Late last month, the Colorado Supreme Court dealt a blow to the ability of urban renewal authorities in Colorado to collect revenues generated by the adoption of an urban renewal plan. In Kaiser v. Aurora Urban Renewal Authority, the court held that county assessors have broad authority to determine how to differentiate between direct benefits and indirect benefits of urban renewal when proportionally adjusting base and increment values of property located within an urban renewal area. This decision could weaken the viability of tax increment financing (“TIF”) as a tool for urban renewal authorities to remedy and prevent blighted conditions and attract and leverage private investment.
URBAN RENEWAL AUTHORITIES
The Colorado Urban Renewal Law, C.R.S. § 31-25-101 et seq. (the “Urban Renewal Law”), authorizes municipalities to form urban renewal authorities and adopt urban renewal plans for the purposes of preventing and eliminating blight. It also empowers municipalities to authorize the use of TIF to finance urban renewal projects, which are the subject of urban renewal plans. More than 65 municipalities in Colorado have formed an urban renewal authority. Most of these municipalities have adopted one or more urban renewal plans that authorize the collection and use of TIF to carry out urban renewal projects.
One of the reasons that municipalities authorize TIF is that, due to various factors of blight, redevelopment of blighted areas might be unattractive to investment or infeasible to develop in the absence of additional financial tools like TIF. For example, a site might lack costly public infrastructure, require environmental remediation or have unusual topography. The authorization of TIF is a way to bridge the gaps in feasibility of development by borrowing against the future increased value of the property after redevelopment.
By allowing an urban renewal authority to borrow against future increases in property values generated by private development, TIF provides a mechanism for growth to “pay its own way.” TIF is based on the expectation that, due to the efforts of urban renewal in an urban renewal area, property values will increase, in turn driving an increase in property taxes. For a period of 25 years after approval of an urban renewal plan, that increase, or “increment” can be used by the urban renewal authority to finance urban renewal projects.
Any property taxes that are not attributable to urban renewal efforts are considered part of the “base,” which is paid to the taxing entities that levy a mill levy in the urban renewal area, such as school districts, fire districts or the county. In essence, taxing entities receive the revenues that they always would have received in the absence of urban renewal, and for 25 years, urban renewal authorities are able to leverage the revenues that would not have existed but for urban renewal efforts.
KAISER V. AURORA URBAN RENEWAL AUTHORITY
Aurora Urban Renewal Authority, Fitzsimons Village Metropolitan District Nos. 1, 2, and 3, and Corporex Colorado LLC (collectively, “AURA”) sued the Arapahoe County Assessor, PK Kaiser (the “Assessor”), and the Property Tax Administrator, JoAnn Groff (the “Administrator”), arguing that the Administrator’s methodology for distinguishing between base property taxes and increment violated the Urban Renewal Law. The Administrator’s methodology states that “indirect benefits resulting from market perceptions that properties located in a TIF Plan are more or less desirable [or] valuable” are reassessment changes that should be proportionally allocated to taxing entities and urban renewal authorities. While direct benefits of urban renewal are automatically allocated to increment, indirect benefits may be proportionally allocated to the base and increment. Generally, the result of this methodology has been that only a small proportion of the increase in value attributed to the inclusion of property in an urban renewal plan has been allocated to the increment and made available for urban renewal projects. AURA argued that this methodology therefore reduces the funds that would otherwise be allocated to AURA, hindering its ability to give effect to the purpose of urban renewal.
The district court granted summary judgment in favor of the Assessor and Administrator on this issue, and the Colorado Court of Appeals reversed. The Colorado Supreme Court granted certiorari in Kaiser to determine whether the Administrator’s methodology is inconsistent with the Urban Renewal Law.
The Colorado Supreme Court agreed with the district court on this issue and held that the Urban Renewal Law gives the Administrator broad authority to determine the calculation and proportional valuation of the property tax base and increment. According to the court, it is consistent with the Urban Renewal Law that the Administrator’s methodology allocates any increases in property taxes that cannot be directly attributed to redevelopment activities to the base, even if those increases can indirectly be attributed to the inclusion of the property in an urban renewal area. Therefore, the Administrator may promulgate a methodology stating that indirect benefits resulting from market perceptions about properties located in an urban renewal area are not necessarily allocated to urban renewal authorities as increment and may, in the discretion of the applicable county assessor, be allocated to the taxing entities as base.
IMPLICATIONS FOR URBAN RENEWAL
The Supreme Court’s ruling in this case underscores the latitude given to the Administrator and to county assessors in determining base and increment values in urban renewal areas. This decision is critical for urban renewal developers and stakeholders, as it influences the availability of funds for urban renewal authorities to promote urban renewal projects.
This decision also affects taxing bodies that levy a mill levy within urban renewal areas, which may see an early increase in base revenues caused by indirect benefits of urban renewal. While the purpose of urban renewal is to ensure that all of these districts receive increased benefits after the successful implementation of an urban renewal plan, these districts may receive increased benefits earlier due to this decision. However, such increased benefits may be at the expense of later revenues to those taxing districts that fail to materialize due to the lack of availability of funds to urban renewal authorities, which may not be able to promote robust redevelopment in the urban renewal areas to the same degree that would have been possible with more increment.
When considering the formation of an urban renewal authority and the adoption of an urban renewal plan, municipalities should consider that indirect property tax revenues due to market perceptions that property located in an urban renewal area are more valuable may not be allocated to increment and thus may not be available for urban renewal projects. Developers, when considering the availability of TIF to help finance redevelopment in or affecting urban renewal areas, should be aware that TIF revenues may not be available until after redevelopment has begun to occur.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING THE COLORADO SUPREME COURT'S RULING IN KAISER V. AURORA URBAN RENEWAL AUTHORITY. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS. THE INFORMATION IN THIS ARTICLE IS ACCURATE AS OF THE PUBLICATION DATE. BECAUSE THE LAW IN THIS AREA IS CHANGING RAPIDLY, AND INSIGHTS ARE NOT AUTOMATICALLY UPDATED, CONTINUED ACCURACY CANNOT BE GUARANTEED.