Loveland, November 14, 2010
When Councilman Daryle Klassen inquired about using monies in the city’s capital expansion reserve
fund for general ongoing expenditures last August, former city manager Don Williams responded, “not
unless I want to go to jail.” This is because money collected as fees on new developments called CEF’
s (Capital Expansion Fees) are required by state law and city code to be used only for the purposes for
which they were collected.
Colorado’s State Constitution (Colo. Const. art. X, § 20(7). Amendment 1 passed as part of TABOR)
provides that any new “tax” intended for general governmental expenditures must first be approved by
voters in the jurisdiction where the tax is collected. Fees, however, are not considered a general tax
because the money is sequestered in separate accounts and used only for the specific purpose for
which it was levied and therefore doesn't require a public vote to be approved. Loveland’s CEF’s were
never approved by voters and therefore cannot be treated as general tax revenue by the city.
When the topic of transferring monies collected as fees into a general fund was again raised during a
more recent city council study session on September 28, the before unthinkable idea was given serious
consideration by members of Loveland’s City Council. Confused, Councilman Klassen reminded his
colleagues of the former city manager’s caution about going to jail if they ever treated CEF’s as general
tax revenue.
City Attorney Opens Door
Loveland City Attorney John Duval informed the council during the same September 28 study session
that he reviewed a 2008 Colorado Supreme Court Decision (Barber v. Ritter). According to Duval,
Barber vs. Ritter opens the door to the council using the fees collected for capital improvements to
cover future budget shortfalls instead of the purpose for which the funds were collected.
Duval argued the city has much wider discretion on how to use the funds collected by the CEF’s without
the risk of being accused of converting a fee (not approved by the voters) into a general fund tax that
would have required voter approval – because of the 2008 Colorado Supreme Court ruling. When
Councilman Klassen asked why should any city would ask for voter approval if all they needed was to
call a new tax a fee, Duval explained his interpretation of the case. Duval told the council that so long as
they "intended" to use a fee for the purpose it was collected, they were in compliance with the law (per
the Supreme Court ruling) regardless of how they ultimately spent the money.
Duval also argued that as a home rule city (meaning Loveland operates under its own charter) the state
imposed limitations on how such money is spent could be argued as not applying to Loveland. He did
acknowledge that Loveland's municipal code would need to be changed before the council began using
one time capital expansion fees instead for ongoing operating expenses of the city.
Duval also told the council "The fact they [CEF's] may be used later for general fund purposes would
not be a violation of TABOR”
Intrigued, several on the council asked for staff to research the matter further and provide an overview
of what would need to be done to change city code so such an action could be seriously considered.
Ironically, the city's forecasted budget shortfall which is especially onerous in 2013 is largely the result
of the city borrowing money from the long-term capital reserves to buy 97 acres of property along
-25. The property is now worth less than what the city paid for the land (see side bar: right).
Unmentionable Becomes A Goal
Therefore, the unmentionable last year has now become a serious consideration this year as Loveland’
s council struggles with a worsening financial situation and a projected $1 million budget shortfall
beginning in 2013.
Collected from developers over the past two decades, CEF’s are the city’s methodology for funding the
expansion of public service necessary in a growing community. Without CEF’s, the city is forced to
either reduce service levels for existing residents or increase taxes on current residents to
accommodate the cost of expanding city services to accommodate new residences and business being
built in the city. In other words, the fees collected are to be used only for the one-time cost of
expanding these services while the ongoing maintenance of maintaining the services is accomplished
through normal city tax revenue. See a recent letter to Loveland's City Council by Loveland resident
Roger Hoffmann asking the annual CEF increase not be suspended (lower right side of this page).
CEF’s are a one-time fee charged to new developments within the City of Loveland to fund capital
improvements in public services necessitated by development. In other words, a new subdivision of
housing may not require an entirely new fire station but multiple developments along with the retail
that follows does. Therefore, each development contributes to the city’s capital expansion fund
through fees called CEF’s.
If the CEF program is working properly, each development would have contributed in fees an amount
commensurate with their need for new city services, thus a special account preserving those fees is
used to build a new fire station, for example. In Loveland, CEF fees are levied on new developments to
fund expansions of Fire Protection, Law Enforcement, General Government, Library, Museum and
Cultural Services, Parks, Recreation, Trails, and Open Lands.
City Arbitrary Use of CEF's
While most developers have been required to pay all the CEF's generated by their project some have
not. McWhinney, for example, was successful last year in persuading the city council to make a
temporary reduction in CEF's long enough to get approved a 300 unit apartment project backed by
loan garuatees from HUD (Housing and Urban Development) used to finance the "low income" housing
project. (see McWhinney Tax Holiday).
