If you’re a homeowner in a newer community in Colorado, chances are that you are in a metro district. As a Colorado real estate agent, clients frequently ask about the impact of the metro districts in Colorado on homeownership. And most new homeowners are surprised to find this additional tax in their first property tax bill. While they have advantages and disadvantages, understanding what they are, why they exist, and their nuances is critical before investing in a property located within one.
What is a metro district?
Metro districts, also known as special taxing districts, are created by developers in order to finance improvements within a specific area, such as parks, roads, and sewers. The developers initially sell bonds to raise money for these projects, with the homeowners who buy in that area being responsible for additional property taxes to repay those bonds.
What are the advantages of a metro district?
One of the main advantages of living in a metro district is the improved infrastructure and amenities. With the funds raised from property taxes, the district can finance projects that might not have been feasible otherwise. As a result, residents enjoy well-maintained parks, paved roads, streetlights, and other amenities that enhance their quality of life. Additionally, the presence of these amenities can increase the value of properties within the district.
What are the disadvantages of a metro district?
Conflict of Interest
According to several investigative articles, there are unfortunately many reported downsides to living in a metro district. For one, the additional property taxes can be significant and can cause financial strain for some homeowners. Additionally, these sources state that many developers who create metro districts often retain significant control over the district’s finances, which can lead to conflicts of interest.
This Denver Post article found a recurring practice of developers purchasing the public bonds they approved as metro district board members. These developers even acknowledge the conflict of interest by filing statements with the Colorado secretary of state’s office. This creates an issue for homeowners because these bonds, known as junior bonds, are intended to remain unpaid for decades. When this happens, the interest accumulates and it in turn increases the investment returns for the developers.
Lack of Transparency
Another primary concern noted is the lack of transparency and accountability in many metro districts. Homeowners may not have a say in how the funds are allocated or how much they are charged for services. In some cases, the district’s board don’t even hold regular meetings. This makes it challenging for homeowners to stay informed about district affairs.
Another concern brought up by these reports, is the potential for unexpected costs. Living in a metro district entails homeowners paying additional property taxes. And they may also encounter unexpected fees or assessments for services or maintenance. For instance, if a developer sells bonds to fund a project and the expenses surpass the raised amount, homeowners will have to cover the difference.
Moreover, if the developer who established the metro district declares bankruptcy or cannot fulfill their obligations, homeowners may become liable for maintaining the infrastructure and services. This can be a significant financial burden, particularly if the district requires costly repairs or upgrades.
Why do we have metro districts?
Developers used to recoup the costs of building subdivisions by selling homes. But the largest expense is the initial infrastructure, which goes into the ground before the homes are built. This can cost tens of millions of dollars. In the past, developers hoped to recoup these costs from home sales, but this has become more difficult due to voter refusal to approve tax increases. Since the passage of the Taxpayer’s Bill of Rights (TABOR) in 1992, the electorate has had to approve any tax increase. As a result, voters routinely refuse to approve increases to pay for someone else’s construction.
As a result, metro districts have become more important. Initially, they were not favored by municipalities and counties. However, they became seen as a way to shift the cost of public services away from taxpayers. The success of the Highlands Ranch Metropolitan District in the 1980s was a turning point. It became the largest unincorporated community in the U.S. and provided most of the services and infrastructure of a municipality.
Metro districts provide an efficient way to finance public infrastructure, which can be difficult to finance in the private sector. The Special District Act was amended to expand the powers of metropolitan districts, allowing them to issue unlimited debt as long as the investors were banks or institutions. This includes developers themselves. Thus, metro districts are important in facilitating the development of larger-scale projects by allowing for the investment of significant amounts of capital that might not otherwise be available.
What you need to consider
Despite the potential downsides, living within a metro districts may be a viable option for some homebuyers. Especially for those who want to enjoy a home in a newer community with high-quality infrastructure and amenities. However, it’s essential to research the district thoroughly before investing in a property.
Here are a few critical things to consider:
- To understand the financial structure of the district, investigate how the district finances itself, how much additional property taxes homeowners must pay, and the purpose of these funds.
- Know who is responsible for managing the district: Find out who is on the district’s board and who is responsible for managing the finances. Determine if the developer has too much control over the district’s affairs.
- Consider the impact on property values: Evaluate the impact of the district’s amenities on property values in the area.
- Review the district’s governance. Verify whether the district holds regular meetings and whether homeowners have a voice in how funds are allocated.
- Evaluate the cost-benefit. Compare the additional property taxes to the benefits of living in the district, such as access to high-quality infrastructure and amenities.
Related news articles about metro districts in Colorado:
- Colorado Development Scheme Yields Billion-Dollar Debt
- Colorado metro districts and developers create billions in debt, leaving homeowners with soaring tax bills
- House bill to prohibit Colorado metro district developers from buying own financing heads to Senate
- Map of Metro Districts In Colorado
- Colorado Association of Homebuilders – Background on Metro Districts
In conclusion, while metro districts offer improved infrastructure and amenities, they also come with potential downsides such as significant additional property taxes, lack of transparency, and unexpected costs. Prospective homebuyers should thoroughly research the district before investing and evaluate the cost-benefit carefully. Ultimately, making an informed decision requires weighing the advantages and disadvantages of living in a metro district.