McWhinney Strategy Backfires
Developer looking for 25% reduction in CEF's Rejected By Council
Loveland – June 10, 2009

The Loveland City Council held a special meeting instead of their regularly scheduled study session June 9, to decide
several issues held over from their previous meeting the week prior.  The issue discussed in public was a staff request
encouraged by McWhinney to reduce developer fees across the city for the next 18 months.

After hours of deliberation over the proposal to reduce Capital Expansion Fees (CEF’s) throughout Loveland by 25%,
Mayor Pielin saw he didn’t have the votes necessary to approve it.  Pielin attempted to punt the issue back to staff to
repackage it in a different form that might pass in a future meeting.

Councilman Kent Solt, an attorney by profession, instead called the question under parliamentary procedure and forced a
vote on the doomed proposal.  The council voted 5-3 to deny the request.  Local developer and Councilman David
Clark, who stood the most to gain by the general reduction in developer fees, argued emphatically for the fee reduction.  
The other full time developer on the Loveland City Council, Larry Heckel, was absent from the meeting.  A break was
called during the meeting to discuss whether Clark had a conflict of interest in deciding the issue.

Councilman Daryl Klassen stood with David Clark and Mayor Pielin in defending the request by McWhinney to lower the
developer fees just long enough for McWhinney to construct a 300 unit apartment building they are planning for
Centerra.  A few of the councilors suggested they would have support the measure if limited only to McWhinney’s
project.  Clark announced he would not support limiting the 25% fee reduction to just one developer or project.  The
Mayor promised to bring it back again as a project specific proposal despite Clark’s opposition.

Public Comment

Roger Hoffmann, Lee Severance and Eric Holsapple spoke from the public regarding the proposal.  Hoffmann pointed to
that fact that lowering the impact fee doesn’t eliminate the impact and cost of the development to the City of Loveland.  
Severance thought the reduction would be better at 12% while Holsappel, State House Rep. Don Marostica’s partner in
Loveland Commercial, argued the reduction should be 50% and last indefinitely.

Rocky Scott Acts As Non-Voting Councilman

Rocky Scott of McWhinney was treated as a non-voting member of the Loveland City Council and allowed to engage in
endless commentary, debate and even pose questions to the councilors during their discussion.  Mayor Pielin has
defended McWhinney’s extra-ordinary access to council at public meetings in the past by saying applicants should always
have the last word.  In this case the city was discussing a city-wide policy change that would have impacted every
developer and every resident.  McWhinney had no legal standing as an applicant in this matter.  Nonetheless, only
McWhinney employees were given the privilege of acting as a non-voting members of the city council to debate the merits
of the proposal with council unrestrained by time limits or other rules governing public comments.

As a result, Scott dominated the discussion by consuming more time talking about the issue in the meeting than staff or any
legitimately elected member of the Loveland City Council.  Despite McWhinney’s dominance of the discussion they failed
to convince a majority of the council to support the proposal.

Councilman Kent Solt argued, “All you are doing is shifting the cost from developers to the existing residents in the
community.”  Scott’s presentation argued the 300 unit apartment complex construction would provide jobs.  Solt also
pointed to the fact Loveland and Greeley have the highest apartment vacancy rates in the State of Colorado.

Absent from the discussion were the usual comments by City Manager Don Williams that “more rooftops” only cost the
city money and don’t add to the fiscal health of the municipality.   

Mayor Pielin did respond to the development cost comparisons presented by Scott and threats to develop the apartment
building elsewhere by stating, “If this were only about numbers you would have already built in Johnstown.”  Pielin was
alluding to the fact community services do impact the desirability of certain communities over others.   Lowering the
service levels in Loveland while increasing density only diminishes the value of property and rents in Loveland.

McWhinney argued they would need to charge higher rents if the apartment complex is built in Loveland due to the
developer fees called CEFs.  Because CEFs pay for the needed expansion of public safety and other local services,  cities
collect them to ensure the service capacity grows commensurate with the population.

