Big ranch property buy sets stage for increased suburban sprawl

photo - Urban sprawl east of Marksheffel Rd. in the Banning Lewis Ranch area. (The Gazette/Jerilee Bennett)
Urban sprawl east of Marksheffel Rd. in the Banning Lewis Ranch area. (The Gazette/Jerilee Bennett)

By Katherine Blunt
Updated: June 29, 2014 at 7:46 am

The gridded streets of downtown Colorado Springs stretch only so far before branching into cul-de-sacs and roundabouts, creating a suburban maze that some laud as progress and others deride as sprawl.

With Nor’wood Development Group’s pending purchase of the Banning Lewis Ranch, more suburban development could be on the horizon for Colorado Springs, a city that has long grappled with the costs and benefits of developing huge swaths of land far from its core. Such development could help meet the needs of a growing population – El Paso County is projected to increase by a quarter within two decades – but its maintenance could prove challenging in an area where residential property is taxed at a far lower rate than commercial property.

Nor’wood contracted to buy about 18,000 of the ranch’s 21,400 acres from Ultra Petroleum earlier this month. The property, which encompasses the eastern one-third of Colorado Springs, was zoned for residential and commercial development upon its annexation by the city in 1988. But it has passed through several owners and remained largely vacant since then.

According to Nor’wood’s press release announcing its planned purchase, a “fiscally viable and responsible land-use strategy blending residential, commercial, and industrial development” could render the ranch an asset for the region and its citizens. Chris Jenkins, Nor’wood’s president, declined to elaborate on the company’s intentions for the property.

Though Nor’wood hasn’t yet specified what it plans to do with the massive parcel, the annexation agreement attached to the property allows for the creation of about 75,000 residences for more than 180,000 people – a prospect that might hold promise as the city’s population increases and vacant space decreases. Excluding Banning Lewis, the amount of vacant land in Colorado Springs fell from about 23,100 acres in 2003 to about 17,300 in 2013, despite the city’s annexation of about 5,000 acres during that decade.

Steady suburban demand

Critics of more suburban development argue that there is enough existing property and potential infill projects to meet a growing demand for housing, but several real estate and city officials say it may not be enough to satisfy home buyers who often can get more house for their money farther from the city center and pricier areas closer to the mountains.

“We have a lot of property in the city and a lot of infill opportunities, but we have less vacant land than we’ve had in the past,” said Carl Schueler, comprehensive planning manager for the city of Colorado Springs. “We’re seeing more of a demographic demand for infill and redevelopment, but there is still a demand for development on the periphery.”

The planning department is updating the city’s comprehensive plan by surveying current land uses and evaluating how the Banning Lewis Ranch might serve the city’s growth and development needs. If necessary, the department will recommend revisions to the 26-year-old annexation agreement, according to Peter Wysocki, planning and development director for the city.

As it stands, the annexation agreement places almost all capital costs of development squarely on the shoulders of the developer. About 2,600 acres in the northeast portion of the ranch are already under development by Denver-based Oakwood homes, a process set in motion by Banning Lewis Ranch Co. before it went bankrupt in 2010.

John Cassiani, former vice president of operations for Banning Lewis Ranch Co., said the company spent more than $100 million on infrastructure from 2006 to 2010 for a development a fraction of the size of Nor’wood’s contracted area. According to the 2007 Annexor Shared Obligation study, the cost of fully developing the ranch could surpass $1 billion.

Oakwood, which has built roughly two-thirds of the 900 homes slated for its Village 1 development and laid the groundwork for about 250 lots in its Village 2 development, is negotiating some terms of the annexation agreement with city officials. Chad Ellington, project manager of land development, said some of the terms – such as a home construction impact fee of 50 cents per square foot – render development on the ranch significantly more costly than development in adjacent communities.

“We’ve started to address some of those with the city, but in general (the agreement) has slowed our development compared to some other areas of the city.”

Demand for housing mitigates the risk of investing in a new development, and the city’s prospective homebuyers continue to seek suburban accommodations, according to Rick Van Wieren, a real estate agent with Re/Max Properties in Colorado Springs. Though national studies suggest people young and old are trading suburban yards for urban walk-ups, Van Wieren said Colorado Springs doesn’t necessarily reflect that shift.

“Colorado Springs is a very suburban place,” he said. “I’m not going to say there’s not an attraction to the downtown scene, but when you weigh in factors like price and availability of the amenities you want, the suburbs still win a lot of the time.”

Each month, Oakwood sells an average of 18 homes in Village 1. Mike Pinlin, regional vice president of Oakwood in Colorado Springs, said he expects that number to increase to 30 within three years as Oakwood tailors its products to suit the needs of the aging baby boomers and other demographics driving demand for suburban housing.

“There is a demand in certain buyer segments that is underserved in the marketplace,” he said.

Infrastructure costs

If Nor’wood finalizes its purchase and the annexation agreement remains fundamentally the same, the development of the ranch will come at little cost to the city, at least initially. In addition to constructing infrastructure, Nor’wood will likely establish special districts within the development to pay for much of its maintenance, Schueler said.Special districts operate independently of city government and have authority to issue bonds and levy taxes on their residents.

“A special district is a good vehicle to maintain some of the things the city does not have the money to maintain,” said Peter Susemihl,a local attorney who focuses on special districts. “The huge costs of putting in that infrastructure doesn’t fall on the rest of the taxpayers.”

But overall responsibility for maintaining public roads, fire and police service, and transportation falls on the city, and, by extension, the taxpayers. Though residential development expands the city’s sales tax base, it doesn’t generate enough property tax revenue to pay for itself – at least not at first, according to Schueler. In Colorado, property tax rates are limited by two amendments to the state’s constitution: the Gallagher Amendment and the Taxpayer’s Bill of Rights. The former requires that residential owners pay no more than 45 percent of statewide property tax, while the latter limits the ability of municipal governments to increase property tax rates and spend surplus tax revenue.

“Property taxes are really a very small increment of the city’s total general fund revenue,” Schueler said. “When you look at new development in terms of revenue it will generate, sales tax becomes the fundamental source. Retail sales tends to hit later in the process of development, and even higher-end residential development doesn’t pay for itself for a long time.”

The Gallagher Amendment, adopted in 1982, lowers the assessment rate for residential property when home values increase faster than commercial property values. Residential property, once taxed at a 29 percent assessment ratio, is now taxed at about an 8 percent ratio. The assessment ratio for nonresidential property remains at 29 percent.

Ten years later, the Taxpayer’s Bill of Rights required local governments to refund surplus property tax revenue if the amount collected grew faster than the rate of inflation and population growth – unless taxpayers voted for a city to spend it.

The actual cost of sprawl is difficult to calculate, because the amount the city pays for maintenance and services depends on many variables, including population density, the establishment of special districts, and the rate of development. But Daphne Greenwood, an economics professor at University of Colorado at Colorado Springs, said the combined effect of the two amendments makes it difficult for the city to recoup maintenance and service costs. In a 2003 report, she argued that growth only pays for itself if per capita revenue rises faster than per capita expenditures. Suburban development, which is less dense than urban development, rarely generates such revenue growth, she said.

“The only way you get enough tax revenue is from commercial property, which is mostly in the center of the cities,” she said. “Even if you did somehow structure new growth so that you’re getting more revenue per person, [the city] would have to refund it.”