Article 1 of Title 32 of the Colorado Revised Statutes is the source of most laws pertaining to the creation and operation of special districts (“Special District Act”) within the State of Colorado. The Special District Act was passed by the Colorado General Assembly in 1981. The legislative declaration for the Special District Act states:
| The general assembly hereby declares that the organization of special districts providing the services and having the purposes, powers, and authority provided in this article will serve a public use and will promote the health, safety, prosperity, security, and general welfare of the inhabitants of such districts and of the people of the state of Colorado. (CRS 32-1-102(1)) |
Per CRS 32-1-103, special districts include the following 9 types of districts:
|
Special District Type |
# of Special Districts Created in Colorado (as of Dec. 31, 2020) |
|
| 1) | Ambulance Districts | 11 |
| 2) | Fire Protection Districts | 254 |
| 3) | Health Service (Hospital) Districts | 40 |
| 4) | Metropolitan Districts | 2,004 |
| 5) | Park & Recreation Districts | 55 |
| 6) | Sanitation Districts | 67 |
| 7) | Water & Sanitation Districts | 121 |
| 8) | Water Districts | 77 |
| Total Special Districts | 2,629 |
Regarding all special districts other than metropolitan districts, the directors serving on such boards (625 districts in total) have reported few, if any, conflicts of interest over the past 10 years. Only 10 of these 625 non-metro special districts are currently controlled by directors who are employees, owners or otherwise related to the primary developer of land within the district. The remaining 615 non-metro special districts are controlled by a majority of independent directors who do not report any conflicts of interest serving on such boards.
Because these non-metro special districts provide well-established services to a wide population of residents and businesses, such districts naturally attract the attention and political pressure of the constituents they serve. This is the primary reason why the vast majority of directors serving on non-metro special district boards are reportedly independent and do not file conflicts-of-interest disclosures regarding their service on these boards. Generally, the types of conflicts of interest reported by directors serving on the 615 non-metro special district boards do not appear to be financially significant to such districts. Also, the risks related to these conflicts of interest are mitigated in every case by the remaining majority of directors reporting no conflicts of interest serving on these boards. Specific examples of conflicts-of-interest disclosures filed with the Colorado Secretary of State by those few directors who serve on the 615 non-metro special district boards include the following:
It is worth noting that the land comprising the boundaries of most of the 10 non-metro special districts owned by land developers (i.e. 9 water & sanitation districts and 1 water district) is largely undeveloped.
Generally, cities and counties prefer ambulance, hospital, fire protection, park & recreation, water and sanitation districts expand their existing service boundaries to include newly developed land rather than create new special districts to provide such services to residents. Thus, the creation of non-metro special districts occurs infrequently. 18 of these 715 non-metro special districts were created within the last 20 years (which is in stark contrast to the 1,653 metro districts created over the past 20 years).
Per CRS 32-1-103(10), metropolitan (aka “metro”) districts are special districts that provide the inhabitants of the district with any two or more of the following services:
The creation of a metro district must be approved through an election by the eligible voters who live and/or own land within the boundaries of the proposed district. The land within the boundaries of most newly created metro districts is typically undeveloped and owned by a few (or usually one) owners.
Before an organizational election can be held by the landowners in a proposed metro district, the Municipal Government in which the metro district will be located must approve the district’s proposed service plan. A metro district service plan delineates the powers and responsibilities of the district authorized by the Municipal Government. Municipal Governments cannot authorize powers to a metro district beyond the powers allowed for special districts under the Special District Act. Thus, Municipal Governments determine which powers allowed under the Special District Act may be exercised by metro districts. Typically, Municipal Governments ensure the powers allowed to be exercised by the metro district per the district’s service plan do no overlap or interfere with the powers the Municipal Government desires to exclusively retain and exercise. State laws prohibit Municipal Governments from transferring to metro districts certain powers reserved exclusively for Municipal Governments (for example, police powers).
Unlike ambulance, hospital, fire protection, park & recreation, water and sanitation districts which are formed for the purpose of providing on-going public services, most metropolitan districts (and related subdistricts) are not created for the purpose of providing on-going public services. Rather, most metro districts are created for the primary purpose of issuing debt to finance the installation of new public infrastructure on undeveloped land and then collecting property tax revenue over the next 30 to 40 years from the taxpayers that move into the district. The “public service” provided by these metro districts – installation of new public infrastructure – is provided during the early stages of the life cycle of a metro district when few, if any, taxpayers have moved into the district. Colorado statutes (specifically CRS 32-1-808) allow land developers to transfer land parcels for the purpose of qualifying individuals to serve as “public officials” on the boards of newly created metro districts. Typically, such public officials are the employees, owners or relatives of owners of the land development company, which usually owns most or all of the undeveloped land within the boundaries of the new metro district. By the time 30 or 40 homes are built causing residents to move into a new metro district, the land developer-controlled district has typically already issued a significant amount of debt and transferred all of the cash proceeds to the land developer as payment for past and future construction of public infrastructure within the district. The inherent lack of a public constituency to be beholden to, the lack of oversight over ethical behavior, the lack of oversight over the conduct of elections and immunity from qualifying to serve on the board – all of these elements combined with the governmental power to generate tax revenue and issue government-classified debt to finance the development of undeveloped land – these elements are found only in Colorado metro districts which have attracted the attention of home builders and land developers over the past 20 years. Colorado statutes (especially Title 32) provide land developers with the ability to unilaterally control a governmental taxing entity and use its credit to issue government debt to fund land developer’s public infrastructure projects. Without a metro district, the ability of land developers to expand their public and private construction projects is limited by the land developer’s individual borrowing capacity and credit worthiness.
In the past five years, metro districts have become increasingly popular among Municipal Government and residents as a replacement to homeowner associations (HOAs). Most neighborhood services provided by HOAs (e.g., trash hauling services, park and recreation facility maintenance, property maintenance inspections and enforcement) can be provided by metro districts. The important difference between metro districts and HOAs is that metro districts are funded from property tax revenue (the collection of which is almost guaranteed each year at a low collection cost to the district) whereas HOAs are private corporations funded from membership dues (which is more costly to collect and no guarantee exists that dues assessments can be collected in full). This is one area where government is growing in popularity as a more cost-efficient approach than private HOA corporations in providing neighborhood services to large populations of residents. Regardless of whether a newly created metro district can provide various on-going neighborhood services, land developers’ primary interest in metro districts is the districts’ ability to issue government debt to finance the land developers’ construction projects.
For the reasons outlined above, the metropolitan district form of government has rapidly become a popular financing tool used by private land development companies to expand their business operations in Colorado over the past 20 years. Approximately 75% of all metropolitan districts in Colorado were formed within the last 20 years.
