Developers create their own funding source with tool that’s gaining in popularity: metro districts
March 25, 2017
Breaking down costs
Property taxes are assessed based on a variety of factors. Essentially, there’s a property tax rate (7.96 percent now) and a millage rate. The millage rate is how many mills the various taxing entities that overlap your property assess to fund their services.
Taxing districts include the county, cities, library districts, school districts and metro districts, among others. And Weld County residents all pay taxes to a variety of those districts.
Let’s see how they compare, based on the amount of taxes each would generate from home worth $300,000:
Weld County — $377 per year
Average school district — $678 per year
Average fire protection district — $159 per year
Average city or town — $375 per year
Average metro district — $955 per year
*Metro district residents may still have taxes for their county, city, school district, fire protection district and others.
About a year ago, Johnstown Mayor Scott James asked local schools Superintendent Marty Foster what the city could do to help the Johnstown-Milliken Re-5J School District.
"Get us more rooftops," Foster said.
Housing development has slowed there since the Great Recession. That was bad news for people like Foster. More rooftops means more money for the town and its school district. A stagnant town, of course, means less.
The land was there, but developers couldn't get the financing they needed to build the houses, or support them with infrastructure such as streets or water pipes. In the meantime, housing developments were popping up all over exploding Weld County while Johnstown looked on in envy.
So Johnstown leaders turned to the same method that helped push development in communities surrounding them.
They are called metro districts, and here's how they work:
A developer gets a piece of property classified as a metro district, then borrows money for the development. The debt is paid off via higher property taxes for the eventual homeowners.
It's a solution some developers say is growing in popularity in Weld County. There are so many, the Weld County assessor doesn't even keep track of the boundaries.
Johnstown has a couple, including one encompassing the commercial development at Interstate 25 and U.S. 34, but crafting service agreements with developers and districts like that was time consuming.
James and the Johnstown Town Board made their most concrete step toward addressing Foster's request in late February, adopting a sort of default agreement the town and developers can work with to come to terms about services metro districts or the town would provide to any new development. It's called a model service plan, and it's something many cities and towns in Colorado already had in place.
"There's a reason why Johnstown was at a standstill," James said. "They will not build unless metropolitan district financing is available."
Local landowner William Massey has pushed the metro district idea in Johnstown, and even put up $15,000 to help Johnstown hire an attorney specializing in metro districts to help craft the model service plan.
Since the council passed the plan, several developers have expressed interest in developing metro districts within Johnstown's borders, and those districts could be established as soon as November.
What is a metro district?
A metro district is a special taxing district, much like a fire protection or library district. Those districts take property taxes from anybody living within the district boundaries to pay for their services.
But unlike a fire protection or library district, metro districts charge homeowners for services that are typically covered by developers, such as roads and utilities.
The boundaries are also tiny, like single neighborhoods. There are metro districts that are just residential, just commercial, or a mixture of both.
And they're created as a way to finance infrastructure on undeveloped land.
For simplicity's sake, metro districts get their start through two basic steps:
The developer proposing the district works with the town or county to develop a service plan. This plan lays out the services the developer will cover and the services the city will cover.
The person proposing the district puts the question on the ballot, and people vote to approve or deny.
There are more than 200 metro districts in Weld County, but the vast majority of people living within those districts never got the chance to vote on them.
That's because only the people who own property in the proposed district get to vote on whether to create the district.
Typically, a developer will buy a plot of land, propose a metro district, then he or she — or their family or business partners — vote on that metro district. The future residents of the district do not yet live there, so they don't get to vote. A "no" vote would be almost unprecedented.
Then the developer controls the district, issues bonded debt to pay for the development and votes to levy a certain property tax to pay down that debt.
Those taxes are generally much higher than what you might see from an individual city or town because cities and towns have more people to share the costs of infrastructure.
Most developers will never pay the tax they voted on — that gets passed to the eventual homeowners or business owners inside the district once development is complete.
It doesn't look great, James admits.
"It may seem devious up front," James said. "I get that. But it's truly not. These subdivisions wouldn't exist without metro districts. The bottom line is, if you don't want to be in a metro district, don't move there."
For James or developers, the metro district is a win for everybody, including homeowners.
Take the Pelican Lake Ranch development, within a metro district about seven miles east of Platteville in unincorporated Weld County. There will soon be 188 homes there. Eventually, there should be 800 homes.
Christine Hethcock is the development manager for Pelican Lake Ranch, and Hethcock said the project wouldn't be possible without the metro district.
The developer would have had to secure financing from a bank or some other source, which isn't a guarantee, and then would have to price the homes higher in order to pay back that money.
For homeowners there, the metro district features a property tax burden nearly three times higher than the city of Greeley, which has 100,000 residents to share the infrastructure burden.
That may seem high, but the $375,000-$575,000 houses at Pelican Lake Ranch, each sitting on about 2.5 acres of land, would cost far more in Greeley, and far more without a metro district, Hethcock and others say.
"It all works out in the free-market wash," James said. "(Houses are) a lot cheaper in a metro district, but you put taxes on top of that. One way or another, the consumer pays."
Jamie Baessler owns Baessler Homes, a northern Colorado home building company. Baessler is the primary builder at Pelican Lake Ranch, and though he has built in metro districts before, Baessler said he and his staff recently sat through their first presentation from a consultant about putting together metro districts of their own.
"It is something that should be a wave of the future," Baessler said. "It is a big piece in making the risk of development more palatable and feasible."
Location, location, location
The wake of the Great Recession has created all of the factors necessary to make metro districts a logical choice, said Chad Walker, co-owner of Pinnacle Consulting Group, a Loveland-based company that specializes in helping developers set up metro districts. Walker's company was the one that presented for Baessler Homes.
"When you've got a median price point of a home that continues to rise, and land and construction costs continue to rise, it creates a shortfall of making development even feasible," Walker said. "There have to be other tools a developer can use."
Metro districts have existed in Colorado for about 70 years, and they've had their ups and downs, including huge financial messes around Colorado Springs years ago when taxes grew to epic proportions and districts were forced to declare bankruptcy.
The State Legislature has since instituted caps on metro district taxing. So for Walker, there's not much negative to say about metro districts.
"I think the only bad press they get is from lack of knowledge," Walker said, touching on higher taxes. "The market will determine what's fair."
Much of that depends on location. It's possible, developers say, to pass on costs up front in cities such as Greeley and Fort Collins. Greeley has just a few metro districts, while Fort Collins has a couple of dozen, according to the Special District Association of Colorado.
But developments like the one at I-25 and U.S. 34, which is technically in Johnstown, would have created so much infrastructure costs miles from the town center that the project might not have been feasible without a metro district there.
Hethcock has worked with metro districts for 15-20 years.
She said metro districts are key for developing outside of towns or cities, where developers have to bring in utilities and other infrastructure on their own. And with banks operating under more strict underwriting rules, getting financing through a metro district is a more efficient route, Hethcock said.
Even metro districts weren't much of an option during the recession because developers had to be able to sell those bonds on the market, and folks just weren't buying.
"There are a lot more metro districts that are coming into play now," Hethcock said.
Tyler Silvy covers city and county government for The Greeley Tribune. Reach him at firstname.lastname@example.org. Connect with him at Facebook.com/TylerSilvy or @TylerSivly on Twitter.