residents billions of dollars in tax revenue that could be spent on schools, roads, law enforcement, water conservation and mental health.
Here is the meeting information:
To watch the Council meeting live, please use either one of the following links:
City of Lakewood Website: https://www.Lakewood.org/CouncilVideos or
Lakewood Speaks: https://lakewoodspeaks.org/
Phone Number for Public Input: 1-346-248-7799
Webinar ID: 972 9436 2602
(press # after entering the webinar id then press # once more to join the meeting) Press *9 to Request to Speak (You will be prompted when to speak.) Press *6 to Unmute
(After speaking, you can hang up)
Here are the staff proposals with comments, resources and additional suggestions in red:
“Discuss whether to have a City Council vote on whether to prohibit additional metro districts.”
Longmont decided to prohibit metro districts for residential development.
The city cost of administering the necessary checks and balances on behalf of the absent future residents was too high.
The risk of exhausting the tax base to pay developer profits at the expense of asking for new taxes to pay for schools, roads, mental health and law enforcement was too great.
Taxpayers will only tolerate so much. If they are paying already high taxes to pay developer debt, they are not going to fund tax increases for real public services.
See also:
Handbook for Residents and City – County on Metro District Reform xxxx
Resident Handbook Exhibits 10 xx
“Public Works recommends that the following occur to improve disclosure to potential end-users of information related to future metropolitan district:
a. Require a one-page, standalone disclosure in simple language.
b. Include in the disclosure the following:
i. What a metro district is and its ability to control certain costs of the end- users”
Metro districts by their nature do not control the costs. Metro districts as a rule are unregulated profit centers for the developer. As currently managed by developers, there are no genuine checks and balances. The developer is approving his own requests for payments. At taxpayer expense.
Any disclosure must clearly state that taxes in metro districts are higher than taxes in non-metro districts and control of the metro district is in the hands of the developer who has an express conflict of interest (as stated in every audit report filed by the accountants with DOLA) with the residents.
The disclosure must instruct the resident that they have a right to serve on the board immediately and how to self nominate to run for the board.
Here is a sample disclosure form:
“ii. How the board is elected,”
Again. Clearly state that any person who resides in the district has a right to serve on the board. The Service Plan should establish that any developer employee or relative or affiliate who is not a resident, is not an eligible elector and cannot serve as soon as a resident volunteers.
“iii. Initial costs to the end-user of the metro district in dollars,”
All the important financial information is already available and must be disclosed – see the proposal above. The metro district is a government and must be transparent on the costs. Cost of the land. Cost of the infrastructure. Cost of the developed lots to the builder. Amount of authorized repayment bond debt ($4.9 billion for Solterra $21.6 billion in Sterling Ranch). Cost of bond debt. Service Plan initial debt limit ($91 million in Solterra). Amount of bond debt issued by developer. Amount of taxes to pay developer debt. Total amount of taxes to pay off authorized debt limit (at least $91 million).
“iv. What the metro district cost (in dollars) could be in the future.”
See above and proposed disclosure
“c. Require that the disclosure document be recorded against all property within the metro district immediately upon formation of the district and against each parcel upon subdivision of any property within the metro district.
d. Prior to the City issuing a building permit, require proof that the disclosure was recorded against the lot on which the building will be constructed.”
This is a start but does not get the information to the “end user” – the homebuyer. The disclosure must be provided at the sales office, by the agent, at the time the offer is made and at the time of closing. Sales personnel and agents have no difficulty communicating sales information they want the buyer to have. This information about the costs of metro districts should be communicated at the same time.
Here is what one real estate professional is doing for his clients. He routinely has 100+ agents attending his seminars:
Note that I frequently get calls from real estate agents (not developer show room sales agents). The real estate agents are trying to do the right thing and provide accurate information to their clients about the potential problems with metro districts and the tax burden.
If the city maintained a list of all their metro districts and a full disclosure form for each district, the agents will look it up and send it to their clients. It should not be difficult to advertise or notify the real estate agent community that this depository of disclosures is available to them and the public.
Since the developers rarely use the same name for both the district and the development, it will be important to index the list and the disclosures by both the name of the district and the name of the development (ie Solterra / Fossil Ridge Metro District)
“How to guarantee resident control of the boards:
a. As a condition of City Council approval of a proposed metro district, all (or a majority of) potential developer-affiliated board members must commit in writing to resigning from the board upon a pre-defined date or level of development.
b. Upon resignation of any board member, state law requires that the remaining board members select the replacement to serve the remaining partial board term.
c. As a condition of City Council approval of the proposed metro district, the metro district must commit to using the board member election process as the means for appointing board members to replace developer-affiliated board members who resign.”
It is a mistake to set a time limit for developers to resign. They will use that to guarantee they control the boards until that deadline and suppress the residents’ right to serve until then.
The solution is very simple. The board must send out an agenda prior to every meeting. Require in the Service Plan that the board include a notice and self-nomination form with every agenda. The notice will explain that the board members are affiliates of the developer who are not residents and have a conflict of interest with the residents (as stated in every audit filed with DOLA).
The notice will state that as soon as a resident sends the self nomination form to the board, manager or attorney, the developer board member is immediately no longer an eligible elector and there is automatically a vacancy. The vacancy must be filled by an actual resident since one has self nominated. It can be filled with an appointment of the actual resident or if more than one resident has self-nominated, then through a special election.
