You might be surprised to learn the Colorado Springs Urban Renewal Authority, an obscure unit of municipal government, will meet Wednesday, July 25, and decide whether to fund a $62 million data center deal.
The complex, multi-layered deal works like this:
1) Developer Vince Colarelli has 108 acres of pastureland along Fountain Creek, near the southern boundary of Colorado Springs.
2) At CSURA's request, City Council declared this land "blighted" last year, presumably because a former owner failed to transform the cow pasture into a golf course.
3) Colarelli would like to build up to a half-dozen data centers on the property, but you can't just plop a data center down on any random pasture — you have to build appropriate infrastructure.
4) The infrastructure, as defined in the proposal before the CSURA board, will cost $62 million. Colarelli says he has an investor who will provide cash on the front end. CSURA will sell bonds in $10 million increments as the project is built, paying back the investor (who stands to make a nice 8 percent return on his loans!).
5) It's an urban renewal site, therefore eligible for tax-increment financing (TIF), meaning the cost of improvements will be paid for by the increase in property tax generated by the improvements. Once the infrastructure is in place, Colarelli is confident that national companies will be eager to participate.
The deal is documented in 31 pages of impenetrable legalese titled "Vineyard Redevelopment and Reimbursement Agreement." You may think CSURA is part of city government, since its members are appointed by Mayor Steve Bach, and Council decides TIF eligibility. Because of the Taxpayer's Bill of Rights, voters must approve these borrowings, right?
Nope. According to the agreement, "an urban renewal authority is not a local government and therefore is not subject to the provisions of [TABOR]."
Colarelli is contributing the land, with a "total certified assessed value" of $59,300. Granted, it's a pretty junky piece of ground, but $549 an acre? Inside the city limits?
"That's what the assessor says," said CSURA administrator Jim Rees, "so that's the value we have to go on."
Doesn't matter. Colarelli's the developer, and the lower the assessed value, the greater the amount that can be applied to the TIF. He'll probably do fine on the deal, even if it goes south. Meanwhile, the general contractor will receive a 5 percent "overhead and profit" fee on more than $15 million of scheduled work. There's also a 6 percent "construction contingency" cost. Other eager recipients are in line to share the booty.
• Land cost for roadways: $4.2 million. Vineyard LLC will receive $4.2 million from bond proceeds to build roads within the 108 acres that will enhance the property's value. CSURA bonds will fund this strange transaction. Remember, the whole 108-acre parcel is assessed at only $59,300.
• Utilities facility site purchase: $2.4 million, for a biomass plant that may or may not be built. Environmentalists, rejoice!
• University of Colorado at Colorado Springs workforce program: $4.5 million, keeping the eco-devo and higher-ed folks happy!
You wonder whether the attorneys and investment bankers who work for the Authority have vetted this deal. Profit, if any, will flow to the developer, while CSURA assumes the risk. The last such deal, $55 million in bonds to help finance University Village Colorado retail center on North Nevada Avenue, is in trouble now. Because of project revenue shortfalls, $8 million in bonds are in default, and may be joined by $47 million more.
Since then, Bach has replaced five of the board members, so this deal may be more carefully scrutinized.
It should be, because another defaulted CSURA deal might have lasting effects on the ability of the city and Utilities to tap bond markets. The city wouldn't have to make good on the defaulted or restructured notes, but municipal bond buyers don't like this kind of stuff. Neither do rating agencies.
The result: higher borrowing costs, impacting us as taxpayers and ratepayers. But if everything works out, we'll have a great development, a bunch of new jobs, happy bond investors ... and a very solvent developer.
Good luck to all of us!