Short History of the Last Urban Renewal Project in Littleton-Riverfront

If you would rather read a few pages than read the lengthy Summary of the Littleton Riverfront Authority’s Meeting Minutes, then this is for you.  Doug Clark has written a short history of the LRA – take a look.  Thank you Doug!

The History of Littleton Riverfront Redevelopment

Introduction

The Littleton Riverfront Redevelopment started out with lofty urban renewal goals:

  • Transform a marginal and under-utilized area into an environment with 24 hour vitality and use which integrates residential, office and limited retail uses in a three dimensional mixture.1
  • Which will remedy the conditions of blight that impairs and arrests the sound economic growth of the City.
  • Funded by a financially attractive method utilizing tax increment or other financing.
  • Which has been validated by an independent financial analysis by a reputable firm showing adequate tax increment to cover debt service needs.
  • And will provide substantial monetary benefit to all taxing entities.
  • All without subsidization by the City.2Littleton City Council blighted the Riverfront Area and formed an urban renewal authority in 1980, delegating to that authority the task of redeveloping the Area. The authority was originally named the Littleton Riverfront Authority (LRA), but the name was later changed to Littleton Invests for Tomorrow (LIFT). We will use LIFT hereafter to avoid confusion.What actually happened in the redevelopment was very different than what was envisioned by the City Council and LIFT.
  • The “three dimensional mixture” of land uses never happened because the residential and office buildings were never built.
  • The “limited retail” was built but failed after only four years, leaving the shopping center vacant for nine years before it was converted into office uses.
  • The public costs of condemning the properties and relocating the tenants were originally estimated to be a maximum of $2 million,3 and to be “roll-over costs refunded at the resale of the property.” Instead those costs ballooned to more than $13 million, less than half of which was covered by the resale of property.4
  • The incremental tax revenue was never enough to fully service the scheduled payments for any of the three tax increment bond issues used to finance the costs, leaving multiple investors holding the bag on millions of dollars of Riverfront debt.
  • Contrary to idea of “no subsidies required by the City” the City provided multiple subsidies to LIFT, as well as loaning LIFT substantial amounts of money that were not repaid. LIFT currently owes the City of Littleton approximately $12 million.
  • The blight in the area, which was the whole reason for undertaking the redevelopment, was not remedied. LIFT’s consultant has recently concluded that blight currently exists in the Riverfront Area.5
  • The redevelopment did not provide substantial benefit to any taxing entity in the area. None of the taxing entities realized any increase in tax revenue for the first 25 years after the start of the redevelopment, and only minimal revenue increases in the last six years.The Riverfront Redevelopment project managed by LIFT turned out to be a complete failure.The Riverfront Redevelopment urban renewal project did not remedy blight and it did not provide any additional revenue for the city. It did however cost the City of Littleton $12 million, cost the investors who bought Riverfront bonds millions, and siphoned off tax dollars from Littleton Public Schools, South Suburban Parks and Recreation, and Arapahoe County.The Littleton City Council wants to repeat the same process, on the same property, with the same LIFT board.__________________________1. Presentation by Gale Christy to LIFT, January 1981.
    2. City Council Resolution # 64, September 15, 1981.
    3. LIFT minutes, May 11, 1981.
    4. $5M + $1M land sales to Writer Corp., $1.43M loans from City, $5.385M 1988 bonds, + various gifts of cash from the city. 5. Littleton Invests for Tomorrow, Draft Conditions Survey Findings, dated 22 May 2014, pages 48 – 62.

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Urban Renewal in Littleton

An Urban Renewal Authority is a corporate body authorized by the Colorado Legislature and created by the City Council for the purpose of removing blight and slums. The authority is governed by a board of commissioners. The commissioners are appointed by the City Council. The authority can condemn land, enter into contracts, issue debt, and siphon off tax revenue from other taxing entities such as the school district, county, and South Suburban Parks and Recreation. Even though the Authority is supposed to work under the supervision of the City Council, the authority is considered a separate legal entity by Colorado Law. The reason for this is so the authority can default on its debt and not have the consequences of those defaults come back on the city.