This will guarantee that every resident knows they can serve, provides the form to do so and a process for immediate appointment or election of actual residents to the board.
“Prevent loan interest paid by a metro district from being a profit center for the developer by limiting interest paid to the developer.”
Developers provide funds for initial development activities. One way those funds can be recovered is through a reimbursement agreement between the metro district and the developer. Such a reimbursement agreement may occur while the metro district board is developer controlled. To prevent the conflict of interest between the developer and the developer-controlled board entering into a reimbursement agreement that creates a profit center from the interest paid, the following options are suggested:
a. The maximum interest rate allowed for a reimbursement agreement could be established during approval consideration of the proposed metro district.
b. The maximum interest rate could be the prime rate.
c. The interest rate could be required to be established through a market transaction.
d. A reimbursement agreement could be prohibited, which would require that the developer seek reimbursement from other source(s).”
There are two issues here: 1.) How to pay for infrastructure and 2.) how to guarantee that this new government isn’t overcharging the taxpayers – making extraordinary profits for the developer on providing government services with no check and balance by the taxpayers.
- There is no question that it costs money to build infrastructure. The industry standard in Colorado according to the construction industry (and SDA) is $30,000 – $40,000 per lot.
- The first question is how does the developer recover that cost plus profit
- The traditional way is by including the cost of the land and the cost of the infrastructure in the cost of the developed lot sold to the builder.
- In Solterra we researched the cost of the land and the cost of the infrastructure as disclosed to the City. We also researched the amount of money the builders paid for each lot. The cost of the developed lot minus the cost of the land minus the cost of the infrastructure was $75 million. That is the profit to the developer. $75 million. Without metro district financing. Then with metro district financing of two loans and interest, residents paid another $39 million.
see: Final CostNarrative.word4
Final Exhibits to Lot Analysis
- The second question is how to replace the market place competition checks and balances which are present in the traditional financing which are eliminated in metro district financing. Right now, there is no check and balance by the city. And when the debt is generated there no check and balance available to the residents. The loan and payment agreements are signed by the developer on behalf of the residents when the residents aren’t around. The boards are controlled by the developer when the debt is issued.
- The solution again is simple. First require that the developer actually prove with independently verifiable documentation that they aren’t charging twice for the infrastructure as they did in Solterra. What is the actual cost of the infrastructure. What is the actual cost of the land. These numbers are readily available and must be independently verified. Relying on the developer’s engineer or accountant is not sufficient.
- The developer must prove that they can’t recover their cost plus profit by selling the developed lots to the builders. The statute mandates that the city deny every application for a metro district unless the developer can prove there is a need – that he can’t recover the costs the traditional way.
- Second, require that the developer explain how two loans with two sets of interest is more cost efficient than recovering that $30,000 as part of the cost of the home. In other jurisdictions the homebuyer can pay it with cash or take out a loan to pay some or all of it off sooner and with less interest.
“Limit metro district debt issued by:
a. Establish in the Service Plan the maximum initial debt amount, and
b. Prohibit additional debt until approved by an end-user-controlled metro district board, and
c. Consider whether to prevent a metro district TABOR election until the board is end-user controlled.”
This is a critical recommendation. The city must absolutely in no uncertain terms prohibit a TABOR election by 2 – 8 employees of the developer eliminating the right of the future residents to vote on debt and creating billions of dollars in authorized debt. One way to enforce this is to require any ballot issues be reviewed and approved by the city beforehand.
A further recommendation is to limit the amount of authorized debt in the service plan to 50% of the verifiable cost for infrastructure. The developer can always apply to modify the service plan if they can prove they are still owed money for the independently verifiable costs of the infrastructure.
This of course assumes that the cost of the lot to the builder is equal to only the cost of the land. If the developer is charging the builder more than the cost of the land for the developed lot, then the presumption is that the developer is including the cost of the infrastructure in the cost of the lot and there is no need for metro district financing to recover costs they have already recovered in the cost of the developed lot.
“Determine how City Council provides oversight of metro districts including:
a. Require with the proposed Service Plan:
i. A pro forma for the development delineating the proposed metro district’s financial role, and
ii. An explanation of what will be accomplished that would not be accomplished if the metro district is not approved including numerical support.
b. Consider whether the Budget and Audit Board could provide, perhaps with consultant support, an evaluation of the financial components of the proposed Service Plan.
c. Require a periodic report by the metro district board to the City Council.”
This is a good start. Here are some more specific recommendations:
City County Executive Summaryxxxx
“Prohibit any multi-district structure that could result in one of the districts being perpetually controlled by developer-affiliates and having authority to impose costs on or require revenue from any other district.”
This is also critically important. Many districts are now creating their own special district to eliminate the residents from controlling the boards until the development is built out – a blatant violation of Title 32.
The staff recommendations contain additional items which are not listed here. The full document is below (the first 22 pages are the most relevant). As the process continues, it will be appropriate to address details that are included in a draft ordinance.
Here is the full staff report:
Lakewood City Recommendations 3-13-21
See you at the meeting. Let the council know you care and let them know what you think. This is their time. It is your time.
John Henderson