McWhinney Political Calculation Backfired

Smarting from the overwhelming negative reaction from other commercial developers speaking out against McWhinney’s
attempts to leverage tax dollars to win the Agrium commercial lease contract against another local developer,  
McWhinney is employed a new strategy aimed at gathering consensus from fellow commercial developers.

Instead of seeking a benefit only for McWhinney they proposed allowing all other developments in town built in the same
time frame as their apartment complex to receive equal incentives through the 25% reduction in CEF's.  The temporary
CEF reduction was marketed as good for all developers as the fees would be reduced across the city instead of just for
McWhinney.  The strategy backfired as councilors struggled to understand the full impact of the proposal on the city’s
ability to maintain services.

Casting the subsidy net for their proposal even wider than just McWhinney’s project did bring support from the larger
developer community but it also became the primary impediment to passing the proposal.  Questions like what the fiscal
impact would be to the city and who would benefit could not be answered by staff at Tuesday night’s meeting.   Those
who supported the 18 month 25% reduction in CEFs only for McWhinney articulated a concern that its impact can be
determined on a project specific basis.  They argued a wider city-wide reduction needs to be more carefully considered
and studied.

In the end the strategy failed.  A tired and slouching Chad McWhinney shook hands with his staff and supporters before
leaving the meeting following the 5-3 vote against his company’s initiative
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Klassen's Mind Clutter

While supporting a 25% reduction in impact
fees to assist a McWhinney project,
Councilman Klassen invoked Reagan
economics guru Art Laffer's
"Laffer curve theory"

The problem was Klassen couldn't
remember Laffer's name and terribly
misrepresented the theory.

Klassen asked for assistance from
McWhinney's Rocky Scott who remembered
the name but also misapplied the theory.

In short, Laffer's curve was the
demonstration that when the federal
government increased progressively high
income tax rates in the 1970's the actual
revenue to the government did not increase.

This was due to the fact high income earners
and investors (capital gains tax) looked for
ways to avoid the higher tax rates.  When
taxes were lowered in the early 80's the
revenue to the U.S. Government increased
contrary to projections by the OMB.  This is
explained by the Laffer curve.

CEF's are not a general tax but instead a
fixed fee determined by the actual cost of
expanding services to new residents by the
municipality.  The more fees collected the
more residents that will require municipal
services so increased revenue means
additional costs along with it.  (flat fee vs.
Progressive tax rates).

Unlike capital gains and income tax the
CEF's represent an actual cost incurred by
the city for each new resident.  Because it is
cost based the actual revenue will only
increase as costs to the city also increase.

As an example, a growing revenue for police
or fire capital expansion will occur when the
pace of new residents moving to Loveland
increases.  Reducing the fee for new
residents doesn't increase the city's bottom
line unless it intends on excluding certain
governmental services to new residents.

Of course, governmental efficiencies,
economies of scale and proximity of new
developments all factor into the actual CEF
rate that could be charged but none of these
were seriously considered by the council
Tuesday night.

Instead the arbitrary number of 25%
produced by McWhinney became the
baseline for the discussion.  Neither Klassen
nor Scott appear to believe in free market
economics as one relies heavily on
government interventions to compete in
business while the other enables those
interventions through his votes on the city

Free markets cannot produce wealth,
prosperity and progress when competition is
snuffed out by a local government picking
winners and losers.  A competing developer
who is slightly more efficient than
McWhinney will still need to charge a higher
rent if council decides to give McWhinney a
25% reduction in the fees thus subsidizing
the lesser efficient business model.  

McWhinney wants a "partnership" with the
City of Loveland because the visible hand of
government can help them even when they
are not competitive.  As a free market
thinker I believe Adam Smith's "invisible
hand" theory should not be replaced by the
government's very heavy hand.

Above left to right: Councilman Dave Clark, Mayor Gene Pielin and Councilman Daryl Klassen.  All three argued
support for McWhinney's fee reduction scheme Tuesday night intended to reduce temporarily city impact fees for
developers just in-time for a 300 unit apartment complex proposed by McWhinney.  They failed on a 5-3 vote.