The first step in creating an urban renewal authority is for the City Council to make a determination (a “finding”) that an area of the city is so blighted as to constitute a “menace to the public health, safety, morals or welfare.”1

The Littleton City Council voted a finding of blight for the Riverfront Area in 1980, and formed the Littleton Riverfront Authority as its urban renewal authority; the name of the authority was later renamed Littleton Invests for Tomorrow (LIFT). The area that was blighted by the Council is approximately 31 acres roughly bounded by Church St. on the south to Crestline on the north, the South Platte River on the west to Santa Fe Drive on the east.

The next step is for the urban renewal authority is to create a urban renewal plan, the plan to be reviewed by the Planning Board, and for the City Council to approve that plan at a public hearing.

The Plan

LIFT created an urban renewal plan, the Riverfront Redevelopment Plan, with substantial help from the city staff. City Council approved the plan in September 1981. The goals of the plan have already been quoted in the Introduction on the previous page.

The renewal scenario outlined in the Plan was that LIFT would acquire (condemn) all the individual properties in the Riverfront Area and relocate the residents and businesses that were condemned out of the Area, paying the relocation costs of some of the residents and businesses. LIFT would then combine the properties and sell the combined property to a private developer who would build the retail, office and residential buildings. LIFT would control the types of buildings built, when they were built, and land uses through a contract with the developer. The developer selected by LIFT for the project was Writer Corp.

During the creation of the Plan the city staff performed market analysis, cost estimates, and revenue projections for the redevelopment project which were presented to both the LIFT board and the City Council. The projected increase in property tax revenue for all taxing entities was from $31,256 (base) to $508,827; sales tax from $16,438 (base) to $343,606. The public costs were estimated to range from $150,000 to $1,968,160 at a maximum. “All public costs in a renewal scenario are roll-over costs, refunded at resale of the property.” 2

LIFT condemned and cleared the property in the Area, and sold the property to the Writer Corp. in August 1984.3

The Project

The public costs for acquiring (condemning) the property in the Riverfront Area, and relocating the tenants, property owners and residents out of the Area ended up much higher than the cost estimates originally presented to the City Council. The original estimates pegged the maximum amount of public costs at $1.98 million4. LIFT ended up spending approximately $13 million on the project, not counting the interest on past due debt and principal and interest on discharged LIFT debt.5

__________________________________

1. Colorado Revised Statutes 31-25-103 (2).

2. LIFT minutes, May 11, 1981.

3. The 1984 sale was for $5M. Some other small parcels were later added to the Area and sold to Writer for an additional $1 million.

4. First cost estimate LIFT minutes, May 11, 1981. Revised cost estimate from Council Communication, “Littleton Riverfront Authority’s Industrial Revenue Bonds for $5,000,000”, dated May 17, 1983.

5. $5M + $1M land sales to Writer Corp., $1.43M loans from City, $5.385M 1988 bonds, + various gifts of cash from the city.

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The contract between LIFT and Writer Corp. called for Writer to have completed 400,000 square feet of residential, commercial, office, and retail within 10 years of the contract date, i.e. by 1994. In Phase 1, a minimum of 100,000 square feet of retail (out of the total of 400,000 S.F.) was required to be completed by August 1986.1

After signing the contract with LIFT, Writer Corp. announced that it was planning to build a $150 million multi-use development that would include a farmers market, boutiques, a 5,000 seat concert theater, office buildings, and possibly a hotel. Writer Corp was also planning three free standing restaurants scattered throughout the project. The retail establishments were slated to open May 1985. Writer Corp. added that merchants had shown interest in renting 50 percent of the Phase 1 retail shops.2

Writer’s original plan for Phase 1 was to build 193,000 square feet of retail.3 It ended up building 162,630 square feet, including two free standing restaurants.4

Writer Corp. completed Phase 1 by constructing Riverfront Festival Center and two parking structures at a cost of $25 million.5 The first tenant was the farmers market which opened for business in November 1985.6 Tortilla Flats opened in May 19867 and Bobby McGees in November 19878. LIFT certified in March 1986 that Writer Corp. completed its contractual requirements for Phase 1.9

However the Festival Center was never a success. The occupancy rate and sales never achieved expectations. The Festival was taken back by Writer’s lender in late 1988.10 The last tenant moved out of the Festival Center in 1989.11 The Festival Center, i.e. the shopping center part, remained vacant for nine years.

The theater, hotel, commercial office space, and residential units were never constructed.

LIFT relieved Writer Corp. from its contractual obligation to complete remaining 240,000 square feet of improvements.12 However the land use requirements which controlled what happened in the Riverfront Area remained in the Disposition and Development Agreement.

