To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Michael J. Hyman, Town Attorney
Title
Resolution Approving the Amended and Restated Service Plan for Dawson Ridge Metropolitan District Nos. 1-5 and Westfield Metropolitan District Nos. 1-2; and Authorizing the Execution of an Intergovernmental Agreement by and Among the Town of Castle Rock and Said Districts
Body
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Executive Summary
Dawson Ridge Metropolitan District Nos. 1-5 (the “Dawson Ridge Districts”) and Westfield Metropolitan District Nos. 1-2 (the “Westfield Districts”) are seeking approval from the Town Council for their Amended and Restated Service Plan under the provisions of the Special District Control Act, §§32-1-101, et seq., C.R.S., and Chapter 11.02 of the Castle Rock Municipal Code.
Background
History of the Dawson Ridge Districts
The original service plans for the Dawson Ridge Districts were approved by the Town Council in 1985. In 1992, after issuing debt and constructing the initial phase of public improvements, Dawson Ridge Metropolitan District No. 1 (“District No. 1”) advised the Town of its intent to confirm a Chapter 9 Bankruptcy Plan. The Town objected, leading to negotiations that eventually resulted in the execution of the October 8, 1992, Suspension Agreement between the Town and the Districts (the “Suspension Agreement”).
Under the terms of the Suspension Agreement, the Town agreed that District No. 1 could move forward with its Bankruptcy Plan. In exchange, the Districts agreed to suspend their authority to undertake improvements and issue debt until such time as amendments to their service plans were submitted to the Town for review and approval. Due largely to market conditions, the Dawson Ridge Districts have remained inactive since that time.
History of the Westfield Districts
The original service plans for the Westfield Districts were also approved by the Town Council in 1985. No debt has ever been issued by the Westfield Districts, nor have the Districts undertaken the construction of any improvements. It should be noted, however, that a 10-mill property tax levy has been imposed against the Districts to pay an outstanding judgment in favor of MSP Investment Co., which levy will remain in place until the judgment is fully paid. Again, due to market conditions, the Westfield Districts have remained inactive for the entirety of their existence
.
Dawson Trails Planned Development
At its August 16th meeting, following a public hearing, Town Council approved the application of Dawson Trails I, LLC, and Dawson Trails II, LLC (collectively, the “Developers”), to rezone a substantial portion of the property within the Districts as the Dawson Trails Planned Development. In order to accommodate the revised development plan for the property and ensure the most efficient and cost-effective financing of public improvements, the Developers, in consultation with legal counsel for the Districts, have determined that it is necessary to amend and replace the Districts’ original service plans.
Discussion
Special District Control Act
Prior to the organization of a special district, a service plan must be submitted to the proper authority for review and approval. For those districts wholly contained within the boundaries of the Town, the approving authority is the Town Council. A public hearing on the service plan must be conducted by the Town Council and a decision made based solely upon the service plan and evidence presented at the hearing. Any decision of the Town Council approving the service plan must be memorialized in a resolution.
Here, the Dawson Ridge and Westfield Districts are already in existence. Each District has a service plan that is out of date and needs to be rewritten in order to conform to existing state and local law and current Town policy. Material modifications (i.e., “changes of a basic or essential nature”) of an existing service plan must be approved in substantially the same manner as the original plan. Further, per the Suspension Agreement, the Districts and the Town have agreed that any new or revised service plan will require a public hearing before the Town Council.
Model Service Plan
In preparing their Amended and Restated Service Plan, the Districts have agreed to substantially adhere to the Town’s Model Service Plan, as approved by the Town Manager. Key operational features of the model service plan include the following:
• A district cannot operate and maintain public improvements absent an IGA with the Town.
• A district cannot use the power of dominant eminent domain against Town property.
• A district cannot include property within its boundaries without Town consent.
• A district must enter into an intergovernmental agreement with the Town relating to the limitations imposed on a District’s activities by the plan.
The model service plan also places limitations on district financial powers to protect the Town and future district residents. Important financial features of the model service plan include:
• A maximum debt service and overall property tax mill levies.
• A maximum debt service mill levy imposition term.
• A limit on the total amount of debt that the District may issue.
• A limit on the ability of the District to impose development fees against the end users of residential and commercial property.
• A district cannot issue or refinance debt without first submitting the proposed financing for Town review and comment.
• A district cannot compete with the Town by applying for or accepting Conservation Trust Funds or Great Outdoor Colorado Trust Funds
• The ability of a district to issue debt to reimburse developer advances is limited - (i) a develop advance must be paid within 20 years or otherwise forgiven; (ii) the interest rate cannot exceed the market by more than 650 basis points; and (iii) interest cannot compound.
Lastly, the model service plan is designed to ensure a greater level of transparency for residents on district finances and operations. Significant transparency features of the model service plan include:
• A district must submit an annual report of its significant activities and financial events to the Town.
• A district must procure and maintain a website and email listserv to update residents on District matters.
• A district must provide advanced notice of its board meetings to the Town.
• A district must use reasonable efforts to require sellers of newly-constructed residences to disclose the existence of district taxes and debt to their purchasers
Amended and Restated Service Plan - Key Changes from the Model
Per the Development Agreement, the Master Developer of the Dawson Trails Planned Development has agreed to contribute $50,000,000 to the cost of building the Crystal Valley Interchange. The Master Developer’s contribution is expected to be financed through debt issued by the Districts. In consideration of this substantial contribution to Town infrastructure, the Town has agreed to relax certain of the requirements of its model service plan to facilitate such financing.
One significant departure from the model service plan that the Town has agreed to is the relaxation of the Districts’ total debt limit. The model service plan prohibits a district from issuing debt in excess of 95% of the estimated public improvement cost, plus costs of issuance. According to the Districts’ financial plan, the estimated cost of public improvements to be constructed is $765,248,081. The Districts total debt limit, however, is $1,062,390,000, or approximately 138% of the estimated cost of public improvements. This works out to be approximately 120% of the par amount of bonds in the Districts’ financial plan - a common limit found in model service plans adopted by other jurisdictions.
Another change from the model service plan concerns the Districts’ maximum debt service and overall mill levy. The model service plan prohibits a district from imposing a debt service mill levy in excess of 50 mills and an aggregate mill levy (including a mill levy for operations) in excess of 60 mills. Here, the Town has agreed to allow the Districts to impose a debt service mill levy of up to 64.044 mills, and an aggregate mill levy of up to 74.044 mills. It should be noted that, similar to many of our existing metro district service plans, the Districts’ mill levies are subject to future adjustments in assessed valuation, thereby preventing the diminution of actual tax revenues. As a result, the mill levies that the Districts’ will be assessing are comparable to many of the metro district mill levies approved by the Town prior to the adoption of the model service plan.
A third change has to do with the Districts’ maximum debt service mill levy imposition term. The model service plan prohibits a district from imposing a debt service mill levy on any single residential property in excess of 35 years. That limit may be exceeded only if (i) a majority of the district’s board are end users of the property and have voted to approve the extension and (ii) the extension is authorized for the purpose of issuing refunding bonds that will result in a net present value savings. Again, the Town has agreed to raise this limit, allowing the Districts to impose a debt service mill levy for up to and including 50 years.
Two other changes from the model service plan are worth noting. First, in order to allow the Districts to generate additional revenues and debt capacity, the Town has agreed to remove a requirement for the Districts to remit all specific ownership taxes they receive to the Town. Second, to facilitate the financing of the Crystal Valley Interchange contribution, the Town will permit the Districts to organize special improvement districts within their boundaries. A special improvement district is a mechanism by which public improvements may be financed through the levy of a special assessment (as opposed to a tax) upon only those properties that receive a special benefit from such improvements.
Regional Mill Levy - A New Benefit to the Town
Perhaps the most important feature of the model service plan is the Regional Mill Levy. Here, the Districts will be required to impose a Regional Mill Levy of five mills on all of the property located within their boundaries. Such levy, like all others imposed by the Districts is subject to future adjustments in assessed valuation.
The model service plan requires that the Districts impose the Regional Mill Levy in every year that they also impose a debt service mill levy. The revenues from the Regional Mill Levy must be remitted to the Town annually and used by the Town for the purpose of defraying the costs it incurs in providing services and improvements. This will provide the Town with an important source of revenue for years to come.
Legal Standard
Under the Special District Control Act and the Town Code, at the public hearing, evidence satisfactory to the Town must be presented that:
• There is sufficient existing and projected need for organized service in the area to be serviced by the Districts;
• The existing service in the area to be served by the Districts is inadequate for present and projected needs;
• The Districts are capable of providing economical and sufficient service to the area within their proposed boundaries;
• The area to be included in the Districts does have, and will have, the financial ability to discharge the proposed indebtedness on a reasonable basis;
• Adequate service is not, and will not be, available to the area through the Town, Douglas County, or other existing municipal or quasi-municipal corporations, including existing special districts, within a reasonable time and on a comparable basis;
• The facility and service standards of the Districts are compatible with the facility and service standards of the Town;
• The Service Plan is in substantial compliance with the Town’s Comprehensive Master Plan;
• The Service Plan is in compliance with any duly adopted Town, regional or state long-range water quality management plan for the area; and
• The creation of the Districts is in the best interests of the area proposed to be served
With respect to the approval of new service plans and material modifications to existing service plans, Town Council has the following authority under the Special District Control Act and the Town Code:
• To approve the service plan without condition or modification
• To disapprove the service plan
• To conditionally approve the service plan subject to the submission of additional information or the modification of the proposed service plan
Recommendation
Town Staff submits that the Amended and Restated Service Plan for the Districts satisfies each of the evidentiary requirements set forth in the Special District Control Act and the Town Code. It should be noted, however, that in the weeks before the public hearing, Westfield Metropolitan District No. 2 has received requests from two property owners for the exclusion of their respective properties from the boundaries of such District. The District and its representatives are amenable to the exclusion of these properties. Accordingly, Town staff recommends that the Amended and Restated Service Plan be approved subject to the condition that Westfield Metropolitan District No. 2 shall not issue debt or impose a debt service mill levy unless and until the properties owned by (i) SDM Family Corporation and (ii) Thomas J. Rathman, Mary E. Blackstad, Jeffrey P. Rathman, William W. Fischer (Fischer Investment Properties, LLC), and Diane M. Fischer are excluded from said District.
Proposed Motion
“I move to approve the Resolution as introduced by title.”
Alternative Motions
“I move to approve the resolution as introduced by title, with the following conditions: (list conditions).
“I move to continue this item to the Town Council meeting on _____ date to allow additional time to (list information needed).”
Attachments
Resolution
Exhibit 1: Service Plan
Exhibit 2: Intergovernmental Agreement
Attachment A - Letter Regarding Requests for the Exclusion of Property
Attachment B - Certificate Concerning Notices of Public Hearing