Matters Memo

City of Boulder City Council Agenda Item Meeting Date: January 22, 2026 Agenda Title Metro District Policy Framework

Staff Contact • •

Mark Woulf, Assistant City Manager Sarah Geiger, Senior Counsel

Executive Summary This item serves as a follow-up to the November 20, 2025, City Council meeting regarding the development of a local regulatory framework for Metropolitan Districts (MDs). During that meeting, Council provided a "Nod of Five" directing staff to draft a regulating ordinance and model service plan to ensure MDs function in alignment with city goals. The purpose of this memo is to seek specific direction on key policy levers that will form the backbone of the draft legislation. Staff has identified several critical areas where municipal regulation provides protections beyond baseline state law, including mill levy caps, asset control, and development types. The proposed framework focuses on commercial-driven districts. Staff anticipates bringing the draft ordinance forward for a first reading on March 12, with a target for final adoption on April 2, 2026, to accommodate service plan considerations for the November 2026 election cycle. This initiative is part of a larger strategy to provide a robust suite of economic development tools, including the potential use of urban renewal, General Improvement

Districts (GIDs) and Downtown Development Authorities (DDAs), and other tools to facilitate targeted investment and revitalization.

Questions for Council 1. Does City Council have feedback on the recommended policy approach within the key policy issues to regulate the creation of Metropolitan Districts within the boundaries of the City of Boulder?

Alignment with City Plans and City Council History Sustainability, Equity and Resilience (SER) Framework and Citywide Strategic Plan Alignment SER Framework Goal Area The initiatives outlined in this memorandum align with the Economic Vitality goal area of the SER Framework. Citywide Strategic Plan The exploration of metropolitan districts as a potential economic development tool aligns with Strategy 14 in the Citywide Strategic Plan.

Alignment with Additional City Plans The potential regulation of MDs aligns with the Boulder Valley Comprehensive Plan and the city’s Economic Vitality Strategy.

City Council History Previous conversations with council related to this item include the Advancing Key Economic Development Policy Initiatives item discussed during the City Council Special Meeting on July 24, 2025, and the Economic Development Plan and Program Enhancements Update: Economic Vitality Strategy Review and Commercial Area Connections and Quality of Life Improvements Update: District Analysis Results and Recommendations items discussed during the City Council Study Session on April 24, 2025. Council reviewed the general purpose of MDs and directed staff to bring forward an ordinance and model service plan to regulate MDs at the November 20, 2025, City Council Meeting.

Analysis Metropolitan Districts (MDs) are quasi-municipal entities established under Title 32, C.R.S. They are one of many tools to help accelerate development or redevelopment through area-specific taxing and financing. They are typically formed at the earliest stages of development to finance and construct essential public infrastructure (e.g., roads, water, sewer, parks, etc.) that could not be practically provided by the encompassing municipality or another public entity within a reasonable time. Recent state reforms have addressed many issues with MDs, such as requiring transparency (HB 25-1219) and a mechanism for city councils to review property tax exemptions when conflicts of interest are disclosed (HB 25-1289); however, no single state body proactively regulates MDs. Therefore, it is in the interest of the city to impose local standards to ensure any use of MDs closely complies with city goals and interests. Purpose of a Regulating Ordinance and Model Service Plan. The adoption of a comprehensive local ordinance is a strategic best practice that provides the maximum legal protection for the City and future residents within an MD. While the Special District Act sets forth a baseline for the formation process, governance and oversight, a local ordinance can require additional process and add additional oversight, financial protections and transparency requirements. This ensures that any district formed within Boulder complies with specific municipal goals rather than defaulting to generic state minimums. A Service Plan serves as the governing document for a district. Adoption of a local ordinance can be passed along with a model service plan to more specifically define a district's legal boundaries within the city, the specific public improvements it is authorized to build, the services it may provide, and the hard limits on how much debt it can issue and how many mills it can tax property owners. By standardizing this document in a Model Service Plan, the city positions itself to compare proposed service plans apples-to-apples and provides predictability for developers while reducing the administrative burden on staff during the review of individual applications. Review and Approval Roles. Once regulations are in place, a review process is conducted if the city receives a service plan. City staff conducts a rigorous interdisciplinary review to evaluate the applicant’s proposal for an MD and technical compliance with the Model Service Plan. This process often includes a referral to an independent financial advisor to verify that the proposed debt structure and market projections are reasonable. City Council’s role is quasi-legislative, retaining sole discretion to approve, deny, or conditionally approve a service plan by resolution. Council’s review centers on whether

