What’s so special about Special Tax Districts (and Metro Districts)?

Special Tax Districts and Metro Districts have recently been in the spotlight. As new subdivisions emerge along Colorado’s Front Range, it’s wise for prospective homebuyers to conduct thorough research on these districts.

To begin with, what exactly is a Special Tax District or Metro District? It’s a long-standing tool used to finance the infrastructure of new subdivisions, covering essential urban services like streets, water and sewer lines, fire protection, and more. In the 1980s, it was mainly employed when a subdivision was located outside city limits or when the city could not provide the necessary infrastructure.

Let’s take a step back to the mid-1980s for some historical context. During that time, the Real Estate Commission introduced a clause into the standard residential real estate contract, which is still present today in the Colorado Contract to Buy and Sell Real Estate.

“8.4. Special Taxing and Metropolitan Districts. SPECIAL TAXING DISTRICTS MAY BE SUBJECT TO GENERAL OBLIGATION INDEBTEDNESS THAT IS PAID BY REVENUES PRODUCED FROM ANNUAL TAX LEVIES ON THE TAXABLE PROPERTY WITHIN SUCH DISTRICTS. PROPERTY OWNERS IN SUCH DISTRICTS MAY BE PLACED AT RISK FOR INCREASED MILL LEVIES AND TAX TO SUPPORT THE SERVICING OF SUCH DEBT WHERE CIRCUMSTANCES ARISE RESULTING IN THE INABILITY OF SUCH A DISTRICT TO DISCHARGE SUCH INDEBTEDNESS WITHOUT SUCH AN INCREASE IN MILL LEVIES. BUYERS SHOULD INVESTIGATE THE SPECIAL TAXING DISTRICTS IN WHICH THE PROPERTY IS LOCATED BY CONTACTING THE COUNTY TREASURER, BY REVIEWING THE CERTIFICATE OF TAXES DUE FOR THE PROPERTY AND BY OBTAINING FURTHER INFORMATION FROM THE BOARD OF COUNTY COMMISSIONERS, THE COUNTY CLERK AND RECORDER, OR THE COUNTY ASSESSOR. The official website for the Metropolitan District, if any, is:_______________.”

First, let’s take a moment to remember the 1980s—if you were around back then! There was no internet or social media; today, we understand that writing in all CAPS means SHOUTING. The Real Estate Commission didn’t just put the clause in all CAPS but also BOLD! That’s like shouting at the top of your lungs with extra emphasis. The takeaway? Something significant must have happened to warrant such a bold warning to homebuyers!

Yes, something major did happen! Think back again to the 1980s. The ‘70s saw a real estate boom in Colorado but then came the ‘80s with the oil glut, the savings and loan crisis, massive local layoffs, and 16% mortgage rates. Suddenly, houses became nearly impossible to sell, and the real estate market tanked. The term “short sale” wasn’t even in our vocabulary yet. Developers were counting on the market to bounce back, but the recovery didn’t come fast enough.

Colorado Springs had a metro district known as the Metex Metropolitan District. The city refused to annex the land until 7 miles of four-lane road were built. The developer created the metro district to fund these improvements, planning to repay the financing bonds through taxes paid by eager homebuyers. However, when homes stopped selling, the tax burden fell solely on the initial homeowners. The mill levy (the tax rate of $1 for every $1,000 of assessed value) jumped from 8.75 mills in 1987 to 31 mills by 1990. As a result, homeowners started abandoning their properties. Some districts faced even worse issues—in one case, just 5% of users covered 100% of the costs. Metro Districts quickly garnered negative press, and soon after, the Real Estate Commission added a warning to the standard contract.

The early 1990s brought a booming market to Boulder County, with a shortage of available homes. Then came a new development, Rock Creek in Superior, whose infrastructure was financed through a Metro District. Fortunately for Rock Creek, homes were selling rapidly, avoiding the issues in Colorado Springs. Once a subdivision sells out, the risks of being in a Metro District decrease significantly. Could the Colorado Springs scenario happen again? Yes, it’s possible, so the warning remains in Colorado’s standard Residential Contract to Buy and Sell Real Estate.

As a homebuyer, your first step is to review the property’s Tax Certificate from the County. This document will list all the entities receiving funds from your annual tax payment. From there, you can research each entity to understand its purpose and assess the financial structure and any potential risks it may pose to you as a homebuyer.

There is a wealth of additional information to help Homebuyers make decisions available on Metro District and Special Districts in a publication provided by the State’s Department of Local Affairs (DOLA) at tinyurl.com/y5v8ropp.

To understand these Districts and how they might affect your homeownership, consult your Realtor^® and your attorney.

Duane graduated with a business degree and a major in real estate from the University of Colorado in 1978. He has been a Realtor^® in Boulder since that time. He joined RE/MAX of Boulder in 1982 and has facilitated over 2,500 transactions over his career. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail duaneduggan@boulderco.com,
call 303.441.5611 or BoulderPropertyNetwork.com.

Contact Us