Loveland -- August 12, 2010
During a recent city meeting, Loveland Councilman Daryl Klassen inadvertently wondered onto a sensitive topic
regarding the use of Loveland's so-called "financial reserves." Klassen asked whether some of the money could be
used for his pet project evoking a response from the city manager that appeared to surprise everyone.
Loveland City Manager Don Williams responded, "not unless I want to go to jail."
Klassen, like many people in Loveland, has been mislead for years by the improper use of the term "reserves" when
describing the portfolio of money the city has invested. In fact, Loveland's so-called reserve is not really a reserve at all
but instead largely funds collected through fees that are very limited in how they can be used. In other words, if the city
fails to spend the money for the very specific purpose for which it was collected it will need to be returned and by law
cannot be commingled with other city funds.
Klassen's question was akin to a Realtor asking his managing broker if he can take a vacation using a home buyer's
deposit for a contract closing because it was delayed. Just because Loveland is the custodian of those funds doesn't
mean the city council has discretion over how that money is ultimately spent -- thus calling it a reserve is misleading.
William's response about going to jail was perfectly appropriate for the question even though he said jokingly.
Unfortunately, Loveland's abuse of its discretion over developer impact fees in how they are assessed, collected and
spent is not a laughing matter.
Today, millions in developer fees are now stranded in a property along the I-25 no longer worth what the city paid
while a Greeley Assistant City Attorney is looking into at least one criminal complaint by a developer who was forced
to pay impact fees before they were due.
Understanding Tax vs. Fee
While many people use the word "tax" synonymously with the word "fee" each means something very different when it
comes to your local government. Loveland's financial reserves is comprised mostly of revenue from fees not taxes.
When the City of Loveland imposes a tax it is done using the city's taxing authority and those funds may be used for the
general operation of the city; when Loveland imposes a fee it is done using the city's police powers thus limiting by law
how and when that money may be used in the future.
Since the passage of the Taxpayer's Bill of Rights (TABOR) which requires a public vote before new tax can be
imposed or an existing tax increased, cities have instead increasingly relied upon their police powers to raise revenue
without a vote of their constituents. However, money from fees is not general revenue by definition and therefore using
the term "reserves" to describe it can be very misleading resulting in confusion even by a member of the city council
regarding the proper use of those funds.
Impact Fees - Capital Improvement
In 2001 the State of Colorado General Assembly enacted Senate Bill 15 to codify the proper use by cities and counties
of impact fees. The legislation was intended to codify into law the growing practice of imposing developer impact fees
upon new developments in an attempt to make developers pay for the increased costs to communities of growth.
In summary, the new state law allowed for both counties and cities to impose impact fees on new development but with
certain restrictions. The fees must be used only to offset the real costs of the new development, not considered any
part of the city's general fund monies and returned to the payee if the funds are not used to expand city capital projects
in a timely manner.
In 2007 Loveland City Manager Williams convinced a lame duck city council to divert nearly $3 million in funds
Williams convinced the council to buy 97 acres located in the northwest corner of I-25 and Highway 402 South of
Loveland thus annexing the property and receiving future sales tax dollars from any retail establishments built on the
large empty parcel of land abutting Johnstown. Williams than tapped the impact fees by calling the diversion an
"internal loan" that would be repaid when the property being acquired was later sold.
The internal loan called for 5 years of interest only payments and another 5 years of interest and principal payments. At
the time, Loveland councilors and staff reported being reassured by Williams the city would make money and likely sell
the property in divided parcels only a year or two later at a handsome profit.
Now, 5 years later, the property has dropped in value and the city is trying desperately to sell it but at the $6 million
price tag it is not a bargain in today's stressed commercial real estate market.
During a recent city meeting, Loveland Councilman Daryl Klassen inadvertently wondered onto a sensitive topic
regarding the use of Loveland's so-called "financial reserves." Klassen asked whether some of the money could be
used for his pet project evoking a response from the city manager that appeared to surprise everyone.
Loveland City Manager Don Williams responded, "not unless I want to go to jail."
Klassen, like many people in Loveland, has been mislead for years by the improper use of the term "reserves" when
describing the portfolio of money the city has invested. In fact, Loveland's so-called reserve is not really a reserve at all
but instead largely funds collected through fees that are very limited in how they can be used. In other words, if the city
fails to spend the money for the very specific purpose for which it was collected it will need to be returned and by law
cannot be commingled with other city funds.
Klassen's question was akin to a Realtor asking his managing broker if he can take a vacation using a home buyer's
deposit for a contract closing because it was delayed. Just because Loveland is the custodian of those funds doesn't
mean the city council has discretion over how that money is ultimately spent -- thus calling it a reserve is misleading.
