Castle Pines North v Castle Pines Village

Castle Pines North is an upper middle class subdivision in Denver exurb Douglas County. Castle Pines Village is an adjacent, smaller subdivision where the houses cost twice as much. Both want to incorporate. Both want to get sales tax revenue from Castle Pines Parkway, sixty businesses in a commercial strip adjacent to Castle Pines North and a mile or two from Castle Pines Village.

The Municipal Finance System That Drives The Conflict

This fight is mostly about tax revenue.

The businesses are key to municipal viability, because in Colorado most local government revenue comes from sales taxes, from business property taxes and from other taxes on businesses.

Under a misguided 1982 constitutional amendment proposed by the man who is now Denver's city auditor, the Gallagher Amendment, businesses, whose property values make up only 25% of the total, pay 55% of all property taxes. In addition, unlike most states, businesses pay property taxes not only on their real estate, but also on their business personal property like cooking equipment in restaurants and machines in factories.

Businesses also pay sales taxes which are a larger share of municipal and county government revenue than in most states. In contrast, in most states sales taxes are collected solely or primarily at the state level. Many Colorado cities, like Grand Junction, collect so little revenue from municipal property taxes and so much from municipal sales taxes, that they could abolish municipal property taxes entirely with only a minor fiscal impact.

Businesses also pay "occupational taxes," a head tax on people who work in a municipality, which are assessed by many municipal governments.

Residents of municipalities usually pay only property taxes on their homes (based upon about 9% of actual value) and user's fees (like fees for trash collection). Seniors and totally disabled veterans, when state revenues permit, received additional property tax exemptions (although these are financed by the state and don't hurt local government revenues).

Businesses pay far more in taxes than they demand from governments in services, while residential development generally pays far less in taxes than is necessary to support municipal services.

As a result, incorporating or annexing bedroom communities to a municipality is rarely economically viable in Colorado, and existing municipalities have a strong economic incentive to discourage new residential development within their boundaries, while grasping ruthlessly for new business development, especially highly sought after sales tax generating retail business developments.

The Merits: Castle Pines North Deserves To Win

Castle Pines North is mostly incorporating because they don't want tax revenue from shops adjacent to them to be swiped by people in a subdivision that isn't even contiguous with the commercial strip.

Notably, there is already a Castle Pines Metropolitan District in existence which carries out most of the functions of a municipality, in Castle Pines Village, and a similar metro district in Castle Pines North, but each lacks a police force of its own. These are financed by property taxes and user's fees, but not sales taxes. The Castle Pines Parkway businesses are in the Castle Pines North Meto District, and are not in the Castle Pines Metro District that serves Castle Pines Village.

Castle Pines North offered to extend their proposed incorporation to include Castle Pines Village. The villagers flatly refused, perhaps because they can't stand the riff raff who live in mere $500,000 homes next door, or perhaps because they don't want an official state designation as a city (implausible -- you can still emphasize the village moniker if you like with a City of Castle Pines Village), or perhaps because they don't want to share tax revenues that they don't deserve with their neighbors (most likely).

Often it is hard to tell who is right and wrong in competing claims to incorporate or annex territory. There is little precedent to guide cases like these. But, here, Castle Pines North is clearly on the higher ground, figuratively, if not literally. This should be an easy case.

Castle Pines Parkway is a natural fit for the proposed boundaries of the municipality of Castle Pines North, which was also first to the court house with its incorporation petition. Including Castle Pines Parkway in Castle Pines Village is little more than a craven tax grab.

But for the recent tendency of developers to favor master homeowner's associations and special districts over municipalities, each of these subdivisions would have been designed from day one as incorporated municipalities. It isn't clear what motive Castle Pines Village had for changing this status quo, other than to swipe tax revenue from their neighbors. The other other plausible reason is that it felt that the Douglas County Sheriff was doing a poor job of providing police protection to the subdivision, which given the low crime rate in the area, seems implausible.

But, this is a case where the whiny rich in Castle Pines Village really need to learn to get along with their upper middle class neighbors in Castle Pines North, and share the tax revenue of Castle Pines Parkway by forming a single municipality (might I propose the municipal name "Castle Pines"?) for both, as Castle Pines North has graciously offered to, rather than continuing their petulant tax grab. If they can't live with that, they should learn to endure the status quo. A judge will decide the issue if the neighboring communities can't, and I'm not sure how a judge would come out, even though from a layman's prespective, the equities are clear.