Wednesday, January 25, 2017

Chapter 3, footnote 1: First draft of Gaylord hotel story

Below is the first draft submitted by the reporter assigned to the story that The Gazette eventually published with the headline "Aurora Tax Giveaway" on the front page on Aug. 10, 2014. It is published here exactly as I obtained it, including a few typos.

DENVER - A single voter - appointed by a corporate landowner - raised taxes on a swath of vacant land in Aurora in a move to increase revenue the city had pledged to a developer as part of a multi-million dollar incentive.

In Larimer County, the entire Town of Timnath, including outlying farmland, was designated as blighted to make "urban renewal" incentives available to developers.

And in Colorado Springs elected officials are considering a new large-scale tax district that would be the first of its kind in Colorado to help pay for a proposed sports arena downtown.

All three are part of a trend in Colorado and across the nation of local officials so desperate to attract new development and jobs to their hometowns that they offer lucrative deals to developers. Such deals are growing in complexity and increasingly push the bounds of what's been done before with taxpayer dollars.

City attorneys have found themselves in court defending the bold new moves.

Every state except Arizona uses some form of tax increment financing to spur economic development, but the state that pioneered the tool - California - abolished the state statute amid fiscal crisis in 2011.

Redevelopment agencies in the state used tax increment financing laws with great success in the early years to combat blight, but municipalities began abusing the program - bending the definitions of blight and tying up billions in taxpayer dollars for projects that served minimal public benefit, said California Gov. Jerry Brown before he and lawmakers shut down the program.

In Colorado, competition is driving public officials beyond the intended scope of "urban renewal," said state Rep. Randy Fischer, D-Fort Collins, who successfully passed a bill in 2010 he thought would close the egregious loophole that allowed Timnath to include agricultural land in an urban renewal district.

"You have to admire the creativity that goes into it," Fischer said. "It's really unfair to citizens who in good faith vote to tax themselves to provide county services and public education for their children and then to have developers with the help of municipal governments swoop in and say we are going to divert some of those tax dollars for purposes that were never contemplated."

In that setting, Colorado Springs and El Paso County officials will decide how to finance the cornerstone project of City for Champions - a downtown stadium and surrounding entertainment district with a landmark bridge and a parking garage.

"Cities all over the county are really competing to make themselves attractive to not only the residents but also to tourists and businesses," said Bob Cope, principal analyst for Colorado Springs economic vitality division. "In order to do that communities have to invest in themselves."

In 2011, the City of Aurora offered up almost every cent of future taxes generated by a proposed development, in the name of future economic development.

Whether or not those incentives - some of which are unlike anything else done in the state - overstepped the bounds of state law is the subject of a pending lawsuit. 

The Gaylord Hotel project - owned by Marriott International and being constructed by RIDA Development Corp. - would receive an estimated $381.5 million in taxpayer dollars to cover myriad construction costs over 33 years. That sum includes revenues from local sales tax, property tax, admissions tax, lodging tax and state sales tax.

"This incentive package like our other incentive packages are performance based," Kim Stuart, spokeswoman for Aurora, said. "No money is given in advance. They have to build this hotel, operate and bring in visitors a year before they receive any funding."

Because the incentives are based on the tax increment - the difference between taxes currently generated on the property and the taxes generated once the project is complete - the developer doesn't see a dime until there are improvements on the property.

Lawsuits have been filed by 11 hotels in an effort to quash the state incentives before the project cuts into the market, and two Aurora taxpayers are challenging the city's authority to execute various aspects of the deal without voter approval.

Aurora prevailed in the lawsuit filed by a group of Denver hotels owned by Sage Hospitality and The Broadmoor hotel in Colorado Springs. But the other lawsuit is pending and could slow financing of the development.

In Timnath, construction is rolling along.

The town will welcome a new Costco in October, located just south of a bustling Wal-Mart Supercenter. Both big-box stores were built on previously vacant land and are receiving portions of the increased property tax generated by the new stores to help pay for construction costs.

Proponents of these incentives say they have spurred the economy and breathed life into once dying parts of communities. Opponents point out developers once paid for infrastructure improvements themselves and the end-result of the incentives is lining the pockets of private companies with taxpayer dollars.

"We had a very limited revenue base before we had Costco and Walmart," said April Getchius, town manager for Timnath, population 2,500. "It's an opportunity to allow us to attract development that we can then use those revenues to build upon and do other things."

Additionally, she said the two stores are significant employers, noting Costco is in the midst of hiring about 200 full-time workers.

Larimer County was less than thrilled about the decision to possibly tie up some of its tax revenues for development on agricultural land. A lawsuit was settled out of court with a Timnath promise to reimburse Larimer County for some of the lost property tax revenue. Timnath, which created the controversial urban renewal district in 2004, will continue to enjoy the huge boost in sales tax, with most of the money coming from Fort Collins shoppers.

Fischer said he respects and understands local officials desire to spur the economy, but he said the urban renewal statute was intended to subsidize expensive infill development projects rather than vacant land that's usually cheap to build on.

He helped pass House Bill 1107 in 2010 along with now Senate President Morgan Carroll, D-Aurora. The bill limited the use of blight on agricultural land, but Fischer said to get the bill through the legislature he had to offer up exceptions as a compromise.

