In fewer than two hours on Friday, the Colorado House went from discussing a bill that aimed to prevent metro district developers from working both sides of a public deal in which they personally benefitted to approving one that allows the practice.

House Bill 22-1363 would have stopped developers who sit on a metro district’s board of directors from approving public financing for their project via municipal bonds and then purchasing those bonds for themselves.

Instead, the body passed on a voice vote a last-minute amendment pressed by House GOP Minority Leader Hugh McKean, R-Loveland, that gutted the intent of the original bill and replaced it with language that allows the practice to continue but tempers the amount of money developers can eventually pocket by seemingly restricting the interest rate of the bonds.

A dejected Rep. Mike Weissman, D-Aurora, who co-sponsored the original bill, had little cause to celebrate.

“What just happened is pretty disagreeable,” Weissman said of the amendment. “It’s not at all surprising that developers who profit from this conflicted practice have been fighting hard to protect their ability to keep doing it.”

The bill is scheduled for a third and final reading that could occur as early as Saturday before it heads to the Senate.

The bill would only apply to practices in newly formed metro districts after Jan. 1, 2023, and would not affect any debt issued by existing districts or any districts created in upcoming elections this year.

“What this does is get to the underlying structure to ensure the consumer is protected,” McKean said in introducing the amendment. “This creates wealth, to make sure the guardrails are on, to limit anything outrageous, and to ensure what we’re doing is protect potential financial interests.”

But attorney Brian Matise, a metro district expert who has been a board member on several and litigated cases against some others, said the bill essentially changes nothing other than to codify into law a developer’s right to buy metro district financing that they initially approved.

“This bill is totally meaningless,” Matise said. “It says the bonds are to be of an interest rate consistent with market rates for high-yield securities, which are basically junk bonds. If the debt that district directors issue to themselves, their employers or their companies is so risky that the financial market won’t buy it, then it shouldn’t be issued. Taxpayers should not have to pay junk bond interest rates.”

Metro district developers and their associates are frequently members of its board of directors, especially when a project is just starting and where the debt load a project can incur is established. That debt comes from the sale of municipal bonds, typically to the public and often for millions of dollars.

The money from the bonds is used to repay the developer for the expenses they incur in installing the infrastructure – sidewalks, sewers, water lines and lighting – to a metro district before any homes are built. The district, through property taxes levied on homeowners, repays the bonds over decades with bondholders earning interest until it’s all repaid.

Acting as the district’s board of directors – and long before there are any homeowners – the developer and associates approve the sale of the bonds to the public. Many times there is a smaller amount of bonds issued simultaneously, but are not sold to the public, have much higher interest rates, and the developer buys them for themselves in a private sale.

Those bonds are secondary to the main bond issue, meaning they are not paid back as quickly and are structured over decades so that interest compounds on interest, turning them into a handsome profit for its owners.

McKean and others in the House defended the practice, saying it is necessary “gap funding” for a project and claiming future development would stop if is curtailed.

Other representatives, such as Rep. Adrienne Benavidez, D-Commerce City, railed against the idea, noting that it is an inherent conflict of interest that should be stopped.

“This is a practice that cannot be allowed, where you get to work both sides of a transaction and the consumer, the homeowner, is the one left to pay the tab,” Benavidez said.

Metro district reform in Colorado has been a difficult sell in the legislature, despite hundreds of people who have told lawmakers they are adversely affected by the financial conditions of living in one.

Lawmakers last year passed a bill that heightened the amount of disclosure potential homebuyers would get before purchasing a home in a metro district.

But critics said it didn’t do enough and Weissman sought to harpoon the very practice that seems to give developers the highest financial return on the backs of generations of homeowners.

Weissman put forth several examples of how a developer purchases their own financing, little different than a town mayor approving a deal for his own company to profit from, and eventually looks to pocket proceeds far in excess of their initial investment.

“It is frequently said that development must pay for itself, but in these cases development has been paying itself,” he said.

Legislators who opposed the original bill, including Rep. Andres Pico, R-Colorado Springs, said it would gut any future development because it put too much burden on business.