Metro district consultants duel, offering praise and warning of ‘rubber-stamping’ disaster in Aurora

1027
East Aurora as seen from Jackson Gap Road. Much of the area development came from the creation of metro districts in the region, which have created controversy across the state in recent years.
Photo by Philip B. Poston/Sentinel Colorado

AURORA | While a real estate developer said last week that local regulations are setting reasonable expectations for metro district-funded projects, an attorney warned Aurora’s City Council that they had “rubber-stamped” potential billions in dubious debt.

Metropolitan districts are local government boards that have the power to levy taxes on property within their boundaries, often housing developments, to fund the construction and upkeep of roads, parks and other public infrastructure.

Aurora’s council discussed the pros and cons of such districts in Aurora during an Aug. 1 study session that included Brian Matise, a lawyer with experience litigating metro district issues and a director on the governing board of Tollgate Crossing Metropolitan District No. 2 in Aurora. The information-only review also included Christopher Fellows, master developer of the Painted Prairie neighborhood near the Gaylord Rockies hotel.

Districts are frequently established by developers, which use them as a mechanism for funding infrastructure in new neighborhoods by borrowing against their projected property tax base.

But the entities are controversial because of well-documented abuses. In some cases, developers have saddled residents with untenable amounts of debt while establishing multi-district structures that deny homebuyers a say in taxation. In others, developers have sold high-interest bonds to themselves, allowing them to profit as district debt balloons.

When sponsors want to establish a district, they first have to get the approval of the jurisdiction where the district would be located — the City of Aurora, for example, when a district is within city limits. That means city councils such as Aurora’s have the power and responsibility to provide oversight and protect future taxpayers.

Matise raised the alarm on some specific developments approved by council, such as Aurora Highlands, served by six metro districts that have each been authorized to issue up to $4 billion in debt.

He suggested homes in a development should have no more than $40,000 or so of infrastructure costs associated with them — in the case of the 23,000 homes that Aurora Highlands developers said in 2017 would be built, that would work out to around $920 million. More than four times that amount was borrowed by developers.

“This is an excessive amount of debt, (and) I think the City Council needs to ask, ‘Why are we approving $4 billion of debt for a district where this is going to total perhaps millions of dollars or hundreds of thousands of dollars of debt per home?’” Matise said.

Aurora Highlands developers have for years stood behind their financing plans, approved after customary review by the city’s planning departments, planning commission and city council.

Matise also described a “dangerous trend” of special districts not paying down bond interest until the total amount of compounded interest eclipses the principal by millions of dollars.

Matise specifically mentioned that the South Aurora Regional Improvement Authority, a cooperative of metro districts that partner on transportation projects, is slated to pay around $17.1 million in interest on the approximately $11.2 million principal of its Series 2018 Special Revenue Bonds by the time the bonds reach maturity in 2041.

“That’s an excessive interest cost. That is not economically practical, and I submit that these kinds of models are setting the districts up for failure. They’re setting taxpayers up for an outrageous cost,” he said.

Matise advised the council of several indicators local governments can use when determining whether the debt being requested by a district is reasonable. 

In addition to evaluating the infrastructure cost per housing unit, he said cities should ensure that the district’s debt is equal to no more than half its estimated assessed value at buildout and that the boundaries of all proposed districts are well-defined to preserve the integrity of tax base estimates.

Mayor Mike Coffman asked Matise and Fellows whether the city’s model service plan — which notably caps the levy for debt repayment at 50 mills, with a maximum debt term of 40 years — was doing an effective job of promoting accountability.

Matise was doubtful, saying he believed developers were getting away with satisfying the bare minimums of the model service plan while withholding the information needed for the council to determine whether a district is truly viable for residents.

“I think the model service plan has led to complacency and rubber-stamping by City Council, without careful regard for the metrics I cite,” Matise said. “In other words, if you dot the i’s, cross the t’s, fill in the model service plan, and you don’t even include a detailed financial plan, (and) you don’t even include a detailed infrastructure plan, it gets approved by council.”

Fellows differed from Matise, saying he thought the city’s model service plan had a positive impact because of the fact that it establishes a clear set of ground rules for developers.

“It’s made it very easy for developers, and applicants, and those trying to create a district in Aurora. It’s made it very easy for them to know what the rules are going to be, and what the expectations are, and it made it very simple to write a service plan,” Fellows said.

The developer spoke more warmly of metro district financing than Matise, describing the funding model as “incredibly efficient (and) incredibly safe.”

