The primary duty of a municipal lawyer is to give objective legal advice to his municipal client. The nature, extent, and quality of the legal work provided by City Attorney Ben Kahn to the City of Salida can be evaluated by review of matters he has handled for the City. He has undertaken these matters almost exclusively at the direction of the mayor and the mayor pro-tem, and these directions have been largely unknown to the public and to the City Council as well. As a result, the apportionment of responsibility for the nature, extent, cost, and quality of the legal work, among the City Attorney and the individuals directing him, cannot yet be fully assessed. Nonetheless, the loyalty of the city attorney must be to the City, which is his client, and not to individual officials or other persons or entities.
The matters reviewed below are examples of City Attorney’s legal work for the City of Salida under the present city council. This work relates largely to the actions that most consumed that city council, those relating to the Salida Natural Resources Center Development Corporation (NRCDC) and the Vandaveer Ranch. In those actions, the NRCDC was generally treated as an adversary, and the Vandaveer Ranch regarded as a liability. Frequently these actions were also adverse to the city. Those discussed include:
- Lowry/Belmont, the killing of the Lowry infrastructure proposal and the loss of the Belmont affordable housing project for the Vandaveer Ranch;
- The Vandaveer Ranch “Fire Sale” initiative that failed after a divisive political and legal battle; and
- The NRCDC “Divestiture” that resulted in the surrender all control and legal rights of the city to the Vandaveer Ranch.
Lowry/Belmont Affordable Housing Development at the Vandaveer Ranch
The Lowry/Belmont proposal turned out badly.
The proposed development involved a major affordable housing project by Belmont Development Corporation of 60 workforce housing units to be built on the Vandaveer property. (See the Packet for the 6/7/2016 Council Meeting, pages 122-159.) The 60 units were to include 48 low income tax credit units and 12 market rate workforce units for those working in Chaffee county. (See NRCDC minutes, 4/19/2016 and Belmont Letter of Intent.) The Belmont project was to include government subsidies of over $1.191 million dollars, including $811,654 in federal tax credits and a $380,000 DOLA grant, which would have made the housing units affordable.
For the Belmont development to proceed, it required a commitment for the extension of utilities and the provision of basic infrastructure for the housing units that were to be built. For the infrastructure, Lowry Construction, Inc (LCI) proposed to extend the utilities for the project to the site from across US highway 50 in exchange for a parcel of land on the Vandaveer Ranch. LCI would later offer, in the alternative, to purchase the parcel for $400,000 with the City estimating the cost of extending the utilities at $500,000 if obtained through open bidding. (See YouTube video and transcript of 7/5/2013 council meeting at 1:54:35 to 2:06:30 and partial transcript of meeting.)
After nine months of investments in work, time and money by Lowry Construction, Inc. (LCI), Belmont Development Corporation, the non-profit Salida Natural Resources Center Development Corporation (NRCDC) which owned the Vandaveer Ranch, and the staff of the city of Salida, the matter came before Salida City Council at its June 7, 2016 meeting (minutes, 6/7/2018, item 6). Council was asked to approve the Lowry proposal for the infrastructure that was essential to the Belmont development.
With time running out, with LCI saying that after 30 days it would “no longer be a player”, the City Attorney, in response to the Mayor, announced that he had discovered a possible violation of Colorado’s Taxpayers’ Bill of Rights (TABOR) in the existing financing of the Vandaveer property. His announcement threatened to delay and derail the Lowry/Belmont project. The announcement surprised members of the city council, who asked why they were being told of this at the last minute. (See YouTube Video and transcript of 6/7/2016 Council Meeting 1:54:20 to 3:26:06.) It was later discovered that Kahn had been given instructions to explore this issue by the mayor over the preceding three months, starting one week before Kahn was hired as city attorney by the City. (See Kahn’s letter to the Mayor of 8/24/2016.) Had Council been informed of the mayor’s directions when they were given, it would have had time to retain a specialist who could have disposed of the TABOR issue once and for all, allowing the Lowry/Belmont housing proposal to proceed.