the district is genuinely needed, whether the area has or will have the financial ability to repay its debt, and whether the service standards are compatible with the city’s regulations. Due to requested timeline, this memorandum focuses on key policy issues within the proposed policy framework to receive council feedback prior to bringing forward the ordinance and model service plan for adoption. Key Policy Issues 1. Type of Metropolitan District (Type of Development) •

Policy Implication: Residential and commercial developments present fundamentally different risk profiles to a metro districts’ tax base. For example, commercial users have the option to pass additional tax burdens down to their customers whereas individual residents do not. Council indicated an interest in focusing on commercial-driven metro districts as an economic development tool. Policy regulation is necessary to determine how much, if any, residential development is allowable within metro districts and how that could change over time.

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Recommended Policy Approach:

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Residential Threshold: The City establishes a strict "Commercial District" classification that permits the creation of an MD, only if the residential component of the development remains below a specific threshold, such as less than 10% residential.

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Threshold Test: The Service Plan must include a detailed land-use projection listing estimated residential units and commercial square footage. If the development exceeds the 10% residential threshold (based on a floor area projection), the service plan would not be acceptable under the regulations.

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Exclusion Requirement: The Service Plan must include a requirement for residential property to be excluded from the district’s boundaries if the inclusion of such property would put the district over the allowable threshold.

Other Available Policy Options: o

Mandatory Commercial Subdistricts: The city requires that any commercial component within a mixed-use development be organized into a legally distinct Commercial Subdistrict. The Commercial Subdistrict would be where the district is authorized to impose the bulk of its mill levy.

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Tiered Tax Caps: The Commercial Subdistrict may be permitted to have more flexible financing terms (e.g., higher mill levies) to facilitate economic development. However, the “parent district” is strictly subject to the protective residential caps.

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Debt Allocation: The commercial subdistrict can have a higher debt limit than the parent district that includes residential.

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Aggregate Levy Protection: The combined mill levy of the parent district and the subdistrict must never exceed the total Maximum Aggregate Mill Levy allowed for the parent district. Therefore, the maximum mill levy cannot be circumvented by creating subdistricts.

2. Mill Levy Cap •

Policy Implication: The mill levy cap is the primary tool for limiting the long-term tax burden on property owners. While state law requires Service Plans to disclose a maximum mill levy for general obligation bonds, it does not mandate an overall protective ceiling. Municipal regulation establishes a cap to prevent excessive taxation if development fails to meet projected valuations. The policy choice is whether to set a cap for debt, operations and maintenance, or both, and whether to allow for adjustments if state assessment rates change.

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Recommended Policy Approach:

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Absolute Debt Ceiling: Many Colorado municipalities impose an absolute ceiling on the debt mill levy, even for "safe" debt where the debtto-value ratio is low. This can include an adjustment clause to ensure revenue stability regardless of state-level assessment rate changes. This means that if property assessment values decrease due to state law changes, the mill levy may increase to keep the tax revenue stable for the district.

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50 Mill Debt Cap: This is the most common "market standard" guardrail. By fixing the debt cap at 50 mills, the city ensures the debt service burden on the taxpayer cannot exceed this rate (subject to legal adjustments for assessed value changes).

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65 to 70 Mill Combined Cap: Sets a "Total Maximum Combined Mill Levy" that includes debt service, operations, maintenance, and covenant enforcement. A common benchmark for this absolute guardrail is 65 mills.

