Government Affairs Update

June 2017

Barbara Koelzer, Regional Government Affairs Director






In this issue…
Boulder County
Revised Meth Ordinance Passed First Reading: Last week the City Council voted unanimously to approve an ordinance on first reading intended to update Longmont’s municipal code regarding the occupancy of meth amphetamine-contaminated properties. The ordinance expands the definition of a meth affected property to include “a subject property where methamphetamine has been manufactured, processed, cooked, disposed of, used, or stored, and all proximate areas where there is sufficient indicia of contamination as a result of the manufacturing, processing, cooking, disposal, use, or storage of methamphetamine or the chemicals used to manufacture methamphetamine. A multi-unit building (such as an apartment complex, condominium, or commercial building) may contain more than one methamphetamine affected property.” This expanded definition allows the City include residences contaminated by the storage or use of the drug as well as properties used as meth labs.

In addition, the ordinance adds pre-constructed units such as manufactured and mobile homes. The ordinance also adds the Code Enforcement Division to the list of departments that can inspect properties for meth activities in addition to fire, police and building inspection. Finally, it includes a process by which an owner can appeal the City’s Declaration of Methamphetamine Affected Property, giving an owner 10 days to request a hearing after which the City could determine the owner has waived the right to a hearing and the adjudication of the related issues. The ordinance was scheduled for second reading and a public hearing on June 13.

Council discusses BOCO Housing Plan: Kathy Fedler, Longmont’s Housing and Community Investment Division Manager and Frank Alexander, Boulder County’s Director of Housing and Human Services, presented the Boulder County Regional Housing Strategic Plan at last week’s City Council study session. The goal of the plan is to create 150,000 affordable units within the County. Fedler and Alexander emphasized the plan’s focus on a common vision with each community adopting strategies appropriate for its needs. (A more detailed summary of the plan is available in my May 10th update.)

Predictably the Councilors most enthusiastic about the plan were Polly Christensen and Joan Peck. Christensen noted businesses can’t do anything without employees and said affordable housing is ultimately an economic development tool. She explained that while wages have been flat since 1972, real estate profits have skyrocketed. Peck was less abrasive, suggesting one option would be to redevelop vacant commercial properties that can’t be rented, turning them into housing units. She wondered if other communities have considered that option.

Other Council members seemed curious but weren’t convinced the plan could solve the County’s housing needs. Mayor Coombs said housing is a balancing act and stated attracting middle income employees to Longmont was equally important. Jeff Moore echoed that comment, saying Longmont needs to support housing for all levels of income. Bonnie Finley complemented the plan for its collaborative approach but said it’s easy to spend other peoples’ money. She commented that it didn’t appear that developers or Realtors® were involved and emphasized those whose incomes would be affected should also be at the table. (Fedler said the real estate community will be invited to participate in the future.)

The Council finished its discussion by talking about a housing summit for elected officials in late September. Fedler that she isn’t sure the Realtors® will be invited to participate in the summit, saying there may be additional meetings planned to gather input from non-elected officials.

Council to Consider Short-Term Vacation Rental Regulations: The City Council gave the staff permission to proceed with short-term vacation rental (STR) regulations at its June 6 meeting. The draft regulations presented to Council are relatively simple compared to those enacted in other cities, such as Boulder.

Currently Longmont’s Land Development Code and Building Code currently do not allow short term vacation rentals of less than 30 days in residential zoning districts. However, with the rising popularity of websites like Airbnb and VRBO, the City felt it was time to create regulations permitting STRs so the City can collect sales tax revenues and license fees for STRs and ensure they do not have an unfair advantage over hotels and B&Bs.

The regulations would allow STRs as a temporary use in all residential zones with a maximum stay of 30 days or less. The regulations would apply to owner occupied and investment properties. Owners would be required to get a sale and use tax license and comply with the City’s lodging tax.

Some members of Council were clearly not happy with the draft regulations. Joan Peck said allowing investment properties to be used as STRs would hurt neighborhoods and suggested their use as STRs should be prohibited. Polly Christensen argued it was treating homes like commodities and wanted additional restrictions such as one STR per block. Other Council members were more positive and focused on tweaking the draft to ensure life and safety inspections and exempting investment homes with more than five bedrooms from expensive sprinkler requirements. Ultimately, Gabe Santos made a motion to proceed with the regulations, which passed over the objection of Peck and Christensen. Staff will now prepare an ordinance for Council review.

Supreme Court Ruling May Stimulate Condo Market: On June 5th, the Colorado Supreme Court upheld the right of condominium developers to require disputes go to binding arbitration, essentially putting into state law a provision that construction defects reform advocates said was the key to reviving a largely defunct condo market. The decision to uphold a lower-court ruling in Vallagio at Inverness Residential Condominium Association v. Metro Homes Inc. is likely to have wide-ranging effects, especially after Gov. John Hickenlooper last month signed into law a separate bill concerning defects reform.

The Vallagio decision, handed down by a 5-2 vote of the State’s highest court, clears out what may be the biggest impediment to reinvigorating what has been a largely dead market for the past 10 years. The majority opinion of the court affirmed the ruling of the Colorado Court of Appeals that developers can retain a right to consent to any homeowners association’s proposed amendments on contracted declaration regarding arbitration for construction-defects claims, and rejected the Vallagio association’s claim that the Colorado Consumer Protection Act (CCPA) precludes this right to consent.

To reach their decision, justices looked at the language and legislative intent of both the CCPA and the Colorado Common Interest Ownership Act (CCIOA), which governs rules between developers and property owners in communities with