If Colorado voters approve Amendment 61 on Tuesday, it is likely to eliminate the primary tool used by real estate developers to finance the installation of infrastructure in new developments.
Amendment 61, together with its sister initiatives, Amendment 60 and Proposition 101, has received a lot of attention in Colorado as the state approaches the November election. While many believe that all three could have serious fiscal consequences for Colorado, it is Amendment 61 that is garnering some national attention. The Wall Street Journal has recently reported on Amendment 61. Amendment 61 should be of real concern for any real estate developers who utilize (or plan to utilize) special districts for the purpose of financing of infrastructure, as it will severely limit the ability of special districts to issue debt.
Among other things, Amendment 61, if adopted, will:
(a) expressly prohibit all types of borrowing by special districts other than bonded debt, including, for example, short term loans, certificates of participation, and lease-purchase transactions
(b) require voter approval for any bonded debt that is issued
(c) require that all bonded debt have a term of 10 years or less and be repaid within 10 years; and
(d) limit the amount of outstanding bonded debt to a total of 10% of the then-existing assessed values of the property within the special district's boundaries.
Real estate developers often form special districts for the purpose of installing and operating infrastructure for new projects. The infrastructure must be installed before any development can occur, so either bonds are issued by the special district in order to fund the cost of installation of infrastructure, or the developer installs the infrastructure and the special district agrees to reimburse the developer with future bond proceeds or tax revenues. Whether bonds are issued to pay the infrastructure costs directly from the outset or the special district enters into a reimbursement arrangement of some sort, the provisions of Amendment 61 would apply. Amendment 61 would prohibit the reimbursement arrangements altogether, since such arrangements are essentially borrowing by the special district not in the form of bonds. If the initial installation of infrastructure is funded by bonds, however, the amount of bonded debt will be capped at 10% of the assessed value of the vacant land, which generally has a far lower value than the developed land.
These and other issues with Amendment 61 have the attention of the local government community. Because of the intersection between special districts and real estate, the real estate community should be paying attention too.
Otten Johnson's Real Estate practice group has substantial experience in dealing with special district related issues. For more information on this Client Alert or on how Amendment 61 might impact you, please contact any of the attorneys in the Real Estate practice group (for a listing, click here.)
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