Colorado’s Ocean Journey approached LIFT and the City of Littleton about locating in the Riverfront Festival Center.13 After negotiations with LIFT and the City of Littleton broke down over financing, Ocean Journey approached Denver for help in financing. Denver agrees and help Ocean Journey build a 107,000 square foot main building at a cost of $97 million using, in part, a $57 million bond and a $7 million loan from the City of Denver. The project opened in June 1999 and filed for bankruptcy in April 2002 with $62.5 million on debt, $6 million being owed to the City of Denver.14 15

Chenco purchased Riverfront in September 1993 for $3.3 million16 with the intention of converting the shopping mall into a tourist oriented aquarium, but its financing fell through.17

____________________________

1. Disposition and Development Agreement, January 27, 1983.
2. “Writer unveils Riverfront Plan”, The Independent, November 11, 1983.
3. .“Writer unveils Riverfront Plan”, The Independent, November 11, 1983.
4. LIFT 1999 Bond Series A1 Prospectus, page 28.
5. Denver Business Journal, “EchoStar’s Riverfront buy vindicates office strategy” Sep 28, 1997
6. “Farmer’s Market, Alfafa’s sprout here”, The Independent, November 29, 1985.
7. LIFT minutes, March 13, 1986, page 3.
8. LIFT minutes, November 12, 1987, page 2.
9. LIFT resolutions #3 & #4 of 1986.
10. Comprehensive Annual Financial Report, City of Littleton, 1988, page 24.
11. Denver Business Journal, “EchoStar’s Riverfront buy vindicates office strategy” Sep 28, 1997.
12. LIFT 1999 Bond Series A1 Prospectus, page 28.
13. LIFT minutes, November 4, 1992.
14. http://en.wikipedia.org/wiki/Downtown_Aquarium,_Denver.
15. “Ocean Journey dollars flow to handle bankruptcy fees”, Denver Business Journal, November 17, 2002.
16. LIFT 1999 Bond Series A1 Prospectus, page 28.
17. “Intergovernmental Agreement with the Littleton Riverfront Authority”, Council Communication, October 19, 1999.

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After Chenco’s aquarium financing fell through several local companies approached LIFT about relocating their headquarters to the Festival Center. The problem was the 1988 bonds were in default and the holder of those bonds, Van Kampen Merritt, objected to changing the land use of the Center from retail to office, which effectively stopped any potential sale.1 Van Kampen Merrit could object because LIFT and the City had agreed to not make any changes to the Riverfront Redevelopment Plan that would reduce City sales taxes collected in the Riverfront Area.2

Chenco started discussions in February 1996 with Van Kampen Merritt and LIFT about purchasing the 1988 bonds from Van Kampen Merritt.3

When Echostar approached LIFT about purchasing Riverfront, LIFT and Chenco agreed that Chenco would purchase the defaulted 1988 bonds and LIFT would restructure or replace the 1988 bonds in order to reimburse Chenco for the purchase.4 Chenco purchased the bonds from Van Kampen Merritt for approximately $2 million5 in September 19976, which resulted in a loss of $6 million for Van Kampen Merritt.7

The bond purchase by Chenco allowed Chenco to sell the Festival Center and related parcels to Echostar for approximately $7.5 million.8 Echostar moved its headquarters and call center into the Festival Center in April 1998, and subsequently purchased additional property in the Riverfront Area9.

The Disposition and Development Agreement still contained certain requirements controlling the uses and development of the property. Echostar objected to those requirements, and so LIFT removed those requirements in order to affect the sale by Chenco to Echostar. This effectively ended any control LIFT had left over the Riverfront Redevelopment Area.10

Financing the Public Costs

The public costs for the Riverfront Redevelopment are the costs incurred by LIFT and the City of Littleton. This is opposed to, and separate from, the private costs incurred by Writer Corp., Chenco, or Echostar, which are private costs. The public costs are related to acquiring the land, relocating the tenants, clearing the land before the land was sold to Writer Corp., LIFT’s financing costs, and the day to day operations of LIFT.

The estimate of public costs for the project quickly increased from $2 million to $7.5 million soon after the plan was approved.11 The actual amount of money spent by LIFT on the project ended up being more than $13 million.12

The strategy of LIFT was to pay for its costs by selling the land it acquired to Writer Corp. and to finance the remaining costs through borrowing. LIFT borrowed money from the City of Littleton, banks, and by issuing bonds. LIFT intended to pay its debt by Tax Increment Financing (TIF).

