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Gazette Premium Content Gazette investigation raises new questions about multimillion-dollar Aurora tax giveaway

By Megan Schrader Updated: August 10, 2014 at 5:12 pm

The Gaylord Rockies hotel and conference center has been mired in controversy for years, but few people understand the details of the project's multimillion-dollar incentive package that includes money for an adjacent housing development and two special elections where a single voter raised taxes to pay for the hotel's construction.

The Gazette's monthlong inquiry into the incentive agreement uncovered a complex layering of financial deals that raise questions about the lengths city officials took to attract a new development: The city of Aurora invented an incentive tool called an enhanced taxing area to levy higher admissions and lodging taxes, imposed a general improvement district with a 40-mill property tax levy, and declared agricultural land blighted to use urban renewal tax incentives.

Critics say the Aurora deal is an unprecedented giveaway of taxpayer money to a private developer over a 30-year period.

"Corporate welfare is wrong and bad, and corporate welfare on this grand scale is downright dangerous," said Independence Institute president Jon Caldara, the most vocal critic of the incentives. "You're talking about the ability for there to be an obligation for the people of Aurora where only one person can vote to make it happen ... There was never a vote of the people of Aurora if they wanted this much debt to make one company wealthy, and that's really what it comes down to."

The future tax revenue was awarded to the Gaylord Rockies hotel and conference center in a 128-page incentive agreement signed in June 2011 by the city of Aurora. Its estimated value is between $300 million and $800 million over 33 years.

The controversy has stirred three lawsuits, one of which says Aurora violated state law and has delayed developers from financing construction, thus leaving the Gaylord Rockies project in limbo.

"If a city - any city - can increase taxes within its boundaries but without the approval of its voters, taxpayers lose control over the growth rate of their municipal government," said attorney Mark Grueskin, who filed the latest lawsuit. "TABOR was adopted to give local voters just that kind of control over tax increases and new government revenue."

City Council members who agreed to the deal three years ago say the headache and heartburn from the complex agreement are well worth what the city estimates will be an annual $273 million economic impact. Aurora spokeswoman Kim Stuart said the city estimates the project will draw 450,000 new visitors to Colorado every year. Additionally, construction of the 1,500-room hotel and 350,000-square-foot conference center is expected to bring 10,000 temporary construction jobs, and operation of the facilities could bring 2,500 permanent jobs, she said in an email.

The state made similar estimates in its study and determined Gaylord would have a significant economic impact on the entire region.

"The tax base they get back for the public portion of the Gaylord is tax base they themselves raise," said Aurora City Councilwoman Barbara Cleland, explaining why it was an easy vote for her in 2011.

The millions in incentives that will go to the developer will come only from tax revenue, which at the moment is nonexistent because there is now little being generated by the roughly 85 acres proposed for the project.

That tactic commonly is called tax increment financing - pledging the future tax growth of an area to a developer as an incentive.

The Gaylord incentive agreement goes well beyond the state's traditional tax increment financing agreements.

Additionally, the city applied for and received on behalf of the developer a portion of state sales tax through the Regional Tourism Act, a never-before used economic development tool. The state's Economic Development Commission approved an estimated $81.5 million over 30 years.

"I don't think anyone has ever seen a deal like Aurora was giving them, and the state piece was just sheer icing on the cake," said a source familiar with developer incentives across the state who asked not to be named because of the sensitive nature of the issue in Denver politics.

City of Aurora officials say the deal will generate between $200 million and $300 million over 33 years to finance construction of the conference center and infrastructure for the hotel.

A third-party analyst hired by the Colorado Office of Economic Development and International Trade said the deal will generate closer to $800 million in constant 2011 dollar values, not compensating for inflation over time.

The layers

The deal Aurora cut with the hotel developer has three layers. The money generated by the layers of tax revenue will go to the Aurora Urban Renewal Authority, then either directly to the Gaylord Rockies developer or to pay back bonds issued by the authority to finance the project.

The first layer creates an urban renewal area on 125 acres where 100 percent of the increase in sales tax and property tax revenue over the next 30 years will fund construction.

The second creates an enhanced taxing area where a single voter representing the landowner - LNR CPI High Point LLC - voted to raise the lodgers tax (a tax on visitors who stay in the hotel) by 2 percent and admissions tax (a tax on ticket sales paid for by the purchaser) by 6.25 percent.

The final layer creates a general improvement district over 252 acres where the same voter approved a 40-mill property tax increase, but in this case only the revenue generated on 85 acres would go to the Gaylord.

The revenue generated on the remaining 167 acres would benefit the landowner's adjacent subdivision through the Aurora High Point at DIA Metropolitan District.