William's response about going to jail was perfectly appropriate for the question even though he said jokingly.
Unfortunately, Loveland's abuse of its discretion over developer impact fees in how they are assessed, collected and
spent is not a laughing matter.
Today, millions in developer fees are now stranded in a property along the I-25 no longer worth what the city paid
while a Greeley Assistant City Attorney is looking into at least one criminal complaint by a developer who was forced
to pay impact fees before they were due.
Understanding Tax vs. Fee
While many people use the word "tax" synonymously with the word "fee" each means something very different when it
comes to your local government. Loveland's financial reserves is comprised mostly of revenue from fees not taxes.
When the City of Loveland imposes a tax it is done using the city's taxing authority and those funds may be used for the
general operation of the city; when Loveland imposes a fee it is done using the city's police powers thus limiting by law
how and when that money may be used in the future.
Since the passage of the Taxpayer's Bill of Rights (TABOR) which requires a public vote before new tax can be
imposed or an existing tax increased, cities have instead increasingly relied upon their police powers to raise revenue
without a vote of their constituents. However, money from fees is not general revenue by definition and therefore using
the term "reserves" to describe it can be very misleading resulting in confusion even by a member of the city council
regarding the proper use of those funds.
Impact Fees - Capital Improvement
In 2001 the State of Colorado General Assembly enacted Senate Bill 15 to codify the proper use by cities and counties
of impact fees. The legislation was intended to codify into law the growing practice of imposing developer impact fees
upon new developments in an attempt to make developers pay for the increased costs to communities of growth.
In summary, the new state law allowed for both counties and cities to impose impact fees on new development but with
certain restrictions. The fees must be used only to offset the real costs of the new development, not considered any
part of the city's general fund monies and returned to the payee if the funds are not used to expand city capital projects
in a timely manner.
In 2007 Loveland City Manager Williams convinced a lame duck city council to divert nearly $3 million in funds
Williams convinced the council to buy 97 acres located in the northwest corner of I-25 and Highway 402 South of
Loveland thus annexing the property and receiving future sales tax dollars from any retail establishments built on the
large empty parcel of land abutting Johnstown. Williams than tapped the impact fees by calling the diversion an
"internal loan" that would be repaid when the property being acquired was later sold.
The internal loan called for 5 years of interest only payments and another 5 years of interest and principal payments. At
the time, Loveland councilors and staff reported being reassured by Williams the city would make money and likely sell
the property in divided parcels only a year or two later at a handsome profit.
Now, 5 years later, the property has dropped in value and the city is trying desperately to sell it but at the $6 million
price tag it is not a bargain in today's stressed commercial real estate market.
| Abuse of Discretion? Why Loveland's Use Of Impact Fees Questioned |
| City of Loveland Definition: Capital Expansion Fees "The City of Loveland has utilized Capital Expansion Fees as a method to meet the capital needs of our growing community since the mid- 1980s. The fees are set based on studies that indicate the impacts that result from different types of construction, the major categories being residential, commercial, and industrial. Capital Expansion Fees for Fire, Police, General Government, Library, Museum, Parks, Recreation, Open Lands, and Trails are based on the value of capital assets, equipment, fixtures, and furniture and unspent prior years’ CEF contributions" |
| Funding Scheme Oct. 2007 letter to council explaining the way the property purchase is going to be funded (final numbers from the November '07 meeting differ slightly due to staff adjustments between meetings) "The City will internally finance the 402 property purchase. The city council capital reserve will provide $1.6 million upfront and the money will be advanced from the accumulated capital expansion fees for fire ($3.2 million) and recreation ($2 million). The city council capital reserve will repay the capital expansion fees at the average interest rate being earned on the City’s investment portfolio for the preceding twelve months, adjusted annually. The City is using the same interest criteria prescribed by the City Charter Section 13-3 (b) for inter-fund loans from the utility funds. The loan is structured with a ten year term, loading the principal repayment in the last five years of the repayment schedule." |
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| Criminal Complaint Against Loveland Being Researched by Greeley City Attorney and now investigated by Larimer County Sheriff. When the City of Loveland sought assistance from the City of Ft. Collins recently to investigate claims of illegal conduct by senior staff, Ft. Collins tossed the hot potato right back into Loveland's lap. Steve and Ed Klen are seeking readdress from the City of Loveland over collection of some $200,000 in development impact fees the brothers say they didn't owe at the time in retaliation for criticism they made public regarding city staff. Now the matter has been referred to Greeley's legal department where an assistant city attorney is researching the matter and has asked the Larimer County Sheriff's Department for help investigating the matter. LovelandPolitics was informed that Loveland City Attorney, John Duval, collected copies of the accusations and supporting documents distributed by the Klen brother in city hall. Click here to read the complaint and attached documentation |