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The Publicazation Of Private Business

For the past few decades, many people have been interested in “privatizing” certain government operations and functions by contracting with private companies for delivery. A less known effort over approximately the same period of time has been an effort to use the creation of local governments to be organized to accomplish the goals of private companies. The term “publicazation” is not as well-known as it’s inverse counterpart, but it describes the phenomenon fairly well and concisely.

As of September 15, 2016, there were 3,676 local governments in Colorado, 1,520 (41%) of which were metropolitan districts. Of these, 97 were created prior to 1980; the other 1,423 represented a staggering growth rate until the 2008 economic downturn: 118 in the 1980s, 101 in the 1990s, 936 in the 2000s, and another 316 since 2010. Metropolitan districts formed since 2000 have authorized indebtedness totaling $2 trillion, over $500 billion of which has been approved since 2010.

Since 1970, Colorado’s Special District Act has been significantly amended to allow developers to create metropolitan districts on vacant land. Since there are no residents on the land, the only people who can vote to create a new metropolitan district government are individuals whose contracts to purchase property make them potentially liable for taxes levied by the proposed district. Most often, these “voters,” who do not actually own the property, are senior officers in the development company. Also frequently, the items on the ballot include as many as 30 questions, approved by a 5 to 0 vote, to authorize multiple debt issues, including ones which specify that developer advances are reimbursable general obligations of the district, excuse the district from TABOR tax and revenue limits (“deBrucing”), authorize taxes to a maximum mill levy and grant authority to receive revenue from any source without limit. They also remove term limits for district board members, and approve the execution of intergovernmental agreements between a series of districts to be created.

A recent phenomenon is the simultaneous creation of a series of “financing districts” tied by intergovernmental agreements to a “management district.” The management district remains undeveloped, so no residents live there and only the management district board members are entitled to vote. In addition, the districts are not subject to citizen initiative and their boards are not subject to recall. These features have caused many to raise questions about the transparency and accountability of these governments, which are essentially privately owned.

This arrangement allows developers to be reimbursed for much of the cost associated with the development and avoids them having to build recovery of up front infrastructure cost into the price of homes. This practice is thought to keep the purchase price of properties lower, but it also results in larger debt obligations supported by taxes, with associated interest costs. It is reported that many new home buyers are unaware of the existence of the metropolitan district in which they live until they receive their tax notice.

Other states have developed alternatives which benefit development interests without compromising the role of general-purpose governments in the process. California’s use of Community Facility Districts provides a model that includes general-purpose local government (i.e., counties and municipalities) policies, while respecting the need for private activity in building new communities.

The Colorado Futures Center at Colorado State University recommends the creation of a viable alternative to Colorado’s current metropolitan district law that balances the needs of developers as well as provides citizens both control and accountability over the improvements that their taxes must finance. We believe policymakers in Colorado should begin the process of examining options to improve our current metropolitan district laws and practices.

December 14th, 2016|Local Government|