City Councilwoman Renie Peterson said she is certain she knew all the details of the agreement three years ago, including that money would go to the High Point housing development.

"I have been against incentives since day one," Peterson said, noting she has earned a reputation as the naysayer. "But this is a project where I voted yes. I think it's going to help the entire region if the project ever is completed."

Peterson said her philosophy is a project should work on its merits, but this deal wouldn't have happened without incentives, and it will bring jobs and spark the economy.

"If I voted yes on it, I'm going to tell you I felt like I knew every aspect of it, and it was a good thing," she said.

According to minutes from the June 20, 2011, meeting, the Aurora City Council considered negotiations of an "incentive agreement" in an executive session that lasted for more than an hour. In the public meeting before the vote, Wendy Mitchell, president and CEO of the Aurora Economic Development Council, gave a brief presentation of the item.

Stuart said she remembers the presentation involving a PowerPoint slide presentation, but she wouldn't describe it as brief.

The city of Aurora deletes audio and video recordings of meetings after six months and does not make transcripts from the meetings.

The players

The land proposed for the Gaylord Rockies hotel and conference center is part of the 1,800-acre master-planned community High Point that was owned by LNR Property LLC, a branch of the homebuilder Lenar Corp. LNR Property was purchased by Starwood Property Trust in 2013.

Phone calls to Ed Zebrowski with Starwood CPG Operations LLC were not returned.

High Point is now a cluster of homes surrounded by rolling fields. Completion of the master-planned community will take years.

To the north of the development down an empty stretch of road is the High Point Academy, a charter school at the end of a road to nowhere built and launched to serve families in High Point.

For a long time the 85 acres just east of the school have been slated for a hotel and conference center development.

In 2006, Colorado Springs developer Gene Keluche was hired to build a 505-room hotel called the Highpointe Conference Resort.

Those plans never materialized.

But by 2011, the property owners were pushing for a Gaylord hotel on the property. The Gaylord franchise owns conference centers across the United States that are usually in the suburbs of major cities and offer one-stop locations for events.

Gaylord Entertainment Co. was bought by Marriott International shortly after the state awarded the project millions in Regional Tourism Act dollars. For a time it was unclear if the development would go forward.

Marriott eventually found RIDA Development Corp. to take over the project and develop the hotel and conference center and a newly proposed water park.

A group of hoteliers, including owners of The Broadmoor hotel in Colorado Springs, filed a legal challenge, saying the $81.5 million from the state Regional Tourism Act should not be honored because the deal had changed substantially.

The lawsuit also challenged whether the developer could meet the requirement in state law that without the RTA dollars the project would not be financially viable. The Broadmoor is owned by the parent company that owns The Gazette.

That lawsuit was dismissed in court, but sources say the hotel owners will appeal the decision that they didn't have standing in the case.

Aurora has filed a counter-lawsuit for damages against the hotel owners claiming the lawsuit was an effort to obstruct and delay the development.

Another lawsuit was filed in February by two Aurora taxpayers challenging the legality of the single-person votes to raise taxes. The Colorado Taxpayer's Bill of Rights, known as TABOR, requires a vote of the people to raise taxes. The case was filed in Adams County District Court by David H. Bishop and Regina M. Thomson. The litigants declined interview requests for this story.

Attorney Grueskin, of the Denver law firm Recht Kornfeld, said his clients filed suit out of their "desire to vote on these kinds of matters when they come up in their hometown. TABOR is all about voters controlling their own government."

Three ballot questions were approved in November 2011 by a single voter to increase lodgers tax, admissions tax and property taxes.

The voter was an appointed representative of LNR CPI High Point. Documents from the June 2011 City Council meeting show Ricard Kern, vice president of LNR CPI, appointed Denver resident Brandon Wyszynski as the elector in both the enhanced taxing area and the general improvement district. Attempts to reach Wyszynski were unsuccessful.

The Nov. 1, 2011, election resulted in all three questions getting unanimous approval for the tax increases with a single vote.

"Aurora has excluded every Aurora citizen from voting on the enhanced taxes that Aurora intends to pay over to RIDA," reads the lawsuit.

The city responded to the lawsuit saying in court documents there was no violation of TABOR because the city has every authority to create a voter district and determine the qualified electorate in that district.

"Because, as a constitutional matter, city excise taxes may be imposed at different rates within the city, and TABOR requires voter approval of increased tax rates, the City Council must necessarily determine the appropriate electorate to decide enhanced tax rate questions," the city's motion to dismiss the lawsuit states. It goes on to say the city's new ordinance enabling enhanced taxing areas "are a proper exercise of the city's legislative power and consistent with TABOR."

