Here is the video of the meeting last night by the Lakewood City Development Dialogue Committee. They discussed and voted on recommendations to be submitted to the full City Council.
The next step appears to be a study session by the entire City Council to consider the recommendations and draft a new reform ordinance on metro districts.
Here is the video:
The discussion and recommendations raised several issues that invite further clarification and discussion.
Here is my email to the committee addressing those issues:
“Good morning.
Thank you again to the Development Dialogue discussion last night. I wanted to provide some additional insight regarding several issues that came up last night – while it was still fresh. I welcome the opportunity to answer any questions.
1. “New Debt“. The development community is now taking the position that residents may only vote on “new debt”. They are defining “new debt” as any amount greater than what was “authorized” when the district was created. This is a gross distortion of how the debt is authorized and how the debt is actually issued.
Two documents “authorize” (do not “issue” – only “authorize” debt). 1.) The ballot issues – which the City should require be submitted and approved before approving a Service Plan and 2.) the Service Plan.
In Solterra’s case, in the ballot issue, 8 Brookfield employees voted to “authorize” $4.9 billion dollars in total debt.
So, to say “New Debt” is any amount greater than $4.9 billion is not a limit – its a blank check. There will never be “new debt” greater than $4.9 billion.
Service Plan authorization. During the discussion last night “New Debt” was defined as any debt greater than the amount set forth in the Service Plan and that the City should not allow “New Debt” higher than what is allowed in the Service Plan – in Solterra’s case $91 million.
Increasing the amount of debt in the Service Plan is a material modification to the Service Plan – by definition according to Title 32. It would require an application, public hearing and public vote by the City Council to increase that amount. Having a vote of the residents to increase the “authority” is mixing apples and oranges – only the City may modify the Service Plan.
So tying “new debt” to the “authority” to issue debt is misleading at best.
TABOR’s right to vote on new debt doesn’t apply to either the authority to issue debt voted on at the time of the ballot ($4.9 billion) or to the Service Plan authority to issue debt of $91 million. It refers to the vote to issue the debt within the authorized limit – whatever it may be. The “authority” to go into debt up to a certain amount is very different from actually issuing the debt – spending the money.
The ballot and the Service Plan “authority” act like a credit card “authority”. For example, you can spend up to $10,000 on your credit card – your authority limit. But actually spending the money – going into actual debt – is a separate event. When you get that credit card, no debt is issued or created – you have a debt limit. Debt is not issued until you actually use the credit card. Then the debt starts to pile up – just like the bond debt for metro districts – debt was issued within the limit – 7 million then 10 million then 12 million then another $10 million in Solterra’s case.
The ballot and the Service Plan did not create any debt – they gave authority to go into debt. TABOR does not apply to the amount of the authority – only the amount of the actual spending.
So, debt is not issued in a metro district until the board votes to issue debt, within the $4.9 billion “limit”. TABOR says that the voters – the residents of the metro district – have to vote to issue that debt – to spend money within the $4.9 billion authority.
To make the point clearer, Title 32 expressly limits the permission for the board to issue the debt without a vote of the residents to 20 years. After 20 years TABOR applies again and no debt may be issued within the limit without a vote of all the residents. So it has nothing to do with the limit authorized in the ballot or Service Plan.
Saying that residents must vote on any debt greater than the $91 million in the Service Plan or the $4.9 billion in the ballot doesn’t change anything and actually continues the abuse. Only the City Council can increase the $91 million because it changes a material provision of the Service Plan. And $4.9 billion is not a “limit”.
What needs to happen is that the ballot issues are submitted to the City for review and approval – the ballot issues voted on by 8 Brookfield employees (in the recent Cardel example it was only 2 Cardel employees). And no ballot issue will be approved by the city that eliminates the right of the residents to vote on issuing debt (within the “limits” of the ballot and Service Plan) for 20 years. That will ensure the same right to residents of metro districts as the rights of Lakewood residents – no bond debt without a vote of the residents.
Mr. Hutchinson questioned whether or not the City could limit voters from debrucing. If the actual tax paying residents decide to debruce, they can easily do that at any time. But the City must prohibit 8 employees of the developer – who never pay any taxes, never live in the community and serve on multiple boards throughout the Front Range – from debrucing – taking away the right of actual future residents from voting. Title 32 gives permission to allow debrucing – it is not a statutory right. Permission to issue debt without a vote of the residents is controlled by Title 32 and through Title 32 that potential permission can be eliminated by the City at the time the district is created.