TIF is a scheme, created by the Colorado Legislature, where an urban renewal authority, i.e. LIFT, can take all the incremental tax revenue, except of course tax revenue belonging to the state, and use that revenue to pay its debts.

Incremental tax revenue is the tax revenue from property tax and/or city sales taxes that exceeds the base amount collected in the area at the start of the TIF collection period. The collection period can not exceed 25 years. The base amount for city

_____________________________

1. Denver Business Journal, “EchoStar’s Riverfront buy vindicates office strategy” Sep 28, 1997

2. City Ordinance #33 of 1987 approving an agreement with the Littleton Riverfront Authority.

3. LIFT minutes, February 7, 1996.
4. LIFT minutes, March 24, 1987 & May 12, 1997.

5. “Intergovernmental Agreement with the Littleton Riverfront Authority”, Council Communication, October 19, 1999.
6. LIFT 1999 Bond Series A1 Prospectus, page 29.
7. Littleton Comprehensive Annual Financial Report, 1996, page 52:($4.7M defaulted + $3.3M remaining) – $2M Chenco payment. 8. Denver Business Journal, “EchoStar’s Riverfront buy vindicates office strategy” Sep 28, 1997.
9. LIFT 1999 Bond Series A1 Prospectus, page 29.
10. LIFT minutes, September 3, 1997.
11. “Littleton Riverfront Authority’s Industrial Revenue Bonds for $5,000,000”, Council Communication, May 17, 1983.
12. $5M + $1M land sales to Writer Corp., $1.43M loans from City, $5.385M 1988 bonds, + various gifts of cash from the city.

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sales taxes is established by what was collected in the Redevelopment Area (the urban area) in the 12 months before the start of the collection period. The base amount for property taxes is established by the valuation of the property in the Redevelopment Area at the start of the collection period.

Since this scheme allows a city based authority to use tax revenue belonging to other entities, e.g. Littleton Public Schools, Arapahoe County, South Suburban Parks and Recreation, etc., the state legislature has put strict limits on what the incremental tax revenue can be spent on. Tax incremental revenue can only be spent on 1) revenue sharing with another taxing entity, 2) cost sharing with another taxing entity, 3) paying the urban renewal authority’s debts for urban renewal projects described in an approved urban renewal plan, which take place in an urban renewal area that has been blighted by the City Council.1 Lift never entered into any revenue sharing or cost sharing agreements with any taxing entities.

During LIFT’s start-up period LIFT from 1981 to 1985 LIFT borrowed money from the City of Littleton, from banks, and issued short term bonds.2

Once the property was constructed and the first tenant moved in, LIFT issued a TIF bond in December 1985 for $4.78M3 at an interest rate of 10.25%.4 In July 1986 LIFT realized the incremental tax revenue was not meeting the projections of their economic consultant Leventhol & Horwath,5 meaning LIFT would not be able to make future bond payments.

After shuffling money between its funds in order to hide the fact that it was having trouble making payments on its 1985 bonds6, LIFT issued a new set of bonds in February 1988 for $5.385 million and used some of that money to pay off the 1985 bonds. These new bonds added more than $500,000 to LIFT’s debt.7 Once again LIFT’s, and its economic consultant’s8, projections of future sales and property tax revenues were wrong. LIFT was only able to make payments for first 3 years before defaulting on its scheduled bond payments in 1992 and subsequent years.9

After LIFT’s negotiations with Chenco and Echostar in 1997 on the sale of the Festival Center from Chenco to Echostar, LIFT issued its fourth set of bonds in 1999. The purpose of the 1999 bonds was to repay the 1988 bonds which were held by Chenco, and to direct some incremental tax revenue toward paying off the money LIFT owed the city (the City Notes) before the 1999 bonds were completely paid off.10

LIFT completely paid off the A1 and A2 series 1999 bonds, but failed to completely pay off the 1999 series B bond. The discharged amount (the amount remaining unpaid according to the bond payment schedule) for the 1999 series B bond at December 2008 was $2,067,901.11

LIFT also owes the City of Littleton money on two promissory notes: the 1983 City Note which loaned LIFT $200,00012, and the 1984 City Note13 which consolidated various land transfers of City owned land to LIFT, which LIFT sold to Writer Corp. Both notes are due after the 1999 bonds are/were paid or discharged. The last of the 1999 bonds were discharged in December 2008. LIFT wrote the bond documents so that the city notes were discharged in Dec. 2008, but the Council never approved discharging the City notes, therefor LIFT still owes the City approximately $12 million.

