Powers of a metropolitan district
County and municipal governments are often constrained in their ability to provide infrastructure to new development. The Colorado Revised Statutes provide in Title 32 for the creation of a local governmental entity called a special district, which can fill in some of the gaps that may exist between the services counties and municipalities are able to provide and the services the residents of a special district may desire. There are many types of special districts in Colorado, including water and sanitation districts, school districts, park and recreation districts and metropolitan districts. Metropolitan districts combine many types of functions and can be organized to provide any two or more of the following services:
1. street improvements
2. water facilities and services
3. sanitation facilities and services
4. park and recreation facilities
5. traffic related safety protection improvements
6. transportation facilities and services
7. television relay and transmission facilities and services
8. mosquito control facilities and services
The functions of a metropolitan district can include both the construction of improvements and the ongoing operation and maintenance of the improvements. Metropolitan districts must be publicly accountable, which means, among other things, that they must hold open meetings, give notice of all meetings, keep minutes and other records, hold elections for the governing board of directors, adopt annual budgets, and submit to annual financial audits.
A metropolitan district has various financial powers given to it by Title 32, including the power to tax and/or assess fees for the services it provides and to issue tax-exempt bonds to help pay for public improvements. The eligible electors within the boundaries of the metropolitan district must first vote in an election to authorize the metropolitan district to incur any general obligation or revenue indebtedness. Once approved by the electors within the district, the bonds are sold to investors and must be repaid over time with interest. The money from the bonds is used by the metropolitan district to pay for necessary public infrastructure like streets and traffic signals, sidewalks and median landscaping, water and sewer treatment plants and lines, storm drainage facilities and parks and recreation facilities. The metropolitan district pays for bonds it issues by levying a property tax on all the property within the district boundaries or by assessing infrastructure, tap or other fees, or through a combination of these methods.
The tax levy is the rate of tax applied to the assessed value of all the property within the district's boundaries. The "assessed value" of property is that portion of the total market value of property that can be assessed for property taxes. Currently in Colorado, 7.94% of residential market value is assessed for property taxes. The assessed value of a $100,000 home, for example, would be 7.96% of $100,000, or $7,960. If the total assessed value of property within the boundaries of a metropolitan district was $10,000,000, and the district's tax levy rate was 25 mills, then the district would collect $250,000 in annual property tax revenue (25 mills x $10,000,000 assessed value = $250,000).
A metropolitan district can use other means to raise revenue, including assessing fees, rates, tolls and other charges for the services it provides, and the district can use those fees to pay for the public infrastructure costs. Until paid, these fees, rates, tolls and other charges constitute a perpetual lien upon the property served by the public improvements, which may be foreclosed upon in the same manner as a mechanics' lien. A metropolitan district can also issue revenue bonds that are repayable from the fees, rates, tolls and other charges. Metropolitan districts, since they can offer many services, are often established by developers to finance, through the issuance of tax-exempt bonds and/or the assessment of fees, the infrastructure necessary to support a new subdivision. Streets, water and sewer lines, and other utilities must be provided to an area, which, prior to the subdivision's development, may have been vacant land. After the infrastructure is in place, the developer builds homes in the district. New and ongoing development increases the assessed value of the property within the district's boundaries, and provides the tax base necessary to generate the revenue required to make payments on the outstanding bonds.
The following actions are required in order to form a Title 32 special district:
1. The process is initiated when the organizer of the special district submits a Service Plan to the Town Board of Trustees, City Council, or CountyCommissioners. The Service Plan must include a description of the proposed services, a financial plan of how the proposed services are to be funded (i.e., through a mill levy, the imposition of fees, or both); engineering and architectural surveys showing the location of the public improvements, maps, and other relevant information concerning the proposed district.
2. A public hearing is held on the Service Plan following notice and publication of the hearing. The Town Board will approve or disapprove the Service Plan, with or without conditions.
3. No Service Plan may be approved if a petition objecting to the Service Plan is signed by the owners of taxable real and personal property which equals more than 50% of the total valuation for assessment of all taxable real and personal property to be included in the district is filed with the Town Board.
4. After the Service Plan of the proposed district is approved by the Town Board, a petition for the organization of the district and the authorizing resolution are filed in the appropriate district court. The petition must be signed by at least 30% or 200 of the taxpaying electors of the proposed district, whichever number is smaller.
5. A court hearing is held with regard to the submitted petition following notice and publication of the hearing, and if it appears that the petition has been signed by the requisite number of persons and otherwise complies with all statutory requirements, the court will direct that the question of the organization of the district be submitted to the eligible electors within the district boundaries at an election. This election will occur either in May or November.
6. If a majority of the eligible electors of the district vote in favor of the district's organization, the court will order the district organized. Only property owners (and their spouses) and residents within the boundaries of the district can vote in the election.
A metropolitan district provides for the infrastructure necessary for new developments. The district itself constructs the improvements, and only the property owners within the district are taxed for the cost of the improvements. The Town is never responsible for the obligations of the metropolitan district.
Public Improvement Corporations
A public improvement corporation ("PIC") is a non-profit corporation formed by filing articles of incorporation with the appropriate Secretary of State's office. The articles of incorporation must state that the PIC is formed in furtherance of the objectives of a public entity, such as a Title 32 special district. Pursuant to IRS Revenue Ruling 63-20, an entity so formed may issue tax-exempt municipal bonds to assist the public entity and its purposes. There are other requirements which must be met in order to receive the tax-exempt status and are not discussed herein.
At the time of formation, or shortly thereafter, PIC covenants are recorded on the property encompassing the PIC's boundaries, and the landowner must consent to the covenants. By virtue of the covenants, the PIC is empowered to impose a public improvement fee ("PIF") for collection on retail transactions. The PIF is a private fee, not a tax, but is imposed on all taxable transactions within the PIC's boundaries. To the consumer, the PIF is similar to a tax as it is included within the tax portion of their bill. Likewise, to the retailer, the PIF is similar to a tax because it is a pass-through cost.
The PIF collected by the PIC may be used by the PIC or the public entity to finance public improvements which benefit the property encompassed its boundaries. The PIF may also be used to finance certain improvements that are not otherwise able to be funded by a public entity, such as dry utilities and parking. The use of the PIF to pay for or supplement the costs of public improvements reduces the need for a mill levy or bonded indebtedness on the property. The amount of the PIF is established by the PIC and, while it can be perpetual, the amount of the PIF typically reduces significantly after bonds are paid and continue to be imposed for the purpose of funding capital repairs and operations and maintenance costs.
At the time a retailer enters into a lease with the property owner, the retailer is required to enter into an agreement with the PIC to impose the PIF and to remit the PIF proceeds to the PIC, or the public entity, and to allow the PIC to inspect its records for payment. Failure to pay and remit the PIF to the PIC, or the public entity, generally constitutes a cross-default under the lease as well as a breach of the covenant on the property.