Mr. Hutchinson also suggested that there is a risk that the developers will issue all the debt – in Solterra’s case $91 million – before the residents arrive. That will not happen because issuing $91 million in bonds will mean the developer will have to pay close to $6 million in principal and interest every year – and you know that won’t happen. The developer doesn’t start issuing the bond debt until the people with the money move in. And when they do, the people with the money must be the same people making the decisions. Its the residents tax money, not the developers’ money.
Yes, TABOR has its problems. But in the case of metro districts it is a critical check and balance on debt – it is the best way to stop the “taxation without representation”.
2. Transition from developer boards to resident boards. Requiring 100% resident boards within a year is good. But, it must be coupled with aggressive disclosures to all residents that at any time after they have a contract to purchase – they can get on the board. They don’t have to wait a year.
But again, the rubber meets the road on issuing bond debt – like spending with the credit card within the limit. The most effective check and balance is that no debt – call it new debt or just debt – no bonds may issue without a vote of all the residents. The City must prohibit the developers from giving themselves the exclusive right to issue debt for 20 years. This can be done consistent with Title 32.
3. “But For” Test. This is critically important. As was discussed, Title 32 requires that the developer prove – it is their burden – that the two loans and two sets of interest is the most cost effective way to pay for infrastructure. The City must require that they prove it with verifiable documents. They must also show the City that the infrastructure was not already paid for with the cost of the developed lot.
Our study in Solterra showed we paid for the infrastructure, the cost of the land plus $75 million in profit with the money spent on the developed lot, before the houses were ever built. So why did Brookfield need to put us into debt for another $91 million.
Here is the relevant statute:
“CRS 32-1-203 (2) The board of county commissioners shall disapprove the service plan unless evidence satisfactory to the board of each of the following is presented:
(a) There is sufficient existing and projected need for organized service in the area to be serviced by the proposed special district.
(b) The existing service in the area to be served by the proposed special district is inadequate for present and projected needs.
(c) The proposed special district is capable of providing economical and sufficient service to the area within its proposed boundaries.
(d) The area to be included in the proposed special district has, or will have, the financial ability to discharge the proposed indebtedness on a reasonable basis.”
4. Longmont prohibits metro districts for new residential development. They have no problem building nice communities by financing infrastructure through the cost of the lot – its much cheaper. In one community where I lived you could pay the $30,000 per lot cost of the infrastructure in cash or finance all or part of it through your mortgage.
5. Oversight is critical, as you all discussed. The City creates these things and no one else is there to protect future residents from the kind of mess Solterra has – except you all.
6. Modification – (Big Sky). I would love to be able to critically evaluate whatever analysis you all were provided that says you had no power to require CDN/Brookfield to apply for permission to expand the boundaries and purpose of their district.
Here are examples of enforcement provisions contained in Title 32. The City is the only entity who can enforce the Service Plan and compel the developer to get the City’s permission for any modification after a public hearing and public vote:
“The board of county commissioners or the governing body of the municipality may review such inclusion and, if it determines that the inclusion constitutes a material modification, may require the governing body of such special district to file a modification of its service plan in accordance with the provisions of this subsection (2).”
“Any material departure from the service plan as originally approved or, if the same has been modified, from the service plan as modified, which constitutes a material modification thereof as set forth in subsection (2) of this section, may be enjoined by the court approving the organization of such special district upon its own motion, upon the motion of the board of county commissioners or governing body of a municipality from which a resolution of approval is required by this part 2, or upon the motion of any interested party as defined in section 32-1-204 (1).”
CRS 32-1-207
If you all would provide a copy of whatever analysis you relied upon to conclude that you did not have the power to enforce the Service Plan, I would be able to provide a detailed analysis demonstrating why you in fact do have that power.
The City has the power and the obligation to police and enforce the Service Plans they approve. Otherwise, what’s the point of creating a Service Plan. If they are not enforceable, they should not be granted.
Again, thank you for your work on this. There are efforts by other cities to legislate reform as well as efforts at the state level. I look forward to continuing to work with you all to produce the best result possible for the current and future residents.”
John Henderson