Loveland OKs temporary moratoriums on new drilling, metro districts

LOVELAND – With a pair of 7-2 votes, the Loveland City Council on Tuesday imposed temporary moratoriums on new applications for fossil-fuel drilling and on the creation of residential metropolitan taxing districts.

The freeze on new applications for oil and gas extraction within the city limits will extend until June 1 to give city staff time to tighten the city’s regulations to match or exceed those recently passed by Larimer County. Meanwhile, the six-month freeze on new metro districts is designed to give the city time to ensure that developers provide more transparency for homeowners about what they’ll be paying and for how long.

Oil and gas

The ability of the city to tighten its rules on oil and gas drilling was made possible in 2019 when the state Legislature passed Senate Bill 181 to give municipalities the opportunity to pass regulations that exceed state standards. Larimer County responded by tightening its oil and gas regulations in 2021.

Mayor Jacki Marsh, who proposed the moratorium, predicted the freeze would be short.

“Since Larimer County recently went through extensive public hearings and best practices,” she said, “my suggestion would be that we start with theirs and meld it with our current enhanced rules, and then have staff bring that back to us for tweaking. I think we could very quickly update our rules and regs.”

Loveland City Manager Steve Adams agreed, noting that the city will be using the same attorney Larimer County used, but Councilmember Dana Foley still sounded a caution about imposing a moratorium.

“A moratorium could set a precedent of weaponizing that word against an applicant and potentially creating more liabilities for the city,” he said.

Last June, the previous City Council approved an application by MRG LLC, a subsidiary of McWhinney Real Estate Services Inc., to drill multiple horizontal wells from a 13-acre pad east of Interstate 25, running them under the highway and into McWhinney’s Centerra development. The plan still needs state approval, however, and MRG on Wednesday is to take its application to the Colorado Energy and Carbon Management Commission, formerly the Colorado Oil and Gas Conservation Commission.

Foley asked City Attorney Moses Garcia, “Could the moratorium affect the current applicant that tomorrow morning is going before the ECMC? Could this vote add legal liabilities to the city?”

Garcia assured Foley it wouldn’t because the issue has been passed from the city to the state, and added that there are no new applications in the works.

If that’s the case, asked council members Jon Mallo and Andrea Samson, why is a moratorium even necessary?

“I don’t think we should add a moratorium as an extra layer,” Samson said. “I don’t think it’s necessary as long as staff will commit to bringing this back in a timely manner, say, less than six months – less than three, if possible.”

Marsh argued that the freeze is needed “just so nothing comes through while we’re updating our rules and regs,” but Foley countered that “the length of time it actually takes an applicant to get through the process is almost an entire year.

“If anyone were to bring an application right now, it wouldn’t make it through the city in that moratorium time,” he said. “You don’t need a moratorium to review the oil and gas regulations.” 

New council member Troy Krenning, however, said “the only purpose it serves is to put everybody on notice that, for the moment, there’s a freeze and we’re not going to consider any new applications. It absolutely has nothing to do with a pending application. It won’t stop work in progress. We received a letter from outside counsel cautioning us about stopping a work in progress. It won’t do that.

“All we are really doing is putting up a yellow light that we are not interested in new applications yet,” Krenning said. “The new rules are forthcoming. If there’s anybody on the edge wanting to get involved, we’re giving them fair notice that now’s not a good time.”

Councilmember Steve Olson was successful in amending Marsh’s motion by specifying a June 1 deadline for city staff to present the new, tighter rules, an idea endorsed by Mallo and Samson.

“I’m very glad we’re going to have a bow on it by June 1,” Samson said.

Krenning expressed reservations about putting “a timeline on staff that says we’ve got to have this done in three months or six months or nine months because who knows what will happen. We may want to get much more extensive than the county.”

And during the public comment period, a Loveland resident supported the moratorium as a way to keep applicants from trying to “jam projects through before the new rules are in place.”

