If you are looking for a home in Northern Colorado you most certainly have heard the terms metro district or special tax district. A metro district is short for a Metropolitan district. Metro districts are Special Tax Districts, so you will often hear metro and special tax districts used interchangeably.
Special/Metro Districts in Colorado are considered local governments. As new development continues to grow in Northern Colorado as does the formation of new metro districts in the area. Metro districts are commonly established by developers to create the necessary infrastructure to support turning vacant land into a new subdivision. This includes the development of streets, water and sewer lines, irrigation systems, parks, community pools, etc. If all goes according to plan the constructions of homes and businesses will follow once the infrastructure is in place.
A metro district tax is paid in a homeowner’s property taxes. Just like all taxes listed on homeowners’ property tax bill, a metro district has a mill levy just like local schools and fire for example.
A homeowner buying a home in a metro district will have a higher tax bill compared to someone buying a home not located in a metro district. Each options should be considered on a case by case basis. Developers are adding community features and amenities inside the communities with metro district funds which give residents things to enjoy. Metro district are created to provide services that residents may desire.
How Much Does it Cost to Live in a Metro District?
Metro districts are not created equally and all have different cost. As mentioned before metro district is taxed with a mill levy. Metro district mill levies often fluctuate. A mill levy is the tax rate applied to a property’s assessed value. The word mill comes the Latin word mile and is equal to one tenth (1/10) of a cent.
Here is the mill levy formula: Mill Levy x Assessed Value = Tax Dollars
For example: If the total assessed value of all the property in the metro district were $10,000,000 and the district tax levy was 35 mills, the district would collect $350,000 in annual tax revenue:
(35.000mills/1000) x $10,000,000= $350,000 To estimate how much a homeowner would pay in metro district tax on a home with a market value of $400,000, we can use the example below:
To find out the calculation for how much a homeowner pays for a metro district you need to find the assessed value of the $400,000 home. Assessed value is the portion of the total market value of a property that can be assessed for property taxes. In Colorado the beginning in 2020, the assessed value rate for real estate is 7.15% of the market value. With that said the calculation to determine how much money in taxes as homeowner pays for metro district tax is: (35.000 mills/1000) x ($400,000 x 7.15%) = $1001
A homeowner with a $400,000 home can estimate to pay $1001 in annual property tax to their respective metro district if the mill levy is 35 and if the metro district assessed value is $10,000,000.
Metro District Special Financing and Accountability
Metro districts have various financial powers in a community. Essentially metro districts have the power to tax and/or assess fees for services and to issue municipal bonds to help pay for community improvements. The issuance of municipal bonds is important here because that’s debt the metro district is undertaking to fund the future development.
Municipal bonds are often used by metro districts to fund the beginning of a subdivision, such as roads, sewer and water lines, expensive items that need to be in place before the first home can even be built. The bond money raised is used because generally at this stage there are no homes built, therefore no residents to pay taxes.
The metro districts are held publicly accountable, this means they must hold open meetings, provide notice for all meetings, keep minutes and other records, hold elections for board positions, adopt annual budgets, and submit for annual financial audits. These records and budgets are open for public review.
Some developers may choose to use their own resources to finance the cost of needed infrastructure or they may borrow money commercially. This method is often times more “expensive” and usually is reflected in more expensive home prices. This “self” funded development is often for smaller subdivisions. As master planned communities become more prevalent in Northern Colorado so does the increase in the formation of metro tax districts.
Things to Consider When Buying a Home in a Metro District
Homeowners in metro districts frequently say they’re caught by surprise when the first property tax bill arrives, often with an enormous increase because Colorado real estate values are assessed in the rears. This means taxes are always a year behind. This year’s bill pays for last year’s assessment.
If a homeowner purchased a brand new home in a metro district in July of 2020, the taxes will reflect the assessed value of the parcel with no completed home on the lot. The lower the assessed value the lower the metro district tax. The following year the parcel added a home hence a significant increase in the assessed value, leading to a higher tax bill. A new home in a metro district won’t see the actual property tax costs for a year or two after the buyer moves in, so they need to be educated and budget accordingly. This increase in tax isn’t a matter of if, it’s a matter of when.
Once a new development is further along in the development process or completed and the infrastructure is in place the development the district’s assessed value increases and provides the tax base necessary to generate the revenue required to make payments to any outstanding municipal bonds. This revenue may cause a decrease in the resident’s mill levies in the metro district taxes.
Some Issues to Consider When Buying a Home in a Metro District:
Current Level of Construction Compared to Planned “Build-out” This information is available from the metro district. Analyzing how near completion the development is will help estimate the tax burden per home. If the home lots are not selling and not occupied by homeowners paying taxes, less build-out means that the presently developed properties are responsible for more than their apportioned amount.