While some have profited by arbitrary actions while administrating the CEF's others have suffered by
the council's inconsistent application of the fees. Using CEF's in a punitive fashion, the City of Loveland
forced Ed and Steve Klen to pay CEF's even before they were due according to Loveland's Municipal
Code before they could receive a building permit. A state-wide news website and blog, Face The State,
reported on Loveland's misapplication of the CEF's in the Klen's case last month.
When Councilman Daryle Klassen inquired about using monies in the city’s capital expansion reserve
fund for general ongoing expenditures last August, former city manager Don Williams responded, “not
unless I want to go to jail.” This is because money collected as fees on new developments called CEF’
s (Capital Expansion Fees) are required by state law and city code to be used only for the purposes for
which they were collected.
Colorado’s State Constitution (Colo. Const. art. X, § 20(7). Amendment 1 passed as part of TABOR)
provides that any new “tax” intended for general governmental expenditures must first be approved by
voters in the jurisdiction where the tax is collected. Fees, however, are not considered a general tax
because the money is sequestered in separate accounts and used only for the specific purpose for
which it was levied and therefore doesn't require a public vote to be approved. Loveland’s CEF’s were
never approved by voters and therefore cannot be treated as general tax revenue by the city.
When the topic of transferring monies collected as fees into a general fund was again raised during a
more recent city council study session on September 28, the before unthinkable idea was given serious
consideration by members of Loveland’s City Council. Confused, Councilman Klassen reminded his
colleagues of the former city manager’s caution about going to jail if they ever treated CEF’s as general
tax revenue.
City Attorney Opens Door
Loveland City Attorney John Duval informed the council during the same September 28 study session
that he reviewed a 2008 Colorado Supreme Court Decision (Barber v. Ritter). According to Duval,
Barber vs. Ritter opens the door to the council using the fees collected for capital improvements to
cover future budget shortfalls instead of the purpose for which the funds were collected.
Duval argued the city has much wider discretion on how to use the funds collected by the CEF’s without
the risk of being accused of converting a fee (not approved by the voters) into a general fund tax that
would have required voter approval – because of the 2008 Colorado Supreme Court ruling. When
Councilman Klassen asked why should any city would ask for voter approval if all they needed was to
call a new tax a fee, Duval explained his interpretation of the case. Duval told the council that so long as
they "intended" to use a fee for the purpose it was collected, they were in compliance with the law (per
the Supreme Court ruling) regardless of how they ultimately spent the money.
Duval also argued that as a home rule city (meaning Loveland operates under its own charter) the state
imposed limitations on how such money is spent could be argued as not applying to Loveland. He did
acknowledge that Loveland's municipal code would need to be changed before the council began using
one time capital expansion fees instead for ongoing operating expenses of the city.
Duval also told the council "The fact they [CEF's] may be used later for general fund purposes would
not be a violation of TABOR”
Intrigued, several on the council asked for staff to research the matter further and provide an overview
of what would need to be done to change city code so such an action could be seriously considered.
Ironically, the city's forecasted budget shortfall which is especially onerous in 2013 is largely the result
of the city borrowing money from the long-term capital reserves to buy 97 acres of property along
-25. The property is now worth less than what the city paid for the land (see side bar: right).
Unmentionable Becomes A Goal
Therefore, the unmentionable last year has now become a serious consideration this year as Loveland’
s council struggles with a worsening financial situation and a projected $1 million budget shortfall
beginning in 2013.
Collected from developers over the past two decades, CEF’s are the city’s methodology for funding the
expansion of public service necessary in a growing community. Without CEF’s, the city is forced to
either reduce service levels for existing residents or increase taxes on current residents to
accommodate the cost of expanding city services to accommodate new residences and business being
built in the city. In other words, the fees collected are to be used only for the one-time cost of
expanding these services while the ongoing maintenance of maintaining the services is accomplished
through normal city tax revenue. See a recent letter to Loveland's City Council by Loveland resident
Roger Hoffmann asking the annual CEF increase not be suspended (lower right side of this page).
CEF’s are a one-time fee charged to new developments within the City of Loveland to fund capital
improvements in public services necessitated by development. In other words, a new subdivision of
housing may not require an entirely new fire station but multiple developments along with the retail
that follows does. Therefore, each development contributes to the city’s capital expansion fund
through fees called CEF’s.
If the CEF program is working properly, each development would have contributed in fees an amount
commensurate with their need for new city services, thus a special account preserving those fees is
used to build a new fire station, for example. In Loveland, CEF fees are levied on new developments to
fund expansions of Fire Protection, Law Enforcement, General Government, Library, Museum and
Cultural Services, Parks, Recreation, Trails, and Open Lands.
