The state auditor of Colorado has advised the Department of Local Affairs to investigate 21 of the state’s metropolitan districts due to self-reported financial challenges that may hinder their ability to repay incurred debts.
The State Auditor’s Office evaluated the financial stability of 1,598 metro districts based on 11 indicators, such as debt-to-income ratios and property values within their regions. Currently, there are 2,337 active metro districts in Colorado, as reported by DOLA. The December audit focused exclusively on districts established after July 1, 1991, those active from 2020 to 2022, and those that submitted financial reports to DOLA.
“While these warning signs may not conclusively indicate financial distress, we believe they could help anticipate future issues,” states the audit.
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State regulations require metro districts to report any changes in their boundaries, construction activities, intergovernmental agreements, and financial status to DOLA. Nonetheless, numerous metro districts submit exemption forms regarding their financial reports.
Metro districts that have reported challenges in debt repayment include the Conifer Metro District in Jefferson County, the Lowell Metro District in Colorado Springs, and the Murphy Creek Metro District in Aurora. According to their most recent audited financial records, the Conifer district had debts exceeding $41.6 million versus just $3.2 million in assets. The Lowell district faced $11.8 million in debt against only $370,000 in assets, while Murphy Creek reported $32 million in debt in relation to $3.7 million in revenues.
Sixteen additional metro districts exhibited four or more warning signals that necessitate further review, as noted by the audit. A prevalent warning sign was insufficient financial reserves, which applied to 13 of these districts. Noteworthy districts triggering this alert included the 9th Ave. Metro District 1 in Denver, Flatiron Meadows Metro District in Boulder, and the Mountain Sky Metro District in Weld County.
Furthermore, the audit indicated that ten of the 16 metro districts with significant warning signals were also concerning regarding debt repayment obligations. Seven of these districts had debt responsibilities ranging from $1.1 million to $30.1 million, yet none were scheduled for repayments during the three-year evaluation period. Only one district anticipates repayments beginning in 2025.
Calls for Reform
Since 2000, Colorado has significantly depended on metro districts to facilitate financing for real estate projects. These special-purpose governments have the authority to impose extra taxes on homeowners to fund public initiatives such as street, transportation, and water infrastructure. Aside from increasing property taxes, metro districts can secure funds through bond sales, developer fees, and revenue-sharing agreements.
The Colorado Association of Home Builders states that the approach aims to ensure new developments are self-sufficient financially, rather than relying on municipal funding for construction and upkeep.
However, the power of metro districts to levy additional fees and taxes has sparked tensions between homeowners and the districts in recent years. The General Assembly has enacted laws that limit property tax increases within metro districts and prevent foreclosures on homes for unpaid fees. Yet, other proposed reforms, such as banning metro districts from issuing debt to board members and granting the Independent Ethics Commission the power to investigate metro districts, have stalled.
Revert to traditional models where homebuyers cover the infrastructure costs, ensuring that homeowners don’t face unexpected burdens and districts don’t collapse. If the costs are prohibitive for buyers, defer construction until market conditions improve.
– Karen Gordey, a resident of Lakewood
A 2019 investigation by the Denver Post uncovered that current state laws permit metro districts to accumulate vast amounts of debt, effectively passing the liability on to homeowners and businesses. Additionally, there are no regulations preventing developers from appointing themselves to govern metro districts, acquiring the district’s debt, and benefiting from compounding interest payments over decades. This framework has burdened thousands of homeowners with increased property taxes and led some metro districts into financial distress.
Although issues within metro districts are well-documented, the call for reforms has varied. Advocacy groups such as Coloradans for Metro District Reform alongside local officials appear to endorse gradual changes, while some residents pursue more assertive reforms.
“At times, the only responsible approach to development is to transparently communicate the true costs to potential buyers,” expressed Karen Gordey, who manages the Lakewood Informer news opinion website. “Revert to traditional models where homebuyers cover the infrastructure costs to prevent homeowners from being trapped and to avoid district failures. If the costs are excessive for buyers, do not initiate construction until market conditions are conducive. Other states have maintained this approach—it’s achievable.”
“We need not completely reinvent the system,” stated Adams County Commissioner Steve O’Dorisio in a report discussing metro district reforms. “We should identify ways to better utilize the existing tools and methods we already possess.”
Aerotropolis Metro Districts
Over the next several years, the expansive vacant lands surrounding Denver International Airport could evolve into a sprawling aerotropolis—an urban area developed around a major airport. The overall financial condition of Colorado’s metro districts brings into question the potential impact of the Colorado Aerotropolis on local homeowners and the business community.
Prominent construction companies such as AECOM, JHL Constructors, and Kiewit Infrastructure are currently developing visual representations, preparing the land for future constructions, and designing upcoming transportation solutions for the area. This development aims to draw innovative industries, including those focused on AI, advanced manufacturing, and agricultural and healthcare advancements to Colorado.
Plans for the aerotropolis include approximately 12,000 residential units distributed across eight villages, alongside 3 to 4 million square feet of commercial and retail space, as reported by Colorado Construction and Design. Given its ambitious goals to attract new businesses and residents, the aerotropolis is poised to be one of Colorado’s most significant developments in decades and is expected to transform the vicinity around DIA.
Eight metropolitan districts are involved in financing the aerotropolis initiative, while additional districts are tasked with coordinating infrastructure and transit enhancements.
A spokesperson for the state auditor confirmed that none of the metro districts linked to the aerotropolis project exhibit financial conditions that would cast doubt on their operational viability.
Six metro districts engaged in the aerotropolis development have court-approved debts surpassing $50 billion each. The Aerotropolis Area Coordinating Metro District holds the highest authorized yet unissued debt, amounting to $104 billion.
While issuing debt can be an appealing strategy for metro districts to secure substantial capital, it also presents considerable financial risks. The audit highlighted “serious doubt” regarding the Lowell Metropolitan District’s capacity to sustain itself, as property values have failed to keep pace with the accrued interest from its bond issuances.
Homeowners in districts that issue bonds frequently face heightened property taxes, raising their monthly housing costs. For example, residents of the Lowell Metro District are subject to over 58 mills in property tax to service the district’s debt, which is among the highest rates in El Paso County, as confirmed by the local assessor’s office. Each “mill” corresponds to $1 of tax for every $1,000 of a property’s assessed worth.
Jason Caroll, managing partner at CliftonLarsonAllen, a financial advisory firm aiding the Aerotropolis Area Coordinating Metro District, stated that the district has no intentions to issue bonds and “does not undertake construction projects without secured funding before entering contracts for such projects.”
Nevertheless, according to its service plan, the Aerotropolis Area Coordinating Metro District possesses the capability to raise property taxes by up to 50 mills. It can also impose other “fees, rates, tolls, penalties, or charges” as sanctioned by state regulations to repay any future liabilities. According to the district’s latest annual report, additional funding for the initiatives will derive from capital appreciation bonds issued by the Aurora Highlands Community Authority Board in 2023.
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