Adams County District Court Judge Edward C. Moss agreed that the city has the authority to create special taxing districts and said the "enhanced taxing area does not conflict with state action."

Moss dismissed a portion of the lawsuit that claimed the enhanced taxing area violated state law.

State law allows city councils to approve a landowner's request to create special districts, or metropolitan districts, and authorize an election.

If taxes are increased on the property, the revenue goes to the district to pay for improvements such as streets and sidewalks or pools and recreation centers. Future property owners in the development pay for the infrastructure or amenities over time through the increased tax.

Aurora created a taxing district that wasn't specifically allowed by state law.

Experts in both tax increment financing and special district law said Aurora likely operated within the wide legal authority given to it as a home-rule city. None of the sources contacted by The Gazette was willing to go on the record and discuss the deal because of the pending litigation.

The city of Aurora says the deal was necessary to spur economic development on the vacant land.

"This incentive package, like our other incentive packages, is performance-based," said Stuart, spokeswoman for Aurora. "No money is given in advance. They have to build this hotel, operate and bring in visitors a year before they receive any funding."

Rep. Randy Fischer, D-Fort Collins, said agreements like Aurora's are not uncommon across the state and are a symptom of a larger problem.

"There's huge competition going on between neighboring communities," said Fischer, who has been fighting to close loopholes in some of the state's incentive laws.

"It's gotten to be where real estate developers are essentially coming to these communities with their hand out and saying what are you preparing to offer us."

Fischer helped pass House Bill 1107 in 2010 along with now Senate President Morgan Carroll, D-Aurora. The bill attempted to limit the use of urban renewal tax incentives on agricultural land by prohibiting the use of blight on agricultural land.

But Fischer said to get the bill through the Legislature he had to offer up exceptions as a compromise.

"Clever people have come up with ways around that, so it's not much of an impediment now," Fischer said.

"I regret that we had to do that because again it just creates another loophole in which communities can go ahead and continue to abuse the urban renewal statute."

In the February lawsuit, the taxpayers also challenged whether the use of blight in the Aurora project met state statute requirements.

The hotel project in Aurora used the urban renewal statute to declare agricultural land near Denver International Airport blighted and put it in an urban renewal district a year after the new law passed. The law says a municipality can do that if all the taxing entities agree to the designation. Adams County commissioners sent a letter of support, but there was not a vote on the issue, a spokesman for the county said.

Opposition to the deal and the development can be traced to the competition among communities for economic development, said Arapahoe County Commissioner Rod Bockenfeld, who also sits on the Aurora Economic Development Council.

"The region is very supportive of the Gaylord project, but you take a small step out of that region and you get a feeling of opposition," Bockenfeld said. "There's a sense that they don't want to grow outside of the core city here in Denver, and there's resistance."

But Caldara of the Independence Institute, which describes itself as a free-market think tank, said his opposition comes from his dislike of corporate welfare - a term used to compare taxpayer-funded financial incentives for corporations to taxpayer-funded programs for the poor. Caldara said Aurora taxpayers will be on the hook financially if the deal goes south.

"What happens if this doesn't work out?" Caldara asked. "What are we really on the hook for if this gamble fails?"

That answer will depend on whether the Aurora Urban Renewal Authority issues bonds for the conference center and hotel infrastructure or whether the developer takes on the risk and receives payment from AURA. The incentive agreement leaves that decision entirely up to the developer.

Because of the way tax increment financing bonds are issued, with the bonds being guaranteed only by the future tax revenue, sources told The Gazette that defaults tend not to impact city coffers.

Devil is in the details

So why did Aurora approve a general improvement district over 251 acres instead of only on land proposed for the project?

Jason Batchelor, finance director for Aurora, said the city was unsure how many acres ultimately would be devoted to the development and wanted the option to later scale back the general improvement district, if necessary.

"The 240-acre area was included in the general improvement district before the specific boundaries of the project were identified," the city responded in an email to questions asked by The Gazette. "When the project is ready to start, the boundaries will be decreased to match the project size."

But Batchelor said the decision will be up to LNR whether to opt out of the general improvement district or whether to remain in the district and receive 40-mill property tax revenue over 33 years.

In theory, the land surrounding a completed Gaylord hotel and conference center would be attractive to other developers wanting to provide additional hotel rooms, dining or shopping options to those headed to an event at Gaylord.

Any of that development on the 167 acres would pay the 40 mills to the High Point metropolitan district.

The incentive agreement does not include restrictions on how High Point could spend those dollars.

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Contact Megan Schrader:
719-636-0644

Twitter @CapitolSchrader

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