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Loveland -- August 12, 2010

During a recent city meeting, Loveland Councilman Daryl Klassen inadvertently wondered onto a
sensitive topic regarding the use of Loveland's so-called "financial reserves."  Klassen asked whether
some of the money could be used for his pet project evoking a response from the city manager that
appeared to surprise everyone.

Loveland City Manager Don Williams responded, "
not unless I want to go to jail."

Klassen, like many people in Loveland, has been mislead for years by the improper use of the term
"reserves" when describing the portfolio of money the city has invested.  In fact, Loveland's so-called
reserve is not really a reserve at all but instead largely funds collected through fees that are very
limited in how they can be used.  In other words, if the city fails to spend the money for the very
specific purpose for which it was collected it will need to be returned and by law cannot be commingled
with other city funds.

Klassen's question was akin to a Realtor asking his managing broker if he can take a vacation using a
home buyer's deposit for a contract closing because it was delayed.  Just because Loveland is the
custodian of those funds doesn't mean the city council has discretion over how that money is ultimately
spent -- thus calling it a reserve is misleading.  William's response about going to jail was perfectly
appropriate for the question even though he said it jokingly.  Unfortunately, Loveland's abuse of its
discretion over developer impact fees in how they are assessed, collected and spent is not a  laughing
matter.

Today, millions in developer fees are now stranded in a property along the I-25 no longer worth what
the city paid while a Greeley Assistant City Attorney is looking into at least one criminal complaint by a
developer who was forced to pay impact fees before they were due.


Understanding Tax vs. Fee
While many people use the word "tax" synonymously with the word "fee" each means something very
different when it comes to your local government.  Loveland's financial reserves is comprised mostly of
revenue from
fees not taxes.

When the City of Loveland imposes a
tax it is done using the city's taxing authority and those funds
may be used for the general operation of the city; when Loveland imposes a
fee it is done using the
city's
police powers thus limiting by law how and when that money may be used in the future.

Since the passage of the Taxpayer's Bill of Rights (TABOR) which requires a public vote before new tax
can be imposed or an existing tax increased, cities have instead increasingly relied upon their
police
powers
to raise revenue without a vote of their constituents.  However, money from fees is not general
revenue by definition and therefore using the term "reserves" to describe it can be very misleading
resulting in confusion even by a member of the city council regarding the proper use of those funds.

Impact Fees - Capital Improvement

In 2001 the State of Colorado General Assembly enacted Senate Bill 15 to codify the proper use by
cities and counties of impact fees.  The legislation was intended to codify into law the growing practice
of imposing developer impact fees upon new developments in an attempt to make developers pay for
the increased costs to communities of growth.

In summary, the new state law allowed for both counties and cities to impose impact fees on new
development but with certain restrictions.  The fees must be used only to offset the real costs of the
new development, not considered any part of the city's general fund monies and returned to the payee
if the funds are not used to expand city capital projects in a timely manner.

In 2007 Loveland City Manager Williams
convinced a lame duck city council to divert nearly $3 million
in funds  Williams convinced the council to buy 97 acres located in the northwest corner of I-25 and
Highway 402 South of Loveland thus annexing the property and receiving future sales tax dollars from
any retail establishments built on the large empty parcel of land abutting Johnstown.  Williams than
tapped the impact fees by calling the diversion an "
internal loan" that would be repaid when the
property being acquired was later sold.

The internal loan called for 5 years of interest only payments and another 5 years of interest and
principal payments.  At the time, Loveland councilors and staff reported being reassured by Williams
the city would make money and likely sell the property in divided parcels only a year or two later at a
handsome profit.  

Now, 5 years later, the property has dropped in value and the city is trying desperately to sell it but at
the $6 million price tag it is not a bargain in today's stressed commercial real estate market.
Abuse of Discretion?
Why Loveland's Use Of Impact Fees Questioned
City of Loveland Definition:
Capital Expansion Fees

"The City of Loveland has utilized Capital
Expansion Fees as a method to meet the capital
needs of our growing community since the mid-
1980s. The fees are  set based on studies that
indicate the impacts that result from different
types of construction, the major categories being  
residential, commercial, and industrial.  Capital
Expansion Fees for Fire, Police, General
Government, Library, Museum, Parks,
Recreation, Open Lands, and Trails are based
on the value of capital assets, equipment,
fixtures, and furniture and unspent prior years’
CEF contributions"
Funding Scheme
Oct. 2007 letter to council explaining the way the
property purchase is going to be funded (final
numbers from the November '07 meeting differ
slightly due to staff adjustments between
meetings)

"The City will internally finance the 402 property
purchase. The city council capital reserve will provide
$1.6 million upfront and the money will be advanced
from the accumulated capital expansion fees for fire
($3.2 million) and recreation ($2 million). The city
council capital reserve will repay the capital expansion
fees at the average interest rate being earned on the
City’s investment portfolio for the preceding twelve
months, adjusted annually. The City is using the same
interest criteria prescribed by the City Charter Section
13-3 (b) for inter-fund loans from the utility funds. The
loan is structured with a ten year term, loading the
principal repayment in the last five years of the
repayment schedule."
 
State Law and/or City Code
City of Loveland
Examples
Assessment of the Fee
Amount
Rational Nexus Required

A "rational nexus" is required between
the fee charged and true capital costs
to city of development
Arbitrary and
discountable
When politically
connected developer
asks for discount
McWhinney requested across the
board 60% discount to CEF's to build
300 apartment units. Loveland granted
request without studying development
costs to the city ignoring nexus
requirement in state statute and
precedent setting court case
Dolan/Nolan
Collection
LMC 16.38.020     Fees Imposed
"The fees shall be due and payable at
the time the final inspection for
Certificate of Occupancy is requested."
Punitive & Arbitrary
Used as weapon or
reward depending on
developer relationship
with city
Klen brothers forced to pay on a core
and shell application years before
Occupancy Certificate requested
Matter under investigation by Larimer
County Sheriff's Dept.
Custodian of funds
No commingling with general
funds

Funds must be deposited in an
interest-bearing account which clearly
identifies the category, account, or
fund of capital expenditure for which
such charge was imposed.  Funds may
not be used for anything other than
what they were collected
Commingled

Used for property
speculations and other
city acquisitions
unrelated to capital
improvements
City purchased 97 acres along with
water shares using restricted funds
(c
alled it an internal loan which has
not been repaid
) for property along
I-25 and 402
If Capital Improvement
Indefinitely postponed
State Law

Must be refunded to developer
Kept indefinitely by city
with no certain plans
Amassed millions of dollars for police,
fire and infrastructure never returned to
developers but instead called "
reserves"
Criminal Complaint Against Loveland
Being Researched by Greeley City Attorney
and now investigated by Larimer County
Sheriff.

When the City of Loveland sought assistance from the City
of Ft. Collins recently to investigate claims of illegal
conduct by senior staff, Ft. Collins tossed the hot potato
right back into Loveland's lap.

Steve and Ed Klen are seeking readdress from the City of
Loveland over collection of some $200,000 in
development impact fees the brothers say they didn't owe
at the time in retaliation for criticism they made public
regarding city staff.

Now the matter has been referred to Greeley's legal
department where an assistant city attorney is researching
the matter and has asked the Larimer County Sheriff's
Department for help investigating the matter.

LovelandPolitics was informed that Loveland City
Attorney, John Duval, collected copies of the accusations
and supporting documents distributed by the Klen brother
in city hall.  

Click here to read the complaint and attached
documentation