LIFT made $472,494 in payments in total to the City in 2005, 2006, 2008 and 201114 which were not credited to the notes.

__________________________________

1. CRS 31-25-107 (1)(a), 31-25-107(9)(II), 31-25-107(11), CRS 31-25-103 (11).
2. Loans from the City of Littleton, loans from United Bank of Littleton, Industrial Revenue Bonds and Notes.
3. LIFT Resolution #11 of 1985.
4. LIFT minutes, April 10, 1986, page 2.
5. LIFT minutes, July 16, 1986.
6. LIFT minutes, October 9, 1986 pages 2-3, November 13, 1986, page 2.
7. Comprehensive Annual Financial Report, City of Littleton, 1988, page 41. Net effective interest rate of 9.88%
8. Hammer Siler, George, LIFT minutes February 12, 1987.
9. Comprehensive Annual Financial Report, City of Littleton, 1993, page 41.
10. “Intergovernmental Agreement with the Littleton Riverfront Authority”, Council Communication, October 19, 1999.
11. Comprehensive Annual Financial Report, City of Littleton, 2009, page 34.
12. City Council Resolution #16 of 1983.
13. “Agreement for transfer of real property and promissory note”, dated 1984.
14. “Amounts paid to City of Littleton by LRA”, City of Littleton Finance Department, April 2014.
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LIFT had approximately $140,000 in cash in the bank at the beginning of 2014. LIFT is spending that money in ways that are not lawful, while continuing to default on its City Notes.1

Conclusions

There are number of conclusions that can be reached about both the Riverfront Redevelopment effort and urban renewal general.

1. The Riverfront Redevelopment was a failure.

The office, commercial and residential improvements were not built; mixed use was not achieved. The retail use, which was supposed to bring additional retail sales tax to the City failed and was converted to office space.

The project was not a catalyst to the economic vitality of downtown or the City of Littleton. The Festival Center was vacant for nine years and both restaurants on the property closed. The City received no increase in tax revenue for 25 years.

The removal and elimination of blight, which is the primary purpose of urban renewal2, was never achieved; according to LIFT the Riverfront Area still has blight.3

2. The project resulted in large financial losses for everyone involved.

TABLE 1. Losses on Riverfront Redevelopment

Entity                                                       Loss

Writer Corp. and/or its lenders           $21.7 million

Van Kampen Merritt                             $6 million

1999 Series Bond Holder                      $2 million

City of Littleton                                       $12 million

3. Enthusiasm for the project overwhelms and blinds policy makers to the original goals and objectives.

The Riverfront Redevelopment started as an urban renewal project to improve Littleton with no financial costs on the part of the City.4 Two years later the same City Council was desiring “to assist the Littleton Riverfront Authority in funding short falls it may have with regard to future debt service, financing requirements or land acquisition cost overruns.”5

The same thing happened for land use. The “emphasis on open space and park use for area north of Bowles”6 which was specified by the City Council upon creation of LIFT, somehow got converted by LIFT to a concert theater and hotel as the project was developed.

4. The interests of the City and the interests of LIFT are not the same.

LIFT currently owes the City $12 million. Instead of paying on that debt with funds LIFT has on hand, LIFT has chosen to attempt to obscure the debt and to make the debt appear smaller than it actually is.7

5. It is impossible for LIFT to predict the future

LIFT and the City of Littleton hired multiple economic consulting firms over the years to estimate tax revenue for the Riverfront project. None of the estimates were correct. All greatly overestimated the revenue that would be generated.

_______________________________

1. Tax increment revenue collected by LIFT can only be spent on the Riverfront Redevelopment, per CRS 31-25-107. 2. Colorado Revised Statutes 31-25-102 Legislative declaration (1) & (2).
3. Littleton Invests for Tomorrow, Draft Conditions Survey Findings, dated 22 May 2014, pages 48 – 62.
4. “Financially the project can stand on its own without subsidization by the City” City Council Resolution #64, 1981

5. City Council Resolution #15, 1983.

6. City Council Resolution #63, 1980
7. LIFT minutes December 13, 2004, December 12, 2012.

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