The Colorado legislature could derail a $1-billion development project in Loveland, developer says

Courtesy of Centerra
A preliminary master plan for the Centerra South development.

The developers behind a $1 billion development plan in Loveland say it could be derailed by a fast-moving bill at the legislature. The bill was crafted in response to a disagreement over the project between elected officials in Larimer County.

The project is Centerra South, where a developer’s plans call for up to 1,500 homes and about 700,000 square feet of mixed-use buildings on agricultural land near Interstate 25. The project is nearing a crucial approval vote next Tuesday before the Loveland City Council, where it has strong support.

But the bill at the legislature would change the road ahead. The state proposal would ensure that a different body, the Larimer County Board of Commissioners, can choose whether to veto the project’s funding model, which would require tapping into tens of millions of dollars in tax revenue.

Statehouse Democrats say they’re stopping the developer from using a “loophole” in state law that would inappropriately cut county lawmakers out of the development process. They argue the builder and the city of Loveland are using state law in a way that was never intended.

The developer, Chad McWhinney, says it’s an unfair intervention that singles out his project, which is following state law and has the city’s support.

“The bill puts our development in limbo because it's changing the rules of the game as they have existed for many, many years, and that we have followed for many, many years,” McWhinney said.

It started with a disagreement over taxes

At issue is the question of who will pay for the project’s infrastructure and other development costs.

The project plan is based partly on “urban renewal” financing. The idea is that a project like Centerra South will likely generate millions of dollars in yearly taxes for the city, the county, schools, and other local bodies. 

In this model, some of that new tax money is given to an “urban renewal authority” to pay for infrastructure and other costs related to the project. This approach has been used for about 150 development plans around the state, though it has faced controversy.

In Loveland, the various parties have been negotiating the financial details of this arrangement.  What share of those taxes will go to project infrastructure? How much will the taxing agencies get to keep for their own purposes?

All the other parties with a stake in the land have already agreed to the deal, including the city and the local school district. But those negotiations haven’t gone so quickly with Larimer County. About two weeks ago, the county suspended negotiations.

That pause has big implications for the project. The negotiations weren’t just about how much money the county will give to the project. They’re also about whether the county allows the financial plan to happen at all. 

When agricultural land is involved, as with this project, all affected governments must agree to the creation of the urban renewal area. It’s a provision of law that was meant to give local governments more control of the tax-funded development of farmland. Ultimately, it means Larimer County could unilaterally block the creation of the taxing district.

Larimer County Commissioner Jody Shadduck-McNally said recently at a public hearing that she was “concerned about the appropriate use of the [urban renewal authority] tools in my county,” arguing that developers had expanded the use of the law past its original intent.

County spokesperson Michelle Bird said the county was waiting for more clarity around the complex laws that govern these deals.

“We want to negotiate in good faith for our taxpayers, and we kind of want to know what the laws say [the developer and the city] can and can’t do,” Bird said.

With growing questions about whether the county will approve the district, the developers have started pursuing another route — which is where the statehouse controversy begins.

The developer’s Plan B — or is it a 'loophole?'

Normally, a developer wouldn’t have many options to get around a county’s authority here. But McWhinney and Loveland officials think the Colorado urban renewal law gives them a Plan B.

There’s an exemption in the law that says farmland can be part of an urban renewal district — even without county permission — as long as it had already been "included in an approved urban renewal plan prior to June 1, 2010.”

McWhinney has been building in the area for decades, and in 2004 got approval for a larger urban renewal taxing district that now totals about 3,000 acres, including the smaller Centerra South parcel. 

That district was intended for a different development plan, and it’s going to expire in several years, making it useless for his new project. So, McWhinney wants to essentially carry over the exemption and use it to create the new, smaller taxing area.

This new approach has support from Loveland’s council and city staff.

“The City’s goal is to be collaborative, seeking feedback and consent from all involved governmental partners throughout this process,” said Loveland City Manager Steve Adams in a press release. “Understanding that might not be possible, the state’s urban renewal law provides the City with a legal alternative to move forward with the negotiation process."

But not every official in Loveland agrees that that alternative is the right way to go. Mayor Jacki Marsh has been critical of the use of tax districts for McWhinney’s projects and others.

“Everybody thinks it's a great development. [The problem is] how you want to fund it,” Marsh said. 

She argues that asking governments to give up tax revenue to pay for new development is the wrong approach entirely. “Why are we always bending over? We need our property tax, we need our full sales tax. The county needs its full tax.” (Supporters counter that the tax deal will unlock a greater level of desirable development and tax revenues.)

Marsh raised the alarm over McWhinney’s plan for the taxing districts with Democratic state lawmakers, as did county officials. Marsh argues that the city and developer are evading the intent of the existing state law, and contends that the project area is not truly “blighted,” which is a requirement for an urban renewal area.

The disagreement has stirred city council drama. Councilor Dana Foley implied in an email that the mayor was engaged in “subversive behavior.”

“The potentially incomplete and outdated information shared with you may be an attempt to manipulate you into creating legislation,” Foley wrote in a message to Sen. Janice Marchman, which was obtained as a public record. Marchman’s district includes Loveland.

Another council member, John Fogle, wrote in an email to a resident: “I believe this current Marsh-Marchman vendetta is an extension of the six-year hatred campaign our Mayor has portrayed on Centerra and the McWhinney group.”

Marsh says she’s just trying to ensure the public gets a good deal.

Hart Van Denburg/CPR News
The Gold Dome of the State Capitol, framed by winter trees.