Debt/Assessed Value Ratio: This ratio shows the metro tax district’s ability to support debt based on the value of real property in the district. Divide the total debt obligations by the total assessed value of the district to find the ratio. Now, there is no concrete answer on what is considered an inappropriate debt/assessed value ratio, however debt larger than 50% would be an area of concern
Current Ratio: This financial indicator is used to evaluate if a metro district is in a good position to pay expenses due in the next year with reasonably assured assets, like cash and accounts receivable. Divide current assets by current liabilities. A newer metro district dependent on property tax revenue may have weak ratios. One thing to remember is that no all metro districts are run the same way, they are all based on the developers involved with the new subdivision. If one metro district has a financial problem as a home buyer you shouldn’t assume all metro districts have financial problems and the opposite is equally as true. A prospective home buyers can review metro district information from the County Treasurer on the DOLA site.
Things to Consider When Buying a Home in a Metro District
Homeowners in metro districts frequently say they’re caught by surprise when the first property tax bill arrives, often with an enormous increase because Colorado real estate values are assessed in the rears. This means taxes are always a year behind. This year’s bill pays for last year’s assessment.
If a homeowner purchased a brand new home in a metro district in July of 2020, the taxes will reflect the assessed value of the parcel with no completed home on the lot. The lower the assessed value the lower the metro district tax. The following year the parcel added a home hence a significant increase in the assessed value, leading to a higher tax bill. A new home in a metro district won’t see the actual property tax costs for a year or two after the buyer moves in, so they need to be educated and budget accordingly. This increase in tax isn’t a matter of if, it’s a matter of when.
Once a new development is further along in the development process or completed and the infrastructure is in place the development the district’s assessed value increases and provides the tax base necessary to generate the revenue required to make payments to any outstanding municipal bonds. This revenue may cause a decrease in the resident’s mill levies in the metro district taxes.
Some issues to considering when buying a home in a metro district
Current Level of Construction Compared to Planned “Build-out” This information is available from the metro district. Analyzing how near completion the development is will help estimate the tax burden per home. If the home lots are not selling and not occupied by homeowners paying taxes, less build-out means that the presently developed properties are responsible for more than their apportioned amount.
Debt/Assessed Value Ratio: This ratio shows the metro tax district’s ability to support debt based on the value of real property in the district. Divide the total debt obligations by the total assessed value of the district to find the ratio. Now, there is no concrete answer on what is considered an inappropriate debt/assessed value ratio, however debt larger than 50% would be an area of concern
Current Ratio: This financial indicator is used to evaluate if a metro district is in a good position to pay expenses due in the next year with reasonably assured assets, like cash and accounts receivable. Divide current assets by current liabilities. A newer metro district dependent on property tax revenue may have weak ratios. One thing to remember is that no all metro districts are run the same way, they are all based on the developers involved with the new subdivision. If one metro district has a financial problem as a home buyer you shouldn’t assume all metro districts have financial problems and the opposite is equally as true. A prospective home buyers can review metro district information from the County Treasurer on the DOLA site.
Growth of Metro Districts in Colorado
Colorado has approximately 1800 metro districts. In Northern Colorado Weld County has approximately 200 metro districts and Larimer County has approximately 106. Something to keep in mind that several districts are built in phase and file to multiple districts. A master planned community such as Raindance in Windsor, CO is in the Raindance Metro District however there are multiple filings and districts that all fall under the Raindance Metro District.
Is a Metro District the same as an HOA, Homeowner’s Association?
Not all metro districts have an HOA and not all HOA communities are in a metro district. HOA is a homeowners’ association, put in place to ensure residents adhere to the community covenants. HOAs can be self managed by an appointed homeowner or outsourced to a property management company. HOA are usually organized like a non-profit corporation as were a metro district is run like a municipality. Metro districts have taxing powers HOA has fees, however they are not taxes and not associated with a homeowners’ property tax bill.
Should You Avoid Living in a Metro District?
With the increasing popularity of metro district your real estate search can be quite limiting if you exclude any homes located in a metro district. If you are interested in new construction avoiding living in a metro district may be down right unavoidable. One thing to remember if you find a home in a metro district to do your due diligence and budget accordingly. Just like with anything else, there are mis-managed and struggling metro districts and there are well run successful metro districts that provide residents with amenities at a reasonable tax rate. Each metro district should be considered on a case by case basis, there are no absolutes. Not all metro district cost the same.
Homes for Sale in Windsor Located in a Metro District
Commonly Asked Questions before Buying a Home in a Metro District
- How much outstanding debt does the metro district have?
- What agreements does the metro district have with other districts? This is common when a subdivision is large and being completed in phases.
- What is the build-out and how close to build-out is the district?
- What is the actual construction compared to the plan?
- What is the ratio of debt to assessed value of the metro district.
- Are the principal and interest payments on the bonds insured?
- Does the developer hold the bonds or have they been issued to the public?
- What is the amount of annual debt payments?
This is for informational purposes only and should not be used for legal advice.
Learn More about Specific Metro Districts:The Special District Association of Colorado has a database of metro districts searchable by name that outlines the board members, meeting locations, tax revenue, mill levy, and more. https://www.sdaco.org/cora/sda-transparency/search/p/R
