Taxing Districts

In Colorado, much of the money raised to support basic public services like schools, water and sewer districts, and city or county government is raised through local property taxes associated with special purpose taxing districts. The standard Colorado purchase contract urges buyers (see Section 8.4) to review these districts prior to purchasing a home and provides the right to terminate the contract if the tax liabilities are unsatisfactory. The presence of this language in the contract derives, in part, from a series of financial disasters that occurred in the late 1980’s in Colorado in connection with taxing districts called “metropolitan districts.” Generally, metropolitan districts are formed by builders and developers who sell bonds to raise the money required to build the infrastructure (e.g., water, sewer, etc.) for new developments. These bonds are paid off through taxes paid by people who buy homes in the development. When the oil bust hit Colorado in the latter 1980’s, several developers went bankrupt, leaving construction at a standstill. The developer may have planned 1000 houses in the development, and sold bonds to cover the required infrastructure, but then they sold only 100 houses. Suddenly, to repay the bonds, these 100 homeowners were faced with real estate taxes ten times the amount they expected. The State’s Division of Local Government (303-866-2156) is responsible for monitoring the financial well-being of local taxing districts and can provide you with good information on any taxing district you are concerned about.