To: Honorable Mayor and Members of Town Council
From: Dave Corliss, Town Manager
Bob Slentz, Town Attorney
Trish Muller, CPA, Finance Director
Title
Presentation of the Metropolitan District Summary for the year ending December 31, 2018
Body
________________________________________________________________________________
Executive Summary
What is a Metropolitan District?
A metropolitan district (metro district) is a taxing entity, separate from the Town of Castle Rock, that exists primarily to finance public improvements that benefit property owners in the district. In order to fund the infrastructure needed in a development, developers can form a metro district that has the authority to issue bonds. The proceeds from the bond issuance are then used to fund infrastructure construction. The metro district assesses a mill on properties within the district and uses property tax revenue generated from that mill to fund the debt service payments. Metro districts are also allowed to levy a general operating mill, as approved in their service plan, to cover administration and operation expenses.
Based on information provided by the Department of Local Affairs, there are approximately 1,845 Metropolitan Districts in the State of Colorado. Weld County (305), Arapahoe County (270) and Adams County (246) round out the top three largest number of metro districts within each county. Douglas County has the fourth highest number of Metro Districts at 198. Castle Rock has 41 Metropolitan Districts (36 active) within its Town boundaries, representing 21 percent of the Metropolitan Districts within Douglas County. The topic of metro districts and the potential implications of district debt placed on homeowners is not unique to Castle Rock but rather is of state-wide interest.
Summary of the 2018 Review
The Town has received the required information from each of the 36 active Districts, as required by the Town code.
Our purpose in reviewing the Annual Metro District submission is to 1) identify Metro District compliance with the filing requirement (completeness and timeliness); 2) note any unusual items or items in the District submission including the Audited Financial Statements and Budget document; and 3) identify any significant circumstances that could potentially impact future repayment of long-term debt.
Town staff has reviewed each of the submissions for the year ended December 31, 2018 and is highlighting certain considerations for the Metro District areas in this report. These considerations include the size of the outstanding debt and the ability to timely service debt. We will continue to monitor the considerations as noted.
Conclusions
Do all residential or commercial areas in Castle Rock have Metro District debt?
Many households in Castle Rock have Metro District debt. However, there are certain residential areas that were either developed without the use of a metro district (such as Metzler Ranch, Craig & Gould, Red Hawk, Timber Canyon and Diamond Ridge), or the Developer used the Metro District to issue debt and has successfully paid it off. This occurred in the Plum Creek Metropolitan District, which paid its District debt in full in 2015 and no longer assesses a metro district mill levy on its residents.
Analysis of the Metro Districts
In total, the Metro Districts within the Town’s limits have approximately $765M in debt outstanding. See Attachment B for an analysis of Metro District Debt Maturity Dates. This information is taken from the amortization schedules for each external issuance; developer advances are not given a term certain, as they are subordinate to the external debt and are payable from available revenues after meeting current obligations. No amortization schedule or maturity date exist for the developer advances.
Based on the procedures performed on the annual reports submitted by each Metro District for the year ended December 31, 2018, it is evident that each Metro District has its own story. Districts have varying levels of debt and maturity dates, various stages of development, and revenue sources limited to their mill levy as stated in the service agreement. Although the intent of a metro district is to issue debt to fund the infrastructure and start-up costs of a development, the success of a given metro district is contingent upon the debt amount and terms, the stage of development, and current and future market conditions.
Certain items to note based on our review are as follows:
Ø In 2018, overall metro district debt increased by $31.9M, although there were no new bond issuances. The overall increase in outstanding debt is due to accumulating interest on outstanding balances and additional developer advances.
|
Balance at January 1, 2018 |
Additions |
Deletions |
Balance at December 31, 2018 |
|
$ 733,132,368 |
$ 50,684,904 |
$ 18,812,826 |
$ 765,004,446 |
Ø Of the total outstanding debt, $352,832,716, or 46 percent, represents outstanding principal, and $412,171,730, or 54 percent, represents accrued interest.
Ø Castle Oaks refinanced $17M in outstanding debt issuances, extending the ultimate maturity date from 2022 (balloon payment due) to 2040.
Ø Castleview Metro District amended its service plan with the Town on August 21, 2018, updating the provisions contained within the service plan, including the scope of public improvements consistent with current development plans and build-out projections, a revision of the district’s financial plan, and the creation of a multiple district structure to accommodate phased absorption.
Ø Hillside at Castle Rock amended its service agreement with the Town to increase its total anticipated debt issuance to $6,441,000 from $3,665,000 due to revised estimates of the cost of public improvements.
Ø Under the Gallagher amendment, home values can make up no more than 45 percent of the state property tax base, while non-residential property owners have to contribute 55 percent. If home values rise faster than business property values, the amendment requires a reduction in the home values to maintain the 45-55 split. This drop in home values would decrease the amount of revenue that a metro district collects. However, if the metro district has voter authority, it can increase its mill levy to an amount that compensates the district for the mandatory reduction of home value under Gallagher.
Staff will continue to monitor Metro District submissions and plans to inform Council of any potential concerning situations.
Policy Considerations
Although metro district debt may be an important tool for the development community, it can become burdensome on current and future residents and businesses. The amount of debt issued and the term of the repayment should not outlast the life of the asset it funded. In certain cases, metro district debt exists long after the life of the asset; infrastructure may be replaced one to two times before the debt is retired. Metro districts tax future residents and businesses rather than rolling the infrastructure costs into the up-front price of the home.
Although the concept of metropolitan districts is not new to Colorado, it has recently been brought to the forefront by media and concerned residents. The Colorado Department of Local Affairs has put together a publication on metro districts for prospective homeowners. The publication is an overview of special districts and their financing. It addresses many of the questions that people buying real estate may have about the purposes of special district and how they will be taxed. Staff has attached the publication to this memo as a reference tool for Council and residents (Attachment D).
In order to further examine policy considerations related to metro districts, staff recommends developing additional policies on this topic to be initially reviewed by representatives from the development community and Town residents. Potential policies may include, but are not limited to:
• Maximum term on debt, not to exceed the useful life of the asset it funded
• Cap on the mill levy
• Restrictions on subordinate debt and/or developer advances
• Other policy considerations
Recommendation: Direct staff to prepared draft policy recommendation with input from community stakeholders, for consideration by Council.
NOTE: Staff has not performed a full audit of the information provided by the Metro District Annual Reports in accordance with Municipal Code Section 11.02.040. The statements and conclusions in this report represent the Town’s analysis of the information provided and do not predict future performance of the Metro Districts.
Staff Report Attachments
Attachment A: Metro District Map
Attachment B: Summary of Metro District Mills and Property Tax
• Supporting Exhibits by Metro District:
1: Bella Mesa
2: Castle Oaks, 3
3: Castleview
4: Castlewood Ranch
5: Crystal Crossing
6: Crystal Valley 1, 2
7: Founders Village
8: Lanterns 1, 2, 3
9: Maher Ranch
10: Meadows 1-7
11: Villages at Castle Rock Metro District 6 (Cobblestone Ranch)
12: Villages at Castle Rock Metro District 7 (Woodlands/Escavera)
Attachment C: Summary of Metro District Debt by Maturity Date
Attachment D: DOLA: Special Districts: a Brief Review for Prospective Homeowners