Dramatic Metro District Reform Placed on Hold in Favor of Modest Reform
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Dramatic Metro District Reform Placed on Hold in Favor of Modest Reform

Brownstein Client Alert, April 3, 2023

In the latest development in the ongoing struggle between opponents of Colorado metropolitan districts and the developers who use them to finance infrastructure and other public works projects, the Senate Local Government Committee has rejected a bill that would have fundamentally altered the landscape of metropolitan district governance, opting instead to push for more modest reform.

The majority of new residential development in Colorado is supported by metropolitan districts. To form a metropolitan district, a developer must secure the approval of a service plan from the county or municipality in which the development is located. This plan sets the maximum debt limits and mill levies for the district, and appoints the district’s initial board of directors, who typically serve until construction of the development is completed and residents move in. These directors are frequently associated in some way with the property owner, because only a taxpayer who owns property within the district can serve as a director and can vote to issue debt on behalf of the district used to fund construction of necessary infrastructure such as roads, sewers, parks and trails, and water and sewer facilities without imposing additional taxes on the cities and counties where the developments are located. Residents of the new development then repay this debt through their property taxes.

Concerns raised by residents, board members and developers of metropolitan districts led to the introduction of several bills aimed to reform and clarify metropolitan district governance. One of these, HB23-1090, which passed out of the Colorado House of Representatives in February 2023, sought to prevent developers from purchasing from metropolitan districts “developer bonds,” which are bonds distinct from those a metropolitan district authorizes for sale to the general public. Developer bonds are often sold privately to developers and accumulate interest until the district has generated sufficient revenue to pay them or refinance them. Developers have explained that, particularly early in the lifecycle of a development, when district bonds may be perceived as riskier by the market, developers rely upon this common practice to finance up front installation of infrastructure to serve new developments. Opponents of metro districts argue that the practice creates conflicts of interest and imposes unnecessarily high costs on future residents. A competing bill, SB 23-110, explicitly allows developers to purchase this type of debt, but also increases the transparency of taxes imposed on future district residents and sets additional safeguards against abuse by limiting interest rates on developer-purchased debt, requiring disclosures of such debt, and requiring the opinion of an registered municipal advisor regarding the market fairness of the terms. The bill also codifies several other industry best practices, such as holding annual meetings which are accessible to residents and inviting public comment at such meeetings.

After more than three hours of testimony, the Senate committee voted 4-3 on Tuesday to postpone HB23-1090 indefinitely, rejecting the prohibition on developer-purchased debt in favor of the more modest reforms proposed by SB 23-110, which has been sent to the governor for signature. Gov. Polis has not indicated whether he intends to sign the legislation.

This document is intended to provide you with general information regarding metropolitan district reform in Colorado. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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