Colorado Special Districts and Chapter 9-part I
| Jurisdiction | Colorado,United States |
| Citation | Vol. 12 No. 1991 Pg. 2475 |
| Pages | 2475 |
| Publication year | 1991 |
1991, December, Pg. 2475. Colorado Special Districts And Chapter 9-Part I
The state of Colorado includes approximately 1,783 local governmental entities, consisting of cities, towns, counties and special purpose authorities and taxing districts. Of the 1,783 local governments, 887 are special districts formed under Article 1, Title 32 of the Colorado Revised Statutes.
Colorado special districts have been instrumental in providing the public infrastructure to meet the growing needs of the state's population in the face of the increasing inability of cities, towns and counties to provide public improvements. In response to such growth, the governing bodies of general purpose local governments routinely required developers to make commitments to provide public improvements as a condition to development.
Special districts were attractive to such developers as a means of financing the public infrastructure being required as a condition of development. The ability of these districts to issue bonds secured by the power of taxation (general obligation bonds) was beneficial to a development entity which would otherwise be required to obtain conventional financing at higher interest rates than available to it by issuing tax free bonds. Additionally, general obligation bonds are obligations of the property and not personal obligations of the developer. Consequently, increases in the formation of special districts and the issuance of debt by such districts paralleled the growth in the real estate market in the state as a whole, but especially along the Front Range.
The boom cycle in the real estate market in the 1980s led to an explosive growth in special districts and the issuance of debt by these entities. Since payment of the debt was predicated largely on future growth, when the market declined precipitously in the late 1980s, the financial ability of special districts to satisfy their debt obligations deteriorated. Particularly hard-hit were those special districts that had been formed on the verge of the bust cycle and which had issued significant amounts of debt without any existing development in place.
As the housing market declined to the point where, in 1989, the number of total new residential starts was lower than at any time since such statistics were first recorded beginning in 1955,
developers cut back their development activities, further impairing the financial strength of special districts dependent on future growth. Similarly, the commercial real estate market declined precipitously, with vacancy rates in all areas topping the 20 percent level. One consequence of these circumstances is the increasing number of special districts which have either defaulted on their obligations or have sought reorganization of their debt under Chapter 9 of the U.S. Bankruptcy Code.
This consequence is not limited to special districts, as the market decline had corresponding impacts on other financing districts. Nonetheless, the substantial experience with special districts formed under Title 32, and the large amount of property within special districts, warrants an awareness among attorneys of the impacts of a Chapter 9 filing under the Bankruptcy Code. It is also important to note the efforts of the Colorado General Assembly to institute increased regulation of district finances.
This article is the first of a two-part series on this general subject and will explore the ways in which special districts are organized pursuant to Colorado law, the function served by such districts, their financial powers, and efforts of the General Assembly to reform perceived problems with special districts. Part II will set forth the procedures used under Chapter 9 of the U.S. Bankruptcy Code to reorganize municipal debt and will analyze the utility of bankruptcy as a tool to address special district debt problems.
Special districts organized pursuant to Title 32 are quasi-municipal corporations and political subdivisions of the state of Colorado organized for specific functions.(fn1) As such, their activities are subject to strict statutory guidelines. Most Title 32 special districts are organized to exercise one or both of two roles: (1) to provide improvements (i.e., by means of actual construction or installation) and (2) to operate public facilities. The role selected depends largely on geographical factors and whether another governmental entity, a municipality or a county, is situated to assume operational responsibilities.
Three significant reasons for organizing a Title 32 special district are: (1) there may be no viable alternative for providing and operating the necessary public facilities; (2) the district is able to finance such public facilities by means of tax-exempt municipal bonds; and (3) the structure of a Title 32 special district provides greater flexibility than that permitted by assessment districts, such as County Local Improvement Districts and Municipal Special Improvement Districts, which, while having the power to issue tax-exempt special assessment bonds, do not have the power to assume ongoing operations and maintenance.(fn2)
A brief description of the means by which special districts are organized in Colorado is helpful in understanding the applicability of Chapter 9 of the U.S. Bankruptcy Code to Title 32 special districts.
A Title 32 special district may be formed to include property wholly within a county, wholly within a municipality or with portions within both county or municipal boundaries. A service plan must be approved by either the county commissioners or the governing body of the municipality, as appropriate.(fn3) The service plan contains a description of the proposed facilities and services to be provided, a financial plan including estimated costs of facilities and proposed indebtedness, engineering and architectural information regarding facilities and services, a map and legal description of the district's proposed boundaries, and a description of any intergovernmental agreement by which the district's purposes are to be implemented, together with the form of the agreement, if available.
A public hearing is held on the service plan at which other local governments have an opportunity to be heard. These governments must be located within a three-mile radius of the proposed district's boundaries and must have levied an ad valorem tax in the preceding year. Any property owners included within the district also have the opportunity to be heard. The approving body may impose conditions on its approval of the service plan and may act to exclude property proposed for inclusion in the district if so requested by the owners of such property. Additionally, the service plan will not be approved if the owners of taxable real and personal property equalling more than 50 percent of the total assessed valuation of property within the proposed district file a petition objecting to the organization of the district.
Following approval of the service plan, a petition requesting the organization of a special district must be submitted to the district court of the county in which the property within the district is to be located. The petition must be signed by not less than 30 percent or 200 of the taxpaying electors of the district whichever is smaller. "Taxpaying elector" is defined to include an individual who is registered to vote pursuant to the Colorado Election Code of 1980, and who (or whose spouse) owns real or personal taxable property within the boundaries of the proposed district whether or not the taxpaying elector resides within the proposed district or who is obligated to pay taxes under a contract to purchase real or personal property within the proposed district's boundaries. Ownership in the name of a corporation would not come within this definition. Ownership in the name of a partnership or joint venture probably would not qualify, although this issue has not yet been determined.
The petition must set forth:
1) the name of the proposed district
2) a description of the type of district (e.g., water and sanitation district metropolitan district),
3) a description of the facilities and services to be provided by the district
4) estimated costs of the facilities and estimated property taxes to be collected in the first year,
5) a description of the area to be included,
6) a statement indicating whether the district lies wholly or partly within the boundaries of another district or municipality, and
Following receipt of the petition, the court sets a public hearing and notifies interested parties. Those who wish to have their property excluded from the district may request exclusion by the court7) a request for organization.
If the court finds that the petition is in compliance with applicable statutes, it orders the question of organization of the district to be presented to the resi-
dents and property owners for a vote. The vote includes selection of an initial board of directors of the district consisting of either five or seven members. If a majority of those voting at the election approve the district the court issues an order declaring the district be organized as a separate political subdivision of the state. Once the order issues, no one may challenge its organization...
To continue reading
Request your trial