In a slide citing data from data firm Refinitiv, Bloomberg and the State of Colorado, Fellows reported that special district debt has a default rate of less than 1% and said the rate of default where lenders lost money was “in the hundredths of 1% range.”

Fellows described regional transportation projects undertaken with the help of metro district funding, including work on Aerotropolis Parkway, 64th Avenue from E-470 to Jackson Gap Street and interchanges along Interstate 70 and E-470.

“I think there are a lot of regional benefits with districts that come with the ability to finance things in a positive and cost-effective manner,” he said.

“I think districts are very important,” said Fellows. “I think they can increase the quality of amenities and improvements in a community. I think they can help finance regional improvements and regional projects which are otherwise not financeable. I think they can help finance projects that need financing or maintenance over a long period of time.”

Dave Gruber, a council alumnus who also previously served on the governing board of the metro district that covers his southeast Aurora neighborhood, later said he believes that metro district financing offers an effective path to reducing housing costs.

“I think that there are risks involved, but they do significantly lower the prices of houses in Aurora,” Gruber said, mentioning as one risk the fact that a district is obligated to pay back its debt in a certain timeframe.

He also said he believed the city’s model service plan has had a “tremendous” positive impact in terms of promoting transparency and accountability, calling it “one of the best in Colorado.”

When Councilmember Juan Marcano asked Matise if he thought it would be useful to set a hard limit on the amount of debt allowed based on the number of housing units planned in Aurora metro districts pending approval, Matise said he did not and that he believed the council should have the final say on whether a district is worthy of approval.

“I believe it is the responsibility of City Council to make that determination as to whether or not the debt can be discharged,” Matise said, but suggested that developers be required to include a breakdown of the average amount of infrastructure debt owed by each property. 

Because the discussion was information-only, no vote was taken or planned.

5 1 vote
Article Rating
Subscribe
Notify of
guest

3 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
doug
doug
1 month ago

WHAT THE HELL. Here we go again! Conservatives approved this!!! And you the people will pay for it: well-documented abuses. In some cases, developers have saddled residents with untenable amounts of debt while establishing multi-district structures that deny homebuyers a say in taxation. In others, developers have sold high-interest bonds to themselves, allowing them to profit as district debt balloons.
So how will you vote when these people come up for election again???

doug
doug
1 month ago

OK, I’m confused, which is it? Am I reading this correctly? (Dave Gruber) “As a former Aurora council member, I authorize each person reading this post to obtain a $4 billion dollar loan. All you need to do is convince a lender that you can pay it back with interest. That’s what happened at the council meeting Monday night. “Council authorized a few new metro districts to obtain up to a $4 billion loan. OR? “said he believes that metro district financing offers an effective path to reducing housing costs.
“I think that there are risks involved, but they do significantly lower the prices of houses in Aurora,” Gruber said, mentioning as one risk the fact that a district is obligated to pay back its debt in a certain timeframe.
He also said he believed the city’s model service plan has had a “tremendous” positive impact in terms of promoting transparency and accountability, calling it “one of the best in Colorado.”

Joe Felice
Joe Felice
1 month ago

In Aurora, the Planning Department and Commission should be more-aptly named “the Developers’ Department” because they are only interested in money gleaned from developers which can only be gotten if the City allows rampant development. Plans are approved simply because they look good on paper without regard for their overall impact. The job of “planners” is to assist developers and not to plan a better city for the future, as one would think from the title. The City Council knows little about finances and other aspects of development, so it just rubber-stamps plans that are referred to it. Rarely are developments rejected. And once approved, those plans can be changed “administratively” and substantially by the developer without going through any type of approval process.

A metropolitan district and a homeowners’ association are similar in that they collect fees for development and maintenance. The difference is that the City will require an HOA, which collects assessments directly from each owner, while metropolitan districts are optional and they collect their assessments by way of property taxes. HOAs are established by the developer before the first home is sold and they exist in perpetuity. Metropolitan districts are established by a vote of the property owners and can be dissolved in the same manner so long as there is no outstanding debt (which is rarely the case). In the cases mentioned in this article, the metro districts are being established by the developers before anything is built, so therefore, the developer is the only entity that needs to “approve” the formation of the district, subject to the requirements of the city and county in which it is located.

We thank the Sentinel for exposing the fact that the governmental entities are not doing their job of protecting the citizens by failing to assure that the taxes being levied for development are appropriate. Once levied (which levy can be increased over time as needed), the taxes remain on the property forever. In other words, homebuyers will forever be paying whatever assessments the developers have established and added onto their tax bill. These taxes, technically, have been levied without representation of the people who must pay them.

In the end, it’s all part of capitalism, American-style.