State Sen. Morgan Carroll, D-Aurora, told The Colorado Independent she hopes to introduce legislation this session that would substantially reform how special districts operate in Colorado.
She said the lack of accountability characterizing Colorado special districts has led her to begin searching for legislators interested in reforming the tax districts often controlled by land development companies.
Carroll said that she wants to ensure that revenues collected from property owners living within a special district are not improperly used by its boards of directors to serve interests beyond the community the district encompasses.
Special districts are psuedo governmental entities with the power to issue bonds to support improvements and to levy taxes in a specified area in order to pay back those bonds. The districts are designed by property owners, approved by a municipality and/or district courts and then voted on by all property owners in the district. The board of directors, also voted into office by property owners, then administers bond funds.
Though special districts and its directors are voted on by the property owners, in many cases those property owners and directors are made up of development company members looking to create a new subdivision or project. Company approved directors sometimes stay on the board of directors after a project is completed, sometimes serving multiple four-year terms. The situation has led some residents to become concerned about the motives of board members.
While Colorado law states district directors are to disqualify themselves from voting if faced with a conflict of interest that they do not want to disclose. Carroll said those rules need more teeth. She said her desired changes would tie district directors closer to the communities they serve and would attach penalties to regulations prohibiting conflicts of interest and acts of corporate nepotism.
“We could require that [a director] live on and be affected by the property, we could put some other election protections in place, we could take away the boards’ ability to cancel an election, [or] tie in breach of fiduciary duty standards so they would legally be responsible if they (had) a conflict of interest,” Carroll said.
Charles Catalano, a professional quality control consultant contracting with large municipalities, said development company management sitting on special district boards can lead to what he sees as questionable board practices.
A private cost estimate conducted by Catalano showed the Central Platte Valley Metropolitan District (CPVMD) overpaid for material, management and labor on a project by roughly half. He questioned if the payment was being padded to pay for other projects.
“We went through the state auditors, the city auditors and some council people. What they say is the only thing the district has to do is submit an audit,” Catalano said. “Nobody goes back and sees if they cheated or took money from here to here. That is not part of the audit.”
Amy Cara, president of the Central Platte Valley Metropolitan District and a partner with East West Partners, a stakeholder in the area, said Catalano’s arguments were found to be without merit after an internal investigation was conducted.
She said that Catalano did not take into consideration the market at the time of building, the time frame desired, or the quality of work. Cara said they did not hire the low bidder but instead chose the company that bid the “best value” as required by Colorado law.
Still, Bob Gibson, the Denver revenue department’s director of financial management, told the Independent that developers could use the powers of Metropolitan Districts to pad projects and funnel money to themselves or colleagues, if they chose to. However, he said it likely would not make good financial sense.
“A person could get crazy I guess and do that. Or do they funnel their work to a friend? Yeah, they may. But… if you over pay, that is less money for you to pay yourself.”
He also explained Denver only allows districts to go into city approved debt, limiting the amount of funds a district could pull from its tax base.
Carroll said real or perceived questions of failed governance of public funds, like Catalano’s complaint, could be put to rest through regulations that helped ensure the accountability of money managers.
According to Carroll and others, legislators have been reluctant to place any further regulations on special districts because of the current economic times.
With bank loans difficult to secure for new developments, special districts make up one of the few viable options for developers to create needed infrastructure for new developments, an action that can help create new jobs, according to Gibson.
Still it is not without its risks, Gibson said. Some developer-run districts in the past were not able to repay bonds due to a lack of property sales or developer slow downs. As a result, mill levy increases occurred in those areas in order to pay off the debt and interest that was accrued. In some cases homes that were worth only $300,000 had over a million dollars in debt attached to the property.
Carroll said ensuring board members were held responsible for ethical violations would reduce the risk of the districts as a development tool and reduce buyers’ fears of purchasing properties saddled with bonded debt.