Other Available Policy Options: o

Two-Tiered Threshold System:

1. High Debt Rule: If the district’s debt exceeds 50% of its assessed valuation, the tax rate is capped at 50 mills. 2. Low Debt Rule: If debt is equal to or less than 50% of assessed valuation, the mill levy may be "unlimited" to ensure the debt is fully serviced. This "Unlimited Tax" pledge allows the MD to secure the lowest possible market interest rates. 3. Operations, Maintenance and Infrastructure •

Policy Implication: This policy prevents MDs from building public infrastructure that is not up to city standards and preventing redundant layers of government that operate infrastructure meant to be municipal responsibilities.

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Recommended Policy Approach: o

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Defined Retained Services: The MD is permitted to own and maintain only "ancillary" improvements that the city does not wish to inherit, such as private roads, neighborhood-specific landscaping, monumentation, or private detention ponds. This is often paired with a secondary, lower mill levy cap specifically for O&M (e.g., 5 to 20 mills).

Other Available Policy Options: o

Mandatory Conveyance and Intergovernmental Agreement (IGA): The MD is authorized only to finance and construct public improvements. Upon completion, all core infrastructure (roads, water, sewer) must be conveyed to the City or other appropriate governmental entity. The MD is prohibited from ongoing O&M for these assets unless explicitly allowed by the city.

4. Fees and Revenue Bonds •

Policy Implication: MDs often impose and collect additional fees (e.g., public improvement, parking) to contribute toward capital improvements and maintenance. Revenue bonds are secured by specific non-tax income, such as user fees, rather than property taxes. Regulation ensures that MDs do not use revenue bonds to bypass mill levy caps by imposing "hidden" long-term fees that take the place of a tax but can lack transparency and voting requirements.

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Recommended Policy Approach: o

Fees Limitation: The MD is permitted to collect certain fees with the certification of an External Fee Advisor that establishes the fee is reasonable, with approval by the city.

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Commercial-Only Revenue Pledges with Consent: The MD is permitted to issue revenue bonds only if they are backed by commercial user fees or non-residential revenues, strictly insulating residential property owners from any liability associated with the debt, with prior consent from the city.

Other Available Policy Options: o

Debt Limit Inclusion and Fee Prohibition: All revenue bonds must be specifically authorized in the Service Plan and are counted toward the MD’s total Maximum Debt Authorization. Additionally, the MD is prohibited from charging "End User Debt Service Fees" (fees specifically for debt repayment) to residential property owners.

5. Privately Placed Debt •

Policy Implication: "Developer bonds" or privately placed debt are often sold to the developer’s own financing entity at high interest rates before residents or commercial users move in. This creates an inherent conflict of interest and can lead to "self-dealing," where high-interest debt is locked into the district's financials and passed on to future homeowners and commercial users. Developers rely on this practice early in a project's life when open-market bonds may be perceived as too risky to finance essential horizontal infrastructure.

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Recommended Policy Approach:

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External Financial Advisor Certification: Before issuing any privately placed debt, the MD must receive a certification from an independent, registered municipal advisor. The advisor must verify that the interest rate does not exceed reasonable market rates for comparable high-yield securities and that the debt structure is reasonable for the district's circumstances.

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Conflict of Interest Prohibition: Debt placed with a developer or owner of the property to be benefitted by the improvements or with a board member of the district must either accrue interest at a 0% interest rate or pursuant to some prescribed formula like 1.0% above MMD (municipal bond benchmark rate) rate.

Other Available Policy Options: o

Strict Prohibition or Hard Interest Cap: The municipality may outright prohibit the purchase of MD debt by a developer. Alternatively, it may set a non-negotiable interest rate cap (e.g., 18%) and require that the interest

rate is set pursuant to a standardized formula for any developer advances or private placements. 6. Amendments and Oversight •

Policy Implication: A Service Plan serves as the "constitution" for an MD. Regulation must define which changes are "material," requiring City Council approval, to ensure the district cannot unilaterally expand its powers, increase its debt, or raise taxes. It is important to recognize that once a district is created, the city’s remedies under the Special District Act are relatively limited, making strong initial oversight through a city-approved Service Plan essential.

