Fire Sale

The TABOR Compliance Plan, a.k.a the “Fire Sale”

The issue that consumed much time of the Salida City Council in 2016, as well as much of its budget, was the question, raised by City Attorney Ben Kahn, in response to directions from the Mayor which have not yet been made public, that TABOR* was being violated by the financing of the Vandaveer Ranch* secured in 2013 by the NRCDC*.  In order to “comply” with the TABOR, Kahn advised the City that the Vandaveer Ranch property would have to be expeditiously sold, even if at substantially below market value.  While promoting the TABOR issue, the City Attorney informed lawyers and developers in Salida that Vandaveer Ranch property would be sold at below market value (YouTube Video and transcript of Salida council meeting, 12/6/2016, at 0:48:00).

  • The Taxpayer Bill of Rights provision of the Colorado Constitution (TABOR), simply stated, prohibits certain increases in taxes or certain financing that imposes tax obligations in future years, without a vote of the people. It contains but one express mechanism for enforcement: “individual and class action enforcement suits.”  It also expressly provides citizen plaintiffs who file such suits with one remedy: to recover “revenue collected, kept, or spent illegally since four full fiscal years before a suit is filed … with 10% annual simple interest from the initial conduct” plus interest and reasonable attorney’s fees.
  • The Vandaveer Ranch was purchased by the City a decade ago for its water rights. On it was later built the Forest Service building on US 50, which is leased long-term to the USFS, which it and other government agencies occupy. The remaining property, about 160 acres, was set “… to be of benefit to the larger goals of the city ….  not limited to recreation, affordable housing, education facilities and light industrial.” (See Third Amendment to the Development Agreement.)  The Vandaveer Ranch is owned and operated by a non-profit corporation, the NRCDC, for the benefit of the City and its inhabitants.
  • The Salida Natural Resources Development Corporation (NRCDC) is a non-profit corporation formed by the City of Salida to hold title to and develop the Vandaveer Ranch property. The NRCDC is solely responsible for the debt to High Country Bank that it obtained for the financing of the construction of the Forest Service building. That debt is secured by the Vandaveer Ranch Property.  The taxpayers of Salida have no liability on the loan. The NRCDC non-profit corporation is a customary type of entity used by governments in Colorado to insulate taxpayers from liability.

City Attorney Kahn advised the City (see his letter to the mayor) that the City was in violation of TABOR due to the multi-year financing of the Vandaveer property.   He documented a long list of facts that he considered, but none mentioned that Salida taxpayers had no exposure on the NRCDC loan. He argued that the separateness of the City and the NRCDC non-profit corporation should be ignored due their close relationship. He compared his reasoning to a “piercing of the corporate veil” theory used by defrauded creditors to reach shareholders in bankruptcy and insolvency situations. (See YouTube Video and transcript of 6/7/2016 Council Meeting at 2:07:54.)  No legal authority for this argument was cited by Kahn. Use of this theory by a city itself to challenge the separateness of an entity that was created to protect that city was unprecedented. It was an unusual position for the City’s own attorney to take, since it was against the City’s interests and exposed the City to liability on the 4.7 million dollar debt of the NRCDC. Kahn further advised Council that, as a result, the City must develop a “Compliance Plan” to avoid enforcement action by the State or possible order by a Court.  He advised council that a “Court might order you to auction it tomorrow.”  (See YouTube Video and transcript of 11/14/2016 Work Session at 1:40:28.) TABOR itself provides no remedies for a court to order compliance.

In giving his opinions of a TABOR violation, City Attorney Kahn acknowledged his inadequate qualifications on the issue: “We need someone who is more qualified than myself, * * *.  I’m humble enough to tell you that I need that help. And we need someone who has that expertise to look at it.” (See YouTube Video and transcript of 6/7/2016 Council Meeting  at 02:32:10, for example.)  He undertook to obtain an expert opinion for the City, though he never obtained such an opinion.  Others did obtain such expert opinions, all of which disagreed with Kahn, among those others were High Country Bank and the NRCDC. (See opinion of Michael Feely of Brownstein Hyatt, opinion of Michael Gray of Sherman & Howard, and opinion of Patrick Wilson of Hoffman, Parker, Wilson and Carberry.)

Notwithstanding that his opinion stood alone against those of experts, Kahn drafted, and advised the City to pass, Resolution 2016-81, which admitted to a violation of TABOR by the City, again an action against the interests of the City, likely to undermine its defense in the event it were sued.  (See Council Meeting Packet, 10/18/2016, pages 24-26.)  Before passing that resolution, Council deleted Section 5 of the resolution from Kahn’s draft which authorized Kahn to assist in searching for other TABOR violations by the City.

City Attorney Kahn then went on to also draft his so-called “Compliance Plan”, Resolution 2016-88, to require an expedited sale of the Vandaveer Ranch, by auction if necessary, in what has been popularly referred to as the “Fire Sale.”  This plan was severely criticized by the lawyer for High Country Bank. To overcome opposition from Council, Kahn argued that passage of the Compliance Plan was necessary to “follow the law.”  He aimed this argument to law enforcement officer, Councilmember Mike Bowers, reading to him from the IACP Law Enforcement Oath of Honor.  (See YouTube Video and transcript of the Council Meeting of 9/20/2016 at 2:26:03 and slide 8.)  Mr. Bowers later voted for the resolution despite expressing some reservations, citing his duty to “follow the law” as his reason (See YouTube Video and transcript of 11/29/2016 Council Meeting at 1:07:40.).  That produced a 3-3 tie, which the Mayor broke in favor of the resolution (See YouTube Video and transcript at 1:33:00).

Upon passage of the so-called Compliance Plan, the City insisted that the NRCDC adopt the plan. (See emails, pp. 7-8.)  City Council then put on its next meeting agenda Resolutions 2016-93 and -94 to remove and replace the NRCDC board when it did not agree to comply (Council Meeting Packet, 12/6/2016, pp. 188-193).  High Country Bank, the NRCDC’s lender, thereupon warned the City that such changing of the NRCDC board could constitute a default of the Vandaveer financing agreement (see Court Papers, pp. 29-30).  This prompted the NRCDC to seek a temporary restraining order (TRO) from District Court, which the Court granted, enjoining the City from removing the NRCDC board.  The TRO was served on the City at the 12/6/2016 council meeting.  (See Council Meeting Minutes, 12/6/2016, citizen participation, Ken Matthews; YouTube Video and transcript at 0:46:30.)

When Ben Kahn became City Attorney in March of 2016, the City had an absolute right to remove without cause and replace NRCDC board members.  After paying over $120,000 in legal fees on the Compliance Plan and the attempted replacement of the NRCDC board, the City’s legal rights to do so were seriously in question.

<<Return to City Attorney – Legal Work