"Clever people have come up with ways around that so it's not much of an impediment now," Fischer said. "I regret that we had to do that because again it just creates another loophole in which communities can go ahead and continue to abuse the urban renewal statute."

In fact, the hotel project in Aurora used the urban renewal statute to declare agricultural land near the Denver International Airport blighted and put it in an urban renewal district a year after the new law passed. The law says a municipality can do that if all the taxing entities agree to the designation. Adams County commissioners sent a letter of support, but there was not a vote on the issue, a spokesman for the county said.

Unlike Timnath, where the tow will see a huge boost in sales tax revenue, Aurora isn't likely to see a significant increase in tax revenue from the Gaylord Hotel project for 25 to 33 years - the city council member pledged it all away.

Aurora City Councilwoman Barbara Cleland said it was an easy decision to make in 2011, considering the land would likely go undeveloped without the Gaylord hotel.

"The tax base they get back for the public portion of the Gaylord, is tax base they themselves raise," Cleland said, noting the money going to the developer will pay only for construction of the 350,000 square foot conference center, which she said will hold public events.

The lawsuit filed in February by Aurora taxpayers David H. Bishop and Regina M. Thomson says, "The Incentive Agreement specifies no fewer than four subsidy schemes to benefit Gaylord, resulting in a transfer to Gaylord of almost 100% of tax revenues generated by the Gaylord Project."

Among the most egregious of these said Sean Duffy with The Kenney Group, one of several groups representing the plaintiffs, is the enhanced taxing district established for a hotel lodging tax and tax on admissions tickets.

City council members in 2011 voted to establish a new tax district on land owned by the registered corporation LNR CPI High Point. They then called for a vote from all landowners in the new district to consider raising the lodging tax by 2 percent and the admissions tax by 6.25 percent.

Landowner LNR CPI High Point appointed Denver resident Brandon Wyszynski to vote in the election on behalf of the landowner. The tax rates were approved with the single vote.

In the agreement between the city and the Gaylord Hotel developer, it specifies that the developer will receive all of the revenue from those two taxes for 33 years.

The city also pledged that any increase in property value or sales taxes also will go to the developer over 25 to 30 years.

"These subsidies, approximately $800 million over 30 years, would be the largest in the history of Colorado," the lawsuit says.

The city estimates the amount will be much smaller - between $200 million and $300 million in current day value, over the life of the agreement.

Additionally, the city applied for and received on behalf of the developer a portion of state sales tax through the Regional Tourism Act. The state's Economic Development Commission approved an estimated $81.5 million over 30 years.

Jason Batchelor, finance director for Aurora, said the city hired outside consultants to analyze what it would take to make the proposed $800 million hotel financially viable. He said that gap came in at between $200 million and $300 million and the city found a way to make the development a reality.

"The incentive is needed to make the project work," Batchelor said. "The hotel will bring 2,500 permanent jobs and 10,000 construction jobs to the city."

Additionally, Batchelor said the city will retain the portion of the lodger's tax that goes to fund the city's tourism department and portions of sales tax that pay for emergency services such as police.

"Part of the reason we were able to do that (increase the lodger's tax) is our base lodgers tax is already below Denver and the surrounding communities," Batchelor said. "Even with the increase we are still below where Denver is."

But the lawsuit filed to halt the incentives says voters across the city should have been asked about the tax increase, not just a single landowner.

That's exactly what Colorado Springs City Council member Don Knight said he wants, a vote of the people if taxpayer dollars are to be spent on a downtown arena. Other council members have agreed with his assessment and signed a letter to that effect.

The City of Colorado Springs has secured state sales tax dollars for the project - roughly $120.5 million over 30 years will flow from state coffers to four projects pitched by the city under the Regional Tourism Act.

But that's not enough to cover one project on the list - an indoor arena that officials hope will draw revenue-generating sporting events from across the nation. The stadium could be publicly or privately owned.

Cope, with the Colorado Springs economic vitality division, said a decision on financing and ownership of the project is a long way from being made and when the city gets to that point a community conversation will involve taxpayers and stakeholders.

One proposed plan - a city and county partnership to establish a massive taxing district and dedicate some of the increase in taxpayer revenue over the years to the development - has never been done in the state, Cope said.

A document in December estimated a new taxing district could generate $49.3 million for the project.

"This would be the first time that this type of a TIF was established, so we would have to work with the city attorney's office to set it up in the appropriate manner," Cope said.

Knight said that the city charter specifically prohibits construction of a convention center using taxpayer dollars without voter approval.

"The city attorney has said the stadium is not a convention center - to me that's splitting hairs," Knight said.

In addition to a large taxing district to help pay for the project, the city also will try to renew an existing urban renewal district over the proposed site of the sports arena in southwest downtown that could generate an additional $46.8 million in sales and property taxes over 30 years for the project.

Knight said he analyzes each use of tax increment financing based on its own merits and this will be no different.

For example, Knight said he supported the controversial tax increment financing deal cut for Copper Ridge at Northgate, a 192-acre vacant parcel of agricultural land on the north side of the city that was being considered just as Fischer was attempting to close the loophole.

Knight said in that project the tax dollars will be spent solely to extend Powers Boulevard to the interstate - something he said serves as a clear public need.

"That for me was an easy decision," Knight said. "Our laundry list is a lot bigger than our wallet ... We could either wait 10, 15 or 20 years for this road or we could put in this TIF and have it done."

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