City Arbitrary Use of CEF's
While most developers have been required to pay all the CEF's generated by their project some have
not. McWhinney, for example, was successful last year in persuading the city council to make a
temporary reduction in CEF's long enough to get approved a 300 unit apartment project backed by
loan garuatees from HUD (Housing and Urban Development) used to finance the "low income" housing
project. (see McWhinney Tax Holiday).
While some have profited by arbitrary actions while administrating the CEF's others have suffered by
the council's inconsistent application of the fees. Using CEF's in a punitive fashion, the City of Loveland
forced Ed and Steve Klen to pay CEF's even before they were due according to Loveland's Municipal
Code before they could receive a building permit. A state-wide news website and blog, Face The State,
reported on Loveland's misapplication of the CEF's in the Klen's case last month.
| Slippery Slope To Financial Insolvency Loveland’s Council Flirting With Pillaging Long-term Capital Reserves To Meet Budget Shortfalls Beginning in 2013 |
| 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" |
|
| Mayor Gutierrez and other Council Members, I'm writing to strongly object to the proposed suspension of the annual CEF adjustment for inflation, which is listed as an ordinance on 2nd reading for tonight's meeting. As a citizen volunteer who served on the City's "Economic Vitality Committee" during the mid- 1990's, I spent numerous hours, working with other citizens from diverse backgrounds and perspectives to make recommendations for improvement of Loveland's economic well-being. I also was a member of the "Costs of Growth" subcommittee, charged with looking at Loveland's service cost recovery program. That subcommittee found numerous deficits in the City's management of its service cost recovery program (the impact fees), which were bound to leave the City with growing deficits; and the committee recommended ways to correct that. While not all of the recommendations were implemented, some improvements were made as a result. But the main result was that it drew to officials' attention the need to maintain the program as designed, if the City were not to experience further deficits. The City had already lost much ground as a prior Council had, much like the current proposal, suspended its annual review and adjustment for inflation of the CEF program; with predictable results. Services were in decline as the corresponding revenues were inadequate to keep pace. When impact fees are arbitrarily reduced, suspended, or the program prevented from increasing to cover inflationary costs, there are only 2 potential outcomes. Either: a) Service levels for City services and amenities must be cut; or b) The costs of mainaining/restoring services to their prior levels will be distributed to all residents and existing businesses. Usually, both of the above will take place. Thus, Library services must be cut or new taxes raised; the same with Parks and Open Space, and Streets, etc. There simply is no other outcome possible. To compound the problem, suspension for any period often means that the CEFs can not be restored to their proper levels, because to do so would represent an even greater jump in a single year; which future Councils are often unwilling to allow. So the long-term effects are much more damaging than would appear. So it is troubling that once again, despite having experienced before the inevitable problems that will ensue, the development community and or staff would try to shift the burden for the impacts of new development on the existing residents and businesses. This is both inherently unfair, and unacceptable from a City health and sustainability standpoint. I certainly will do all I can to make public this example of unfair treatment of the taxpayer, should it proceed. Please contact me if you have any questions. Sincerely, Roger Hoffmann |
| Cities' Financial Woes Have Roots In Bad Land Speculation Deal For Annexation Beginning in 2013 the City of Loveland will need to repay $1.13 million per year from general fund operating expenses of a $4.85 million loan from the city's restricted reserves used to buy 97 acres along I-25 during a lame duck session back in Nov. 2007. LovelandPolitics.com first reported the suspicious land purchase that was first decided upon by council during an illegal closed session. When LovelandPolitics first reported the item was a council agenda for final approval, it was postponed until after a city election. A lame duck 'old guard' council approved the property purchase shortly after the election. Including interest and the $1.6 million already paid from the general fund, the city will have spent $8.4 million for a property today worth only around $3.4 million according to estimates by local commercial brokers. The city is spending approximately $250,000 per year in interest alone for the internal loan. While the interest goes towards future capital programs it is consuming operating revenue and has delayed the city's plans to open Mehaffey Park in West Loveland due to a lack of operating revenue. Last June an Editorial in the Loveland Reporter-Herald entitled "City takes advantage of economy" lead readers to believe the long delayed Mehaffey Park for West Loveland was being delayed due to a lack of capital funds when it is really being delayed due to limited operating funds; "The savings with these projects could come in handy to complete other delayed projects, such as the next phase of Fairgrounds Park or even Mehaffey Park" The "slippery slope" is the council's current discussion to re-allocate the capital reserve funds accumulated for MeHaffey Park and other capital improvements to cover current city expenses instead. read the Face The State website article about Loveland's financial troubles related to CEF's |
| See the slide presentation by Loveland City Staff providing the history of CEF (Capital Expansion Fees) in Loveland. Highly recommended as an excellent overview of CEF's. See a video of the September 28, Council Study Session when the idea of using long term reserves for budget problems was first introduced. |