In Colorado, metropolitan districts are special tax districts, a form of local government, created to provide municipal services in areas where these do not exist. These services most typically include water, sanitary sewer, transportation improvements, and parks and recreation, but there are several other municipal services that may be covered as well.
Metropolitan districts have become common in Colorado in recent decades as urban growth moved outside of areas that could be easily served by existing local governments. There are now about 1,850 of these special districts operating in the state. A very common type, and one that will be familiar to many home owners in northern Colorado, happens when a developer builds beyond the bounds of existing infrastructure and the nearby municipality has no existing budget or authority to extend services.
In those cases, a metropolitan district may be formed to finance, develop and manage those services. The district imposes a special tax on new development in the affected area, and issues municipal bonds backed by the anticipated future revenues from that tax.
So that new subdivision just outside of town, with new streets, sewer and water lines, a swimming pool and park owes its existence to the metropolitan district that funded its infrastructure. And because the developer didn't have to pay those costs - they're being passed on to the homeowner as a part of his property tax - the homes can be priced to compete with other similar homes that already have access to municipal infrastructure - although their property taxes will be higher than homes not in a metropolitan district.
There are some potential problems with this arrangement. In the event that the development is not sufficiently successful to generate the tax revenue necessary to repay the bonds, existing property owners who fall under the district will likely bear the entire burden of repayment. Metropolitan district bonds are general obligation bonds, and in the event of a default, the bondholders have the right to place a tax levy to satisfy the obligation. That is exactly what happened a decade or so ago with some very large municpal districts in our state. The outcome was financially very damaging to the existing property owners and as a consequence, the state made legislative changes to improve the financial basis of future districts.
As part of those changes, our real estate purchase contracts contain special disclosure language making buyers aware of the potential existence of such districts. We always run a check for our buyers on any contemplated purchase. And as a matter of due diligence, when a purchase involves such a district, we always recommend that our clients take the time to review the district's finances and records.
If you'd like more information, a good place to start is Special Districts: A Brief Review for Prospective Homeowners published by the Colorado Department of Local Affairs.
Comments(31)