As it turns out, giving developers taxing and bonding authority was a bad idea.

Just because we’re $17 billion into this failed experiment of trusting for-profit companies with taxpayer dollars doesn’t mean it’s too late to stop. In fact, a new metropolitan district is likely being considered by a city council or county commission near you this month. These city and county officials should stop approving the formation of new districts immediately until local officials and state lawmakers are able to gain control of the situation.

The situation, to briefly recap the first part of The Denver Post’s investigation “Metro Districts: Debt and Democracy,” is dire. Post reporter David Migoya uncovered multiple ways developers in Colorado are abusing the almost unlimited power granted to them through these metropolitan districts.

Almost no new development is occurring in Colorado that isn’t funded, at least in part, with taxpayer money. But it isn’t local elected officials spending that money and guarding against fraud and abuse. The developers themselves have complete control, sometimes for decades.

Migoya’s reporting included disturbing examples of developers violating public trust.

We’ll highlight one bad deal from among hundreds:

Lennar Corporation — one of the nation’s largest homebuilders — is running a metropolitan district that will help pay for the development of a subdivision called Orchard Farms in Thornton. Homeowners in this relatively small community of about 450 homes on 154 acres are being fleeced by compounding interest, bad debt and transfer fees.

According to a bond document obtained by Migoya as part of his investigation, homeowners in this neighborhood will be paying off the developer’s debt until 2053. As of 2018, $12.9 million in debt had been issued by Lennar’s representatives on the metro district board, and it will be paid for through property taxes at rates that rival the city, county and school taxes combined.

Homeowners in Orchard Farms pay about 90 mills in property taxes for Adams County, Brighton School District No. 27J, a library district, a fire district, and the city of Thornton. But for the Big Dry Creek Metropolitan District (now known as Orchard Farms Metropolitan District) homeowners, as of the 2018 abstract of assessment, pay an additional 73 mills (55 mills for the developer’s debt and 18 mills for operations of the metro district). For a home that has an actual value of $500,000, a homeowner would pay about $2,628 for their metro district taxes and $3,240 for their schools, city and county governments, fire and library services.

But that $12.9 million is only part of the story.

ASK A QUESTION Have a question about our Debt & Democracy investigation? Submit it here and reporter David Migoya could answer it in a coming story.

One of the bonds that employees of Lennar, who serve on the metropolitan district board, decided to issue are “cash flow” junior lien bonds, meaning there are no scheduled payments on the principal until 2035. During that time, the smaller $1.9 million bonds will accrue interest at 9%. Lennar employees serving on the board of Big Dry Creek issued these cash flow bonds, and then Lennar purchased the bonds, meaning they will be repaid $19.8 million by 2053 for a $1.9 million initial investment. This self-dealing is unethical and must be stopped.

Other debt was packaged more responsibly and sold to outside investors at a reasonable interest rate with payments starting soon after closing. We find it suspicious that this $2 million couldn’t be included in the other bonds to save homeowners millions in debt payments. Why look for a better deal when this benefits the bottom line of the developer? It’s a clever way for the builder to maximize their own revenue while not “technically” exceeding the statutory limit that metro district property taxes can not exceed 55 mills for debt.

Oh, and don’t forget that the developer, acting as the metro board, also is imposing an “operations fee” which is a $564 a year fee that is used to pay for operations and maintenance of the district. A separate $500 transfer fee is imposed every time a home is sold in the neighborhood (homeowners likely won’t know about this fee until they sell their home and pay closing costs). The bond document for the “cash flow” bonds also disclosed that a “capital fee” could be imposed on the district to repay debt, although no fee is being assessed now.

To illustrate the depths of greed we are talking about, it should be noted that Lennar did loan the district $77,702 to get up and running (attorney’s fees, etc.). Lennar will be repaid with 5% interest for a total of $110,124 by 2022.

Basically every new subdivision on the Front Range, including urban infill projects in Denver, has a similar scheme of debt, taxes and fees in place likely with no oversight from anyone, except maybe your local newspaper reporter.

City and county officials have lost control of billions of taxpayer dollars. Before any more of these projects are approved significant guardrails and controls need to be put in place.

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