The motion to impose the seven-month moratorium on new oil and gas applications, permitting, facilities and development passed with only Foley and Councilmember Patrick McFall dissenting, but not before Foley downplayed the safety concerns that led to the push for tighter rules in the first place.

Citing his own experience working in the oil patch, Foley said “it’s not necessarily the new wells that are the concern. What’s really the concern of the citizens of Loveland should be the vertical wells that have been dug years ago and then plugged using subpar standards. Those are the ones that are leaking.

“There’s a lot of energy companies that went defunct and now the state has to take over, actually redrilling and recapping those old wells,” Foley said. “The new ones are safe. No energy company wants a well to go boom. They don’t like leaks because leaks equal money. If you’re leaking, you’re not earning money on it.”

Further, he said, “they have to use top-notch contractors. If you’re a fly-by-night hoot-owl oilfield contractor, you’re not going to be in business very long because there’s a reporting mechanism on their safety records. If they don’t get contracts, they don’t stay in business very long.”

Metro districts

A metro district is a type of special district similar to a school, fire or water district. Developers establish them to finance the infrastructure – such as roads, water and sewers – necessary to support a new subdivision by collecting taxes from property owners to pay for things other local entities don’t.

New Councilmember Laura Light-Kovacs, who introduced the six-month moratorium, acknowledged that “metro districts are a very common practice in Colorado, and can be a very useful tool for developers, especially for developments that need help getting started on the infrastructure. The cost of building homes, putting in that infrastructure, has gone up so much, and with TABOR limitations came the birth of the metro tax district. The idea was that the developer would get the metro tax district, they would be able to get that funding for the infrastructure, they’d build the house, and then the homeowner would help pay back those infrastructure costs over the course of 20, 25, 30, 40 years, depending on whatever the length of the metro tax district was.

“Unfortunately,” she added, “ what we’re seeing here in Loveland and across the state is that there aren’t additional guardrails in place for these metro tax districts, and damage is being done to our residents. There’s a lack of transparency for prospective buyers. So when you’re going to buy a home, you’ve put in an offer, they’ve accepted it, metro tax districts don’t have to be revealed to the buyer until closing. And even then, no one needs to tell them, ‘Oh, you need to check this out. There could be an additional tax burden for you. It’s part of that mountain of paperwork you sign at closing.

“And so a lot of the residents I’ve heard from in these tax districts, they didn’t realize what they were getting into. A lot of people don’t realize the developers can refinance the life of the loan and extend out the payoff date, which means that resident is on the hook for longer than they originally thought for paying off those metro tax fees.

“Homeowners will be on the hook and they don’t have a lot of say.”

Light-Kovacs said she would like Loveland’s city staff to look into ways to make the process more transparent for homebuyers, and would like the majority of metro district board members to be homeowners in those districts.

“When you buy a home, you know what your mortgage is going to be,” she said. “You know your mortgage rate. You know your proposed payoff date unless you refinance. The same should be true if you’re buying in a metro tax district. They need to know what is the debt when I’m buying in, how much has already been paid off, how much am I on the hook for, and is there a possibility this will be extended.

“And that needs to be presented to them in an easy-to-find, digestible format,” she said. “It shouldn’t be something that you need to be a financial planner or a lawyer to understand.”

Olson suggested that the city’s staff could be instructed to look into alternatives to metro districts such as special improvement districts, and present some findings at a study session within three months, and an amendment to that effect was passed.

“My only concern,” Light-Kovacs responded, “is, in the meantime, that metro districts are formed that are predatory in nature, and we didn’t catch it, and we could have.” 

Marsh said “offers on a home or residence in a metro district should come with something similar to the warning on a cigarette package. It should be outlined in red: ‘You are buying in a metro district.’ And it needs to disclose the amount of debt: What will the amount of debt be at buildout, and how much will that particular household owe toward that debt.”

The motion for the six-month moratorium on new metro districts, with the provision for a study session within three months, was passed 7-2, with McFall and Foley dissenting.