LovelandPolitics
Loveland's Independent News Source
Loveland, August 6, 2014

Loveland’s City Council took an unprecedented vote Tuesday night to make a substantial
change to McWhinney’s Centerra Metro District boundaries in east Loveland, absent any
public participation, following a presentation by McWhinney attorney Alan D. Pogue.  Pogue
requested the hasty council action to implement a legal dodge around a 2013 IRS ruling that
clarifies entities like Centerra are not public entities thus legally ineligible to issue or spend
proceeds from tax-free municipal bonds.  

McWhinney requested the boundary change following the IRS ruling on the Florida retirement
community
“The Villages” that determined it is not truly a “public” entity thus not empowered to
issue tax-free municipal bonds nor spend the proceeds.  

According to the IRS ruling,

"We believe that an entity that is organized and operated in a manner intended to
perpetuate private control, and to avoid indefinitely responsibility to a public electorate,
cannot be a political subdivision of a State,"    

The 1980 law referenced by the IRS clearly reserves the right to issue tax-free municipal
bonds to
“a State or political subdivision thereof.”   

Currently, McWhinney’s Centerra has accumulated
over $120 million in adjustable interest rate
public bonds and is looking to incur even more debt to develop the incoming Bass Pro Shops
along with adjacent commercial buildings.   In 2010, LovelandPolitics'
Centerra Enigma story
documented McWhinney's control of Centerra's board similar to the way the owners of The
Villages structured their 'public' metro district to be controlled exclusively by a private entity
indefinitely which according to the recent IRS ruling is contrary to federal law.

The Florida decision puts the legitimacy of McWhinney’s scheme to privately control public tax-
free debt and proceeds into question.  Similar to The Villages scheme, Centerra is organized
to concentrate control of the bond proceeds, diverted sales taxes and property taxes into a
single entity (Centerra District 1) controlled exclusively by McWhinney.  District 1 is technically
centered on an undevelople parcel owned by McWhinney yet the other districts (like District 2)
with taxing authority have pledged the revenue to district 1 for repayment of the public debt
issued by district 1 as a "public entity."

The Orlando Sentinel published
an article describing the IRS ruling regarding The Villages.  
The local newspaper first broke the story regarding the developer operating a public entity
largely for private benefit and regularly updated readers during a 5-year investigation by the
IRS.

A former Chief Financial Officer for Centerra along with two other former employees told
LovelandPolitics the proceeds of the “
public” Centerra bonds were used to make payroll for
McWhinney staff  during lean times and is internally referred to by the McWhinney staff as a
slush fund.”  The Sentinal's coverage of The Villages covered similar expenditures by The
Villages owners which appear to be more private expenses than public ones.

Ironically, the legal dodge proposed by McWhinney and hastily approved by Loveland’s City
Council appears to fall short of its intended purpose.   Due to the scant information provided
council before the vote, most appeared to believe the IRS simply has interpreted the law to
require every metro district have some residential area within it to become a public entity.

In a memo to council, acting Loveland City Attorney Judy Schmidt wrote,

“This is an administrative matter. The Internal Revenue Service (“IRS”) recently
announced a policy change that requires political subdivisions, including metropolitan
districts, to include residential property in their boundaries in order to be considered a
good issuer of tax-exempt debt.”

Pogue also appeared to further perpetuate the myth that the "recent" ruling only extends a
new requirement that each metro district encompass areas with residential zoning while
addressing Loveland City Council Tuesday evening.  He even described the matter as being
“boring” yet failed to dampen the interest of Councilman Troy Krenning who asked a number
of questions before casting the lone dissenting vote against the amendment.

The issues surrounding
The Villages and ruling discussed in this article were not raised to the
council during McWhinney's presentation nor was it found in the city council's agenda package
of information distributed before the meeting.  In fact, The Villages were never publicly
mentioned and the ruling instead described as simply a "
response to a question" instead of
the high profile ongoing battle between the IRS and The Villages.  

Incredulous at the explanation provided, Krenning asked Pogue multiple times why the single
response to a question posed to the IRS merits so much concern and urgency on behalf of
McWhinney.

Contrary to what Loveland’s city staff and the McWhinney representative argued, it appears
the language from the IRS ruling is more than a decision “
to include residential property
within the metro district.  Below is an excerpt from that ruling which is linked to this article in its
entirety in the upper right column on this page.

“A governmental unit is inherently accountable, directly or indirectly, to a general
electorate. In effect, § 103 relies, in large part, on the democratic process to ensure that
subsidized bond financing is used for projects which the general electorate considers
appropriate State or local government  purposes. A process that allows a private entity
to determine how the bond subsidy should be used without appropriate government
safeguards cannot satisfy § 103.”

Pogue told Loveland’s City Council that McWhinney did, indeed, intend to control the Centerra
Metro Districts indefinitely.  He said by adding a multi-family develop able parcel to the tiny
Centerra Metro District 1, nothing will likely be built until after 2018.  Whether the IRS agrees
the district is made legitimate according to their ruling by simply adding property zoned
residential while the developer continues exclusively controlling the “
public” funds remains to
be seen.
Centerra Bonding Authority
In Legal Jeopardy
Read the IRS ruling that was not
provided to Loveland's City
Council prior to voting Tuesday
night.

Below are excerpts;

"In this case, the Issuer was
organized and operated in
manner that insured continued
effective control of the Board by
A, rather than a general
electorate or an existing
governmental body. The Board
was selected by majority vote of
landowners, and, at all times, A
was in a position, through
entities under his control, to
select all members of
the Board. During the relevant
period, two landowners, the
Developer and the Partnership,
held a clear majority of the land
within the boundaries of the
Issuer. The Developer was
owned and controlled by A and A’
s family members. The
Partnership was controlled by A,
B and C, first as general
partners and later as the owners
and directors of the sole
corporate general partner. The
result was that during the
relevant years, the Board was
composed of individuals who, in
all but one limited case,
consisted of A, members of his
family, directors, officers, or
employees of the Developer,
and the chief executive officer
of Bank owned and controlled by
A and his family."

“A governmental unit is
inherently accountable, directly
or indirectly, to a general
electorate. In effect, § 103 relies,
in large part, on the democratic
process to ensure that subsidized
bond financing is used for
projects which the general
electorate considers appropriate
State or local government  
purposes. A process that allows a
private entity to determine how
the bond subsidy should be used
without appropriate government
safeguards cannot satisfy § 103.”