To resolve the TABOR issue that he had raised, the City Attorney committed to obtain an expert legal opinion on TABOR. The urgency of this effort required finding and hiring expert counsel and receiving an opinion in time for Council to vote to approve the Lowry proposal within a month. But the City Attorney added to his mission the objective of finding such an expert lawyer who would give the City the needed advice “for free”.
The unresolved TABOR issue remained an obstacle to action by Council as the City Attorney proceeded unsuccessfully to find an expert willing to work on his terms. Without the support of the Salida City Council, the Lowry infrastructure proposal and the Belmont affordable housing project died. The Chaffee County Development Corporation instead approved a competing project, which received the subsidies. This 48 unit 40-60% AMI project is now underway in Buena Vista.
The loss to Buena Vista of the affordable housing much needed by Salida, including the only subsidies likely to be available for the foreseeable future, would cost Salida from 1 to 1-1/2 million dollars to replace. Legal experts later concluded that no TABOR violation existed. (See opinions of Michael Feely of Brownstein Hyatt, of Michael Gray of Sherman & Howard, and of Patrick Wilson of Hoffman, Parker, Wilson and Carberry.)
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 Center 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.
The NRCDC Divestiture
Upon granting the TRO restraining the City from removing the NRCDC board, the District Court scheduled a hearing for December 20, 2016. To prepare for the hearing, City Attorney Kahn filed extensive court papers defending the City’s position and accusing NRCDC counsel of attempting to mislead the court (see City’s Response to Motion). For this he charged the City $33,457.23 (see Bills, matter 259). But on the night before the scheduled hearing, on 12/19/2016, the Salida City Council called a special meeting (see YouTube Video) at which, without public input, it surrendered power to replace NRCDC board and gave up on the Fire Sale. This action mooted the case in the District Court, which the NRCDC agreed to dismiss.
The City’s surrender was in the form of Resolution 2016-97, drafted by the City Attorney, purporting to “divest” the city of the NRCDC. With this Divestiture, the City avoided a potentially adverse decision in the NRCDC’s law suit as well as a possible declaration by the Court that no TABOR violation existed. Instead, as Fire Sale proponents claimed, the Divestiture removed “control” of the NRCDC by the City, which they contended was a cause of the alleged TABOR violation.
So whether the Divestiture had saved the City from a TABOR violation or merely saved face for certain city officials, it had a number of other legal consequences for the City.
Prior to the Divestiture, three sets of documents governed the relationship between the NRCDC and the City: 1) the NRCDC Articles and Bylaws, which created the NRCDC and gave the City power to appoint and remove NRCDC board members and to approve or reject amendments to those documents; 2) the NRCDC/City Development Agreement, as amended, which gave the City most of its rights in the Vandaveer property; and 3) an unrestricted general warranty deed, which conveyed the Vandaveer Ranch title to the NRCDC. The Divestiture essentially eliminated the first two.
Under the Divestiture resolution:
The City surrendered on behalf of itself and its citizens the power to remove and appoint NRCDC board members or to approve changes in the Bylaws and Articles of the NRCDC, leaving that power solely in the hands of the NRCDC board itself; and
The City repudiated the NRCDC/City Development Agreement and the only other source of the rights of the City in the Vandaveer Ranch, as none were reserved in the deed of the Vandaveer property to the NRCDC. The City thereby:
- lost all rights to reacquire the Vandaveer Ranch without cost, whether upon completion of all projects, upon payoff of the indebtedness on the property, or otherwise, leaving the property perpetually owned by the NRCDC, to be managed, developed or sold at the sole discretion of the NRCDC board;
- lost all rights to approve or reject any sales of parcels of the Vandaveer property by the NRCDC;
- lost all rights to influence the development of the Vandaveer property other than merely as a governmental regulator and service provider;
- lost any residual rights to land that had been at least partially used for governmental purposes, arguably in violation of Colorado law; and
- lost the ability to enforce any other rights of the City might have had under the Development Agreement.
By terminating an agreement that contained no unilateral right of the City to terminate, and by repudiating all of City’s obligations under the agreement, the City in all likelihood breached the Development Agreement with the NRCDC, and lost all rights the City had to enforce any part of the agreement, notwithstanding self-serving language in the Divestiture resolution that it was reserving its rights.
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