By Pam Zubeck
Back in 1988, the Lowell School area seemed like a good target for urban renewal. Located generally southeast of Rio Grande Street and Nevada Avenue, dilapidated and abandoned houses dominated the area, while the majestic old schoolhouse, finished in 1902, had fallen into ruin.
But with help from the Colorado Springs Urban Renewal Authority, a mixed-use urban density subdivision emerged, featuring dozens of townhomes, a swank condominium building, affordable housing and walkable streets flanked by marigolds, petunias and trees.
What’s missing? The Lowell Metropolitan District, formed to issue debt and install enabling infrastructure, lacks an adequate tax base to fund that debt, and it’s missed principal and interest payments totaling more than $2 million.
But “the sky isn’t falling,” according to Sean Allen, general counsel for the district.
However, some observers wonder if Lowell stands as a warning against the city’s penchant for enabling special districts across the city.
Allen himself calls Lowell “the most financially challenged” district overseen by his Centennial law firm, which provides service for hundreds of special districts across Colorado.
But Allen holds out hope that Lowell will turn around.
“The last few pages of this book haven’t been written yet,” he said.
After Lowell was declared blighted, an urban renewal area was created in 1988. Nothing much happened, though, until Lowell Development Partners LLC took over the 58-acre project in the late 1990s.
As the nation crawled out of the 2001-02 recession, Lowell Metro District issued $9.3 million in debt in 2004, at 7.25 percent fixed interest, to fund curbs, gutters, roads and utility lines.
In 2001, the three-story Poet Lofts Condominiums, on the district’s north end, was built, followed in 2004 and 2008 by construction of a pair of three-story Wyndam-Colorado Springs Partners LP low-income senior housing buildings.
In the meantime, the Colorado Springs Housing Authority restored the historic Lowell Elementary School, which sits just outside the district’s west boundary. Built in stages and completed in 1902, the school was boarded up and closed in 1982. The Housing Authority overhauled the building, listed on the Colorado State Register of Historic Properties, as its headquarters and for other offices. It reopened in 2001.
Over the years, hundreds of townhomes and condominiums — some used for businesses — have been built, connected by city streets and sidewalks.
But in 2013, tax increment financing, a URA tool that captures property tax revenue above pre-development levels, expired along with its 25-year URA designation.
Within a few years, the district’s finances crumbled.
According to a 2018 district audit filed with the state, the district didn’t pay debt principal payments from 2015 to 2017, and Allen acknowledges the district has defaulted on principal and some interest payments since then. Those defaults have put the district behind on debt payments by at least $2 million.
A tax desert
The district can’t come up with the payments, because property tax revenue, the district’s only source of income, falls short.
Some properties — the two senior housing buildings and another strip of low-income apartments — are run by nonprofits, making them tax exempt, meaning the Lowell district, and other taxing entities, get no taxes from them.
In addition, several parcels of land remain undeveloped, keeping their tax bills low, while some properties’ values have declined, which lowers those tax bills.
It’s not possible to refinance the debt at a lower interest rate, because potential lenders want to see a “rosier picture” for district finances, Allen said.
On the upside, the district has few expenses. It collects 5 mills, or about $24,000 a year, to fund operations and maintenance, which includes payments for accounting, audits, insurance, legal advice and the like.
There’s no upkeep of infrastructure needed, because those assets were turned over to the city for maintenance years ago, Allen said.
Both the O&M mill rate, and the 49.11 mills for debt service are capped, Allen said, and can’t be raised without city council permission.
And there’s no plan to ask. “The board of this metro district says, ‘That is the box we were given, and we live within the box,’” Allen said.
Besides, he added, “Higher taxes might discourage more development,” and that’s the key to the district attaining solvency.
“There’s not a runaway train they [residents] should be concerned about,” he said. “The bondholders can’t force us to break through that [mill levy] ceiling.”
Until the district becomes solvent, the bondholders simply don’t get paid, Allen said, noting, “This was the risk that the bondholders took.”
But should the board decide to pursue a higher tax rate, that request would come from one person, Donna Popke, an employee of Lowell Development Partners who serves as the board’s sole member.
“We begged her to stay on the board,” Allen said. “I told her, ‘If you leave without getting more directors on the board, we couldn’t adopt a budget.’”
He added that Lowell’s residents have “zero interest” and never attend board meetings, held once a year in an office near the district.
A financier’s nightmare
So an urban planner’s dream has turned into a financier’s nightmare, and set up Lowell Metro District as a poster child for special districts’ lack of accountability, oversight and responsibility, says Tim Hoiles, founder of a nascent news outlet, Fourth Estate News Bureau, and a former owner of the Gazette.
In a recent warning to council via email, Hoiles said, “We face a day of reckoning over the unchecked proliferation of special taxing districts across Colorado Springs.”
Those districts number in the dozens, he notes, and operate with “virtually no accountability, oversight or coherent plan.”
Council approves special districts’ service plans and mill levy caps but doesn’t monitor their performance, which is left to special districts’ boards, often controlled by developers.
“The time has come,” Hoiles added, “for the city to take a time out and broadly assess where things stand, before we continue to blindly wander down this potentially untenable path.”
The city’s own 2009 Special Districts White Paper shows that property owners in newly developed areas paid 68 percent more in taxes due to special district levies compared to central Colorado Springs property owners. Such differences can create service inequities and lead residents of newer areas to be unfriendly toward general purpose tax initiatives, the report said.
It’s worth noting that while a couple of local districts required government bailouts going back years, such rescues are rare.
City Councilor Andy Pico disputes Hoiles’ premise, telling him in an email, “The council has taken a very close look at the districts, the purposes for them and very closely reviews the projects and finances.”
Pico said council’s Finance Committee studies each special district proposal in detail and notes the council plans to review URA standards “in the near future.” He also notes the service plan standards were adjusted about five years ago.
It’s unclear if those changes, enacted sooner, would have altered Lowell’s shortfalls, and Allen admits that progress has been slower than he’d hoped.
But he notes the area’s rebirth represents a huge improvement over the ramshackle buildings that once degraded the area. Also, he says, Lowell could attract new interest, being only about four blocks southeast of the proposed Switchbacks stadium and the Olympic Museum project.
“We need more development in the district,” Allen said. “The vision of this project is still good.”