Study: Metro districts reduce upfront homeowner costs, add it later

Metropolitan districts, a quasi-governmental tool used by developers to finance infrastructure such as streets, utilities, water and parks for new neighborhoods, saves homeowners money up front but costs them more down the line, according to the results of a new study of the practice.

The boards of Realtors in Fort Collins, Loveland/Berthoud, Greeley, and Longmont hired Chicago-based Anderson Economic Group LLC to conduct a study of the use of metro districts in the state. 

As land and water prices have escalated in the state, and because increased city or county taxes to finance infrastructure in new neighborhoods are possible only with a public vote, developers have promoted use of metro districts.

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Metro districts have the authority to issue debt and levy property taxes to repay the debt. Developers issue bonds within the metro district and repay the bonds as properties such as homes and businesses are established.

AEG analyzed metro district use in 10 areas of Denver and Northern Colorado, according to a report from the consulting firm. 

“The metro districts AEG reviewed reduced the amount needed for a 20% down payment by an average of 4% ($5,800) per home, since shared infrastructure costs are not capitalized into metro district home sales prices. If these same homes had been built outside of metro districts, infrastructure costs would have been included in the home’s selling price, making the home more expensive,” AEG wrote in its report.

But because metro districts levy higher property taxes in order to repay bonds, “these property taxes typically result in higher long-term housing costs compared to non-metro district homes,” AEG said.

AEG said that in the 10 districts reviewed, long-term housing costs were 2% higher ($16,200) over 30 years.

Homeowners in metro districts also have higher risk of more cost if the developer is unable to build or sell homes as quickly as needed by the plan, AEG said. In those situations, unpaid bond debt can result in additional interest and increases in amounts that existing homeowners pay to cover debt payments. 

AEG said that two of the 10 districts evaluated are not meeting debt obligations. In those two districts, homeowner long-term housing costs will be 7% ($50,000) higher than if those homes were built outside a metro district, the consulting firm said.

While homeowners in metro districts face higher tax bills — debt service constitutes 28% of the average tax bill in the districts studied — AEG found no evidence of higher foreclosure rates. And property values were not depressed as a result of the district tax structure.

AEG offered suggestions for city and county governments, which need to approve of the creation of metro districts before they are established.

• Carefully scrutinize proposals and deny those with overly aggressive development schedules.
• Maintain oversight of existing districts to monitor financial health.
• Require developers to disclose to potential home buyers a metro district’s debt service schedule and anticipated future property-tax liability. Disclosure should occur as early as possible as buyers are looking at properties.

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