State lawmakers got involved

Sen. Marchman, a Democrat, introduced a bill on April 10 that would directly prevent developers from spinning off new taxing districts from previous arrangements.

 In an email to Loveland council members, she said it was important to stop the misuse of the law, especially since it could spread to other cities. "I see both the intent and letter of state law as incredibly important, especially around land use, local control and tax incentives that are backfilled by the state," she wrote.

Rep. Andrew Boesenecker, another Larimer County Democrat, is a co-sponsor. “My concern, and the reason why the bill is a statewide interest, is that the (current law) clearly unintentionally created a loophole,” Boesenecker said.

The new state bill would say that, no, a developer can’t freely transfer farmland between districts without county permission. The bill’s sponsors have argued that previous lawmakers never intended to allow the path that McWhinney and Loveland officials are contemplating.

The urban renewal law dates to the 1950s. More recently, concerns arose that the law was being used to fund new development on farmland, rather than to rehabilitate existing areas. 

“The original Urban Renewal Authority statute was intended to address urban blight, not allow mis-labeling [of agricultural] land for private profit,” wrote former lawmaker Morgan Carroll in an email to Mayor Marsh.

Carroll helped revise the law in 2010. That revision gave county governments — and others — the power to veto urban renewal districts if agricultural land is involved.

There was an exemption included in the update, but it was only to ensure existing districts weren’t disrupted by the change, Carroll said. The overall goal was “stopping all new or renewing URA Plans from continuing this practice [of putting farmland in renewal areas],” she wrote.

And yet the literal wording of the law doesn’t say that, according to real-estate attorney David Neville. He believes the developer and the city of Loveland are in the clear, even without county permission.

“I have always understood this to mean what the developer in Loveland is currently asserting it to mean. That’s the plain language of the statute,” said Neville, who specializes in the topic and isn’t involved with the project.

The Loveland City Council is set to make a decision about the urban renewal area on May 2, with a majority appearing to be in support.

Meanwhile, the bill that would potentially block that approval is racing through the legislature. It has approvals from the Senate and the House and just a few more steps to go. 

The developer wants a compromise

Both sides have a lot at stake here.

The developer wants up to $155 million of taxes to be spent on the project over 25 years. About half of that would come from extra property taxes paid by landowners in the area. The rest would consist of regular property taxes and sales taxes that are diverted back to the development.

The money would go toward costs like streets, water, sewer, open space and parking structures, McWhinney said. Larimer County was originally asked to give back about 60 percent of the property taxes it will collect from the development, according to McWhinney.

The developer also has another 420 acres of land that could be developed under similar arrangements if the state doesn't intervene.

McWhinney and his supporters say the fight is not about the money — it’s about whether the project happens at all. They say the developer and city of Loveland are willing to let Larimer County keep all its tax revenue from the land — letting it off the financial hook — as long as the county doesn’t nix the overall funding arrangement.

“The city of Loveland has said they will step up with some of their revenues to help make up for [the loss of the county contribution],” McWhinney said.

Republican lawmakers in the Capitol have offered a compromise along those lines. They drafted an amendment that would allow these kinds of tax district deals to proceed without county permission, as long as there was no tax impact to the county.

“If they're not interested in it, let them opt out,” McWhinney said. But that amendment was rejected by Democrats. Boesenecker said that the other entities always deserve a say because they're affected by development. Renewal projects can also indirectly require greater school spending from the state, he pointed out.

Republican Minority Leader Mike Lynch also asked for a three-month delay in the implementation of the law to ensure it didn’t disrupt in-the-works projects like Centerra South. That was also rejected. 

“Let the developers develop. Let them build. Give them the grace of that loophole that one time and then close it,” said state Rep. Richard Holtorf, a Republican.

Boesenecker, the cosponsor, said that he saw no need to give grace to someone “caught with their hand in the cookie jar.”

The developer and his supporters say that issues with the urban renewal law should be dealt with more broadly, not to stop a single development from using the existing statute.

“What we just saw happen in the Colorado statehouse is a political hit job that was put forward by a county commissioner in a desire to stop a forward-moving project in the city of Loveland,” Lynch said in an interview.

State Sens. Rachel Zenzinger, Chris Hansen and Kyle Mullica were the only Democrats to vote against the bill in the Senate. Zenzinger didn’t object to the overall thrust of the bill, but says it’s being done the wrong way.

“We make state law that impacts the whole state, and I objected to making it retroactive and potentially sweeping up others who didn’t have an opportunity to object,” she told CPR News.

What happens if the bill passes?

If the bill becomes law, Larimer County commissioners would be assured the power to decide whether the tax district is created. The county has not made a final decision on how it would use that power, said spokesperson Bird.

“Once the bill has seen its course, the county will make their next decision — how to move forward in good faith,” Bird said. She added later: “Our priority is to have legal clarification on the proper use of the URA tool before we negotiate on behalf of our taxpayers.”

McWhinney said that if the county scuttles the deal, it would "be a significant blow to the project." He said he would consider other financing options with the city, but nothing is certain.

Lynch, the Republican leader, called on Gov. Jared Polis to veto the bill, saying that it runs counter to the administration’s goal of building more housing. 

The governor’s office didn’t take a definitive position on the bill, but reiterated that he wants to see more housing built.

“Governor Polis is focused now and throughout his second term on creating more housing now to meet the urgent housing needs Coloradans face statewide. The Governor and his team will review this bill in its final form if it reaches his desk,” wrote spokesperson Conor Cahill.