Colorado Legislative Session a Real Deja Vu

July 1- July 14, 2015

By: Timothy E. Reilly

Colorado Real Estate Journal

Colorado’s Seventieth legislative session experienced a real déjà vu from last session.  There was enormous effort for construction defects reform in order to encourage the construction of condominiums.  In addition, there was a continued fight over regulation of urban renewal redevelopment and the use of tax increment financing to fund those projects.  In the end, construction defects reform failed to pass despite having sufficient votes for passage on the House floor.   Conversely, a flurry of late amendments and negotiations resulted in the passage of a questionable urban renewal bill.

Senate Bill 15-177 sought to change Colorado’s Common Interest Ownership Act to:  increase the required notice to unit owners about the potential cost and impact of construction defect litigation; prevent the removal of arbitration provisions from a community’s governing documents; and allow a majority vote of unit owners to bring a claim versus a few board members.  The bill’s goal was to encourage the construction of condominiums which has severely lagged behind all other product types.  Reform is necessary as condominiums represent 3% of new housing starts compared to nearly 23% in 2007.  The sponsors of the bill included senators on both sides of the aisle, and the prospects appeared favorable.  The bill passed the Senate, however, the Speaker of the House voiced strong opposition to the bill and the bill was assigned to a “kill committee.”  The bill failed in that committee despite broad support from diverse housing groups including affordable housing advocates. The broad coalition of supporters intends to continue the effort in order to achieve attainable and balanced housing choices.    It should be noted that after the session the Colorado Court of Appeals issued a decision that fulfills one aspect of the bill.  The decision confirmed that an arbitration provision for construction defect claims cannot be “amended away” by a homeowners association if that provision prohibits amendments without the developer-declarant’s consent. 

Last year the urban renewal redevelopment process was the subject of House Bill 14-1375, the “Urban Redevelopment Fairness Act,” which was vetoed by the Governor.  The bill included requirements that: (1) at least one member of each urban renewal board be appointed by the board of county commissioner of the county in which the Urban Renewal Authority (“URA”) is located;  (2) the URA refund, on a pro-rata basis, any money left over in the TIF fund once the financing of the project is complete; and (3) the URA collect and deposit into the TIF fund the same percentage of the underlying municipality’s sales tax increment as it collects property tax increment, unless all of the taxing entities agree otherwise.  The primary concern with this bill was that these new requirements would complicate an already complicated process, and would dissuade redevelopment. The veto last year included a statement that a suitable compromise was needed to “establish an equitable method for widening the tax base that supports tax increment financing and increase the role and participation of counties and affected local governments in the urban renewal process; all while maintaining the flexibility to develop projects that are focused on addressing the particular needs of a given community.”  

This session two competing bills were introduced to respond to the Governor’s veto: Senate Bill 15-135 and House Bill 15-1348.  Senate Bill 15-135 met the Governor’s request to increase the role of affected local governments in the urban renewal process, as well as fairly distribute remaining increment funds pro rata following repayment of bonds and obligations.  Unfortunately, other stakeholders rejected this effort at compromise and simply reintroduced the same bill from 2014 as House Bill 15-1348.  Significant amendments were made to HB 15-1348 within the last days of the session, but the bill passed.  HB 15-1348 includes items 1 and 2 above but also requires the URA board include a representative of special districts and a representative of school districts located within the urban renewal area.  Most importantly, it provides an unclear dispute resolution process when the parties disagree about whether tax increments should be shared to offset the impacts of urban renewal projects.  Additionally, there is significant uncertainty regarding the bill’s application to existing projects.  The bill applies to urban renewal plans created after January 1, 2016, but also to any plan amendments or modifications adopted after that date for any addition, extension or duration of an urban renewal project, or alteration in the boundaries of an urban renewal area.  Any change in mill levy or the sales tax component of any existing plan is also subject to the bill except where the change is made in connection with refinancing the outstanding bond indebtedness.  The concern is how the bill can be interpreted and applied to existing projects which could impact the revenue stream for payment of outstanding tax bonds.   The bill was signed by the Governor on May 29, 2015, along with a signing statement calling for legislative fixes to the known problems with the bill.  NAIOP will work diligently with other stakeholders during the interim to fully identify these problems and determine how to address them during the 2016 legislative session.

This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.

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