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Recommended Policy Approach: o

Enumerated Material Modifications and Periodic Review: The ordinance lists specific actions that automatically trigger the need for a Service Plan amendment, including adding services, increasing total debt limits, or increasing the mill levy cap. This is paired with a requirement for a performance audit every 5–10 years to verify the MD is operating within its original scope.

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Oversight and Sanctions: The MD shall submit an annual report to the city that includes audited financial and budget information. The MD is required to maintain a public website. If an MD undertakes an unauthorized material modification, the City can exercise legal remedies under the IGA, seek court injunctions, or seek fees and cost reimbursement.

Other Provisions in Model Service Plan. The Model Service Plan will include additional standardized language to protect City interests, guided by regional best practices and outside legal counsel. Key provisions include: •

Authorized Services: A precise list of services the MD is organized to provide.

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Intergovernmental Agreement (IGA): The required form for the agreement between the city and the district.

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Financial Projections: Pro-forma data demonstrating the project's long-term viability.

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Compliance Requirements: Mandatory adherence to city land use, engineering, design, and construction standards.

Anticipated Fiscal and Workplan Impacts The update and implementation of BURA and other public financing tools are currently in the 2026 staff workplan. Overall, effective oversight of public financing tools requires a rigorous fiscal impact analysis to minimize city risk exposure and ensure that development strategies are sustainable. Oversight costs can be offset by review and application fees authorized under the City’s regulations. The fiscal analysis for MD Service Plans focuses on the district's capacity to repay debt and the resulting tax burden on residents and commercial users. The Service Plan must include a financial plan detailing all proposed indebtedness, estimated costs for infrastructure, and assumed interest rates. There will be a maximum interest rate set forth in the Service Plan. During the Service Plan review phase, staff assess the reasonableness of the financing plan and compliance with the City's mandated maximum mill levy cap. The analysis determines if the district can service its proposed debt (principal and interest) based on projected tax revenues.

Equity Analysis A robust and growing economy is foundational to the city’s overall well-being, and a strong economic base is needed to provide sufficient sales and use taxes, property taxes, and other revenues to fund essential programs and services such as affordable housing, social services, environmental initiatives, public safety, and many others. However, the use of specialized financing tools introduces specific equity considerations that must be proactively managed to prevent disproportionate burdens on diverse populations. Strict caps on mill levies and terms, enforced via a service plan developed from the city’s model service plan, are important mitigation measures. Redevelopment, in general, can facilitate targeted investment and job creation. A primary equity risk is the potential for gentrification and displacement of long-time residents, renters, and local businesses due to the development itself and/or rising property values and rents. The city’s oversight strategy can help mitigate this potential burden by ensuring that affordable and middle-income housing standards are incorporated within development plans. Additionally, utilizing the Racial Equity Instrument during the consideration of any specific public financing will help ensure anti-displacement strategies are incorporated to the greatest extent practicable.

Climate, Resilience, and Sustainability Considerations The expansion of economic financing tools is strongly aligned with the City's Sustainability, Equity, and Resilience (SER) Framework and broader climate goals, and are designed to support a more resilient and sustainable economy. Development or redevelopment in specific areas that align with Boulder Valley Comprehensive Plan (BVCP) guidance can significantly contribute to broader sustainability outcomes by promoting compact, mixed-use development, reducing vehicle miles traveled, and optimizing existing infrastructure. Economic development financing tools can be used to actively incentivize projects that demonstrate strong environmental stewardship, including sustainable building practices, reduced energy and water consumption, integration of renewable energy, and support for alternative transportation. The tool can also contribute to a more diversified and resilient local economy, better equipped to withstand future environmental and economic shocks, and to advance Boulder's leadership in climate action.

Community Engagement Based on council’s direction, staff will share the draft ordinance and model service plan with local developers to solicit feedback on the regulatory package prior to bringing forward to City Council for adoption.

Next Steps for City Council Staff anticipates bringing forward the Regulating Ordinance and Model Service Plan on March 12 (First Reading) and April 2 (Second Reading) for consideration and adoption.

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