Grand Elk averts tax hike
January 8, 2010
Grand Elk property owners narrowly avoided an increase of 5.2 mills to their 2010 property taxes, which would have brought the tax levy on the development’s debt service alone to 40.2 mills.
Unpaid taxes in the Grand Elk subdivision in Granby caused bond-payment problems for town employees managing the Grand Elk General Improvement District, or GID, at the close of the year. But the higher taxes were averted after many discussions between bond council and town staff members.
Property owners in Grand Elk were promised a 35-mill cap on the debt service when they originally purchased their lots.
General improvement districts serve as a financial tool for developments to start up.
The way they work is a town or municipal government issues debt to build infrastructure and improvements.
In the case of Grand Elk, made possible by a general improvement district that started in 2001, town board members serve as the ex-officio board for the district, and the town manager serves as the ex-officio manager.
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Grand Elk property owners, in turn, pay back bonds by way of property-tax mill levies voted by the owners themselves. The GID is set up to eventually dissolve, at which time the town owns the roads and other improvements within the subdivision.
But in Grand Elk, developers – not property owners – made most of the decisions early-on since there were few property owners at the start, according to town/GID officials.
And when the pace of development was much slower than projected in bond documents, the GID board voted to refinance previous bonds to a $9 million bond in 2007.
At the same time, Grand Elk LLC put up $200,000 as a way to buy down the interest rate and make the bond more attractive to investors.
Another $750,000 protects the bond in reserves.
Granby Town Manager Wally Baird was not here when the GID was implemented, and if he had been, he said he would have discouraged it.
“If you don’t have the money to do it,” he said, “don’t come to us and ask us to subdivide your land. I find it kind of odd, to have a full GID in the town. The problem I have with that is what we’re seeing right now: A downturn in the economy and lots are not selling. But the bond payment doesn’t go away, they don’t care what the economy is doing.
“Usually when you see these (GIDs) is when the subdivision is already developed,” he said.
In General Improvement Districts, the town has more authority over the bonding; in a metro district – such as Granby Ranch – the developer has more authority.
The problem the Grand Elk GID faced in December was unpaid taxes and unsold tax liens.
Funds needed to make the bond payment were trickling in too late.
When it came time to make the Dec. 1 bond payment, sufficient money wasn’t available, so GID/town Finance Director Sharon Spurlin borrowed $80,000 from supplemental bond reserves set up by money contributed by the developer to make the payment on time. She also was told that the subordinate bond needed to be paid off.
For the town of Granby, there would be no legal obligation if the bonds were to have defaulted since it’s the GID – not the town – that is responsible, according to Spurlin and Baird.
Even so, “Future bond companies aren’t going to see it that way,” Baird said.
The GID could risk losing its bond rating, which could reflect poorly on the town, Spurlin said.
Bond council looked into it and told Spurlin and Baird the situation triggered the GID’s obligation to “Gallagherize” the 35 mills to 40.2 mills.
In a vote, GID board members voted to do so at the time they adopted the 2010 GID budget.
But further examination by both town and Grand Elk LLC bond counsel and the bank ultimately determined that the mill increase wouldn’t be necessary due to an amendment by Grand Elk LLC, as the bond holder of the subordinate bonds.
In a special meeting held on Monday, Dec. 14, the GID board reconvened to reverse its earlier decision to increase mills.
But complicated bond documents revealed that the GID had to pay Grand Elk LLC bond holders $18,645 in 2009 and will owe them an additional $52,000 in early 2010, once the tax money is appropriated in the 2010 budget.
Greg Mordini, who sits on both the town board and the GID board, said several homeowners had expressed concern about increasing taxes without notice, especially during this troubling economic time.
“I would have to assume that everyone is relieved the increase was overturned,” he said.