The Colorado Supreme Court on Monday sided with an interpretation of state law that will result in more revenue going to local governments from urban renewal zones and less money for the entities overseeing redevelopment of those areas.

In a case arising from Arapahoe County, the court addressed the division of property tax revenue from blighted areas designated for “urban renewal.” A portion of the tax revenue in such zones is earmarked for development itself – and the investors who purchase bonds – with the remainder going to schools and counties.

Although the Aurora Urban Renewal Authority argued, and the state’s Court of Appeals agreed, that Colorado’s property tax administrator exceeded her authority by letting local governments reap the benefits of increased property values from general market conditions, the Supreme Court saw no problem with that arrangement.

Justice Maria E. Berkenkotter clarified in the Jan. 22 opinion that it is logical for urban renewal authorities to receive increased property tax revenue only when their own redevelopment activities contribute to the enhanced property values. Otherwise, those entities could do nothing and still benefit from a rising market.

“Put another way,” she wrote, “the Administrator’s methodology is aimed at ensuring that an urban renewal authority receives only property tax revenues produced as a result of its actual urban renewal projects – not simply its urban renewal plans.”

The controversy attracted significant attention from outside groups, with Colorado’s counties arguing their tax revenues could be siphoned off to urban renewal projects even when broader market forces are responsible for a rise in property values. The municipal bond industry, meanwhile, warned that giving counties and school districts a larger share of tax revenues from urban renewal zones would deter investment in blighted areas.

In a system known as tax increment financing, urban renewal areas contain a base value and an “increment.” Broadly, the base is the blighted property’s valuation before the implementation of an urban renewal plan. Tax revenues from the base value are paid to local governments.

The increment is the value attributable to the urban renewal plan and the development that occurs because of it. For 25 years, increases in property value through the increment accrue to the urban renewal authority. Downtown Golden, Denver’s Central Park neighborhood, and the Anschutz Medical Campus in Aurora are among the projects completed under Colorado’s urban renewal framework.

However, Colorado’s urban renewal law requires that when a local assessor routinely revalues property, the base value and the increment are “proportionately adjusted.” The law does not specify what that means, but rather leaves it to the judgment of the state’s property tax administrator, JoAnn Groff.

Under Groff’s regulations, increases in a property’s value that go toward the increment – and to urban renewal authorities instead of counties – must be attributable to changes at property itself. But for any increase in value from “market perceptions” that properties are “more or less desirable” because they are in an urban renewal area, the tax revenue is split between the base and the increment.

Or, in other words, between counties and urban renewal authorities.

In January 2022, a three-judge panel of the Court of Appeals sided with the Aurora Urban Renewal Authority in its challenge to the regulations, with the panel’s majority calling them a “virtual defunding” of urban renewal projects.

Judge David H. Yun dissented, believing Groff’s method was legally sound. The majority, he warned, “crosses the line into the area of public policy” by striking it down.

On appeal, Groff and Arapahoe County’s assessor, PK Kaiser, argued market-based adjustments going proportionally to the base and the increment made sense to prevent urban renewal authorities from sitting on land, not developing it, yet earning tax revenue from increases in value that would have happened anyway.

Berkenkotter, in the Supreme Court’s opinion, acknowledged there may be a better way to allocate property tax revenues between local governments and urban renewal authorities in order to preserve the incentives for redeveloping blighted property.

But “Colorado’s TIF scheme is not intended to advance redevelopment at all costs,” she wrote, referring to tax increment financing. Instead, the goal is “to strike a balance between funding redevelopment and funding other important services, like fire protection and schools.”

Because the legislature left it to Groff’s discretion to allocate changes in property values, the court upheld her regulations. The regulations reflect the “direct relationship” between an urban renewal authority’s actual development and the revenue it receives, Berkenkotter added.

Groff declined to comment on the decision. Aurora and the Arapahoe County assessor did not respond to emails about the ruling.

The case is Kaiser et al. v. Aurora Urban Renewal Authority et al.