Andrew Sorensen and his wife Samantha were elated when they bought their home in Broomfield’s Baseline neighborhood in September 2022 after nearly a year of bidding on homes that were overpriced and uninhabitable in some cases.
However, Sorensen said that excitement quickly turned to trepidation after the couple learned that their home was controlled by a metropolitan district, a controversial tool that Colorado developers use to build homes.
Sorensen’s home is part of Baseline Metropolitan District 3, one of nine metro districts that are responsible for developing homes and maintaining the necessary infrastructure like roads, water lines, and sewer systems. Colorado law also allows metro districts to issue bonds to finance its work, and those bonds are often paid back through property tax mill levies.
So far, the metro district has codified about $764 million in bonds that it can issue to investors. The debt incurred by these bonds would be paid back by Baseline homeowners over the next several decades.
There’s just one catch: The board members that set the Baseline Metropolitain District’s tax levels all work for McWhinney Real Estate Services, the developer building the neighborhood.
“When McWhinney owns the land, the rights to develop it, and the right to charge Coloradans whatever the company would like to finance the project via bonds, can you call it anything but self-dealing?” Sorensen asked Colorado lawmakers in February.
Like other homeowners in Colorado, Sorensen wants greater transparency and responsiveness from his metropolitan district’s governing board. For example, Sorensen said he and his neighbors don’t know if McWhinney is charging them a fair price for their development services.
He added that they also have no say in whether McWhinney raises the district’s mill levy in the future. This could effectively price Sorensen, and other homeowners, out of the neighborhood if they are unable to keep up with property tax increases, he said.
“These practices should be far more heavily regulated than they are,” Sorensen added.
Metro Districts and Homebuilding
Metropolitan districts have come under increasing scrutiny in recent years as Colorado’s challenges with housing affordability continue to fester.
These districts were created in the 1980s to help solve a very practical problem. Colorado’s economy was under significant pressure as employment nosedived in government, retail, and hospitality due to enormous speculation in the state’s housing market. As a result, local government tax receipts declined and caused them to be financially unable to support new infrastructure and community development projects even as the state’s population increased.
Metro districts offered tax-hobbled jurisdictions an alternative financing model for infrastructure projects. Instead of only using tax subsidies, metro districts can raise debt from private investors by selling bonds and use those proceeds to fund construction. These districts then collect property taxes from homeowners to pay for their maintenance expenses.
In 2000, there were about 200 metro districts in Colorado. Today, there are more than 2,300 metro districts in Colorado, according to the Special District Association of the Division of Local Government. Groups like the Colorado Association of Home Builders say metro districts can improve housing affordability by reducing the per unit infrastructure costs by between $30,000 and $40,000. But homeowners like Sorensen think there need to be more safeguards in place to limit the amount of debt that metro districts can issue.
For example, the more than $760 million in bonds that the Baseline Metropolitan District can issue is about 72% greater than the city and county of Broomfield’s total outstanding debt, according to Broomfield’s latest comprehensive financial statement. Collectively, the 2,300 metro districts in Colorado hold more than $1 trillion in debt, which dwarfs the state of Colorado’s more than $37 billion of total debt.
“Unchecked, some of these financial structures could easily lead down a road of mass foreclosures or whole communities defaulting,” Sorensen said.
Metro districts also don’t seem to be helping to make Colorado homes more affordable. Colorado’s median home price has skyrocketed by more than 93% over the last decade from about $288,000 to more than $558,000 as of March 2023.
Rents for a two-bedroom apartment in major cities like Denver and Boulder have also increased significantly. In Denver, rents have increased by 120% from about $830 in 2013 to about $1,967 today, according to data from RentCafe. Boulder’s average rent has increased by 137% over the same time period, from about $1,060 to more than $2,300, according to RentCafe.
Recent Reform Efforts
Despite some glaring issues with metro districts, legislative reform efforts have been hard to come by in part because of the strong lobbying efforts from developers.
Colorado lawmakers introduced multiple bills during the 2023 legislative session aimed at metro districts. One bill, House Bill 23-1090, sought to prohibit the directors of metro districts from purchasing the bonds that they issue through another entity. It was introduced by Democrat Rep. Mike Weisman of Aurora and Sen. Robert Rodriguez of Denver.
Weisman told the House Finance Committee that the bill is designed to create “higher restraint” on the part of metro district directors before they issue debt on behalf of the homeowners they represent.
“I want to be clear that there is a role for government debt. The state has it for school and fire districts,” Weisman told the committee. “But in just about every other case, those who purchase the debt do so at an arm’s length from those who issue it.”
However, HB23-1090 attracted significant pushback from groups like the Associated Builders and Contractors Rocky Mountain Chapter, the International Council of Shopping Centers, and the Colorado Chamber of Commerce to name a few. The Senate Local Government & Housing Committee voted to postpone the bill indefinitely by a 4-3 margin at the end of March.
Instead, lawmakers passed Senate Bill 23-110, a bipartisan bill that explicitly allows metro district directors to purchase this kind of debt. SB23-110 also requires additional transparency from metro districts regarding the debt issued and requires the entity to get the opinion of a registered municipal advisor regarding the market fairness of the debt incurred.
SB23-110 also gained the support of many lobbyists who did not support HB23-1090 such as the Adams County Regional Economic Partnership, the Colorado Infrastructure Council, and the Denver Metro Chamber of Commerce.
Supporters of the bill like Maryann McGeady, an attorney with McGeady Becher P.C., a law firm that represents special districts, told lawmakers that SB23-110 ensures there is a standard set of best practices for all metro districts to follow. This includes clarifying information that needs to be included in a metro district’s service plan and which entities will be responsible for maintaining the district after it is complete.
But Colorado residents like Alex Plotkin, who lives in Boulder, told lawmakers that SB23-110 would simply add to the financial problems that homeowners in metro districts face.
“Statewide, this is becoming a multi-billion dollar issue with no signs of abating,” Plotkin told lawmakers in March. “So as the citizens of Colorado are struggling financially, representatives at all levels are further exacerbating the issue by enabling additional financial burden on countless citizens who have no say in the matter.”
Governor Jared Polis signed SB23-110 into law on April 3.