By Trisha K. Harris, Esq., White Bear Ankele Tanaka & Waldron, P.C.
Special districts are quasi-municipal corporations and political subdivisions of the State of Colorado, governed by Title 32 of the Colorado Revised Statutes (the “Special District Act”) and other laws governing public entities. Special districts are typically formed to provide public infrastructure and services to new and existing development that counties or municipalities are unable to provide. Often, special districts also operate and maintain public improvements, such as park and recreation facilities, to the extent such improvements are not dedicated to other public entities for purposes of operations and maintenance.
But, how do special districts in the State of Colorado pay for the construction, operation and/or maintenance of public improvements?
Special districts have a variety of tools to raise revenue for the purposes of constructing infrastructure, maintaining and improving such infrastructure, and for providing services to the residents of the district. These include the imposition of ad valorem property taxes, issuance of bonds (which are most commonly repaid to investors through property taxes imposed by the district), and the imposition of fees, rates, tolls, penalties, and charges. For example, a district may impose taxes to provide revenue for debt service on bonds and for general operating costs. At the same time, for example, that district may impose a separate fee for use of a recreational facility within the district, which fees are used for the operation of that facility. This article will address the taxes and fees that are typically paid by property owners to a district to finance the district’s on-going annual expenses. A discussion of the ability of a district to raise revenue through the issuance of bonds is beyond the scope of this article.
Ad Valorem Property Taxes
The Special District Act grants special districts the power to levy and collect property taxes in order to pay the expenses of the district. An ad valorem tax is one that is based on the assessed value of one’s taxable personal or real property.
The assessor for each county determines, on a bi-annual basis, the “actual value” of all properties within the county. An assessment ratio is then applied to the actual value to result in the “assessed value” for each property. Currently, the Colorado Constitution requires that 55% of all property taxes in Colorado be paid by commercial properties, and that 45% be paid by residential properties. For commercial property, the assessment ratio is a constant 29%. For residential property, the assessment ratio varies in order to maintain the 55%/45% ratio required by the Colorado Constitution. Currently, the residential assessment ratio is 7.15%.
By no later than December 15 of each year, each district in the state must certify to the county the mill levy it intends to impose that year, for collection in the succeeding year. A mill is equal to one dollar per $1,000 of assessed value. Districts will typically impose an operations and maintenance mill levy to pay for general administrative, operating and maintenance expenses of the district, such as management fees, insurance, legal expenses, annual compliance, accounting expenses, and the maintenance of public improvements owned or maintained by the district. If the district has issued bonds or otherwise has existing debt obligations, the district will also impose a debt service mill levy. Revenue generated from the imposition of a debt service mill levy may only be used for the repayment of debt, whereas revenue from the operations and maintenance mill levy may be used for general expenses, as well as debt service.
Property taxes imposed by a district are collected by the county treasurer as part of an owner’s property taxes, and the revenue therefrom is then remitted by the county to the district. The county retains 1.5% of the district’s taxes as its fee for the collection services.
The mechanics of the imposition of ad valorem taxes may be best understood through an example. Let’s say an owner’s property has an “actual” value of $500,000, and the district in which the owner’s property is located has imposed an operations and maintenance mill levy of 10 mills, and a debt service mill levy of 40 mills. The following illustrates the calculation of the tax that would be due for both a commercial property and a residential property:
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Actual Value
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Assessment Ratio
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Assessed Value
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O&M Mill Levy
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Debt Service Mill Levy
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Total Mill Levy
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Taxes Due
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Commercial
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$500,000
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29%
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$145,000
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10
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40
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50
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$7,250.00
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Residential
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$500,000
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7.15%
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$35,750
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10
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40
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50
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$1,787.50
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Fees and Charges
The Special District Act also authorizes districts to impose fees, rates, tolls, penalties, or charges for services, programs, or facilities furnished by the district. An example of a typical fee imposed by a district is an on-going (such as monthly, quarterly, or annual fee) for the operation and maintenance of specific improvements. For example, a district may impose an annual recreation fee that is used for the operation and maintenance of the district’s recreation center and pool. Or, a district may impose a fee on just a portion of the owners for the maintenance of improvements that directly benefit such owners, such as the maintenance of alleys that back to and access only certain homes. Any such fees must be justified and reasonable in relation the services, programs, or facilities funded through such fees, and the revenue generated from such fees may only be used to pay for expenses related to such services, programs, or facilities to which the fee applies.
Any such fees imposed by a district are not a personal obligation of the owner, but rather are secured by a statutory lien on the property of the owner. This lien is superior to all other liens on the property, including any mortgages and homeowner association liens, with the exception of the lien on the property for taxes. As such, the remedy for non-payment of such fees would be an action to foreclose the district’s lien for the unpaid fees.
A district’s powers to raise revenues may be limited by the district’s electoral authorization and/or its service plan. To get a basic understanding of a district’s revenues and expenses, the first stop should be a review of the district’s budget and audit. Copies of both documents are required to be filed with the Division of Local Government each year. The Division of Local Government maintains a website for district information where various documents can be accessed (https://dola.colorado.gov/lgis/), or, as a public record, copies may be requested directly from the district.
Trisha K. Harris is a senior associate with the law firm of White Bear Ankele Tanaka & Waldron. White Bear Ankele Tanaka & Waldron serves the needs of residential, commercial and mixed use projects throughout the State of Colorado, and in particular provides advice and counsel to project developers, property owners and residents on a wide range of issues. WBA also represents homeowner and commercial associations, as well as metropolitan districts that are responsible for covenant enforcement and design review, operations, and maintenance of common and other public areas, together with required collection activities. Ms. Harris has over 15 years of community association law experience. Her practice focuses on representing community associations, as well as assisting metropolitan districts, primarily in relation to interactions with existing homeowner associations and HOA functions assumed by the firm’s district clients. Ms. Harris also focuses on drafting covenants and governing documents for new communities.
