Homeowners in future subdivisions will likely pay higher property tax rates than those in new and developing neighborhoods if the Colorado Springs City Council raises the ceiling on what metro districts can charge next week.
Metro districts have become the main tool for building new roads, sidewalks and other infrastructure needed for new neighborhoods and developments and collectively have issued $660 million in debt across town, said Carl Schueler, comprehensive planning manager. The community could reach $1 billion in outstanding debt issued by business improvement districts and metro districts if all the pending and approved bonds close, he said.
Councilwoman Nancy Henjum said in a recent meeting the policy change guiding the metro district into the future would have far-reaching effects for residents, but they are a needed tool.
“Without (districts), we would not be building new homes in our cities,” she said.
Districts need the flexibility to ask the City Council for additional revenue through property taxes because the infrastructure costs have risen 30% recently, Classic Homes CEO Doug Stimple said. Stimple served on the advisory board that help shape the metro district policy change. Some of those cost increases are driven by rising petroleum costs that affect materials like PVC pipe, he said.
The city can’t shoulder the cost of all the infrastructure for new neighbors, in part because the Taxpayer’s Bill of Rights has eroded its ability to save for those large costs. When the city has a particularly good tax revenue year, the money must be refunded, or the city must go to the voters to spend it on a specific cause.
“District financing has basically stood in the gap to provide an efficient financing tool for developers,” Stimple said.
To help cover the rising costs, the council may allow metro districts to charge 50 mills to pay off debt and 20 mills to cover maintenance and operations up from 30 mills to pay off debt and 10 mills to cover maintenance and operations, such as running small parks. The new cap of 50 mills to pay off debt is in line with state law. El Paso County caps the mills a metro district can charge 50 to pay off debt, 10 for operations and maintenance and 5 for covenant enforcement.
Residents of future city subdivisions could pay $2,000 in property taxes annually to their metro district on a $400,000 home, Schueler said.
All metro districts have to make their case before city council for the mill rate they plan to charge based on the infrastructure planned and right now districts typically cover about 40% to 50% of the cost of infrastructure, Stimple said.
If any existing districts wanted to charge more in property taxes, their representatives would have to return to council for approval, Schueler said. The city has about 60 metro districts although not all of them have residents yet, he said.
The policy change could also cap how much interest the bonded debt could earn if it is owned by the developer or related party to help control costs. The interest rate could be no more than 4% higher than an indexed rate for highly rated bonds, Schueler said. El Paso County does not have a cap on interest rates.
Such a cap is an innovative change, said Kristi Pollard, executive director for the Metro District Education Coalition.
“I think this will eliminate the perception of any padding of pockets,” she said. Pollard said she was not familiar with a similar cap in other communities.
Once neighborhoods are built, metro districts are meant to transition from developer-controlled to resident-controlled boards who can refinance debt and look out for the financial stability of the neighborhood, but transitions can be tough.
A city auditor’s report in September showed fewer than 10 metro districts in town had transitioned.
Schueler said following May elections a lot more boards have at least one or two resident members but relatively few have progressed to majority resident boards.
A state law now requires metro districts to inform all property owners of their eligibility to run in elections through mailings or emails and the education coalition is collecting data to see if the mailings make a difference in participating, Pollard said.
“If people do want to get involved, we should make it easy for them,” she said.
The council was expected hear public comment on the new metro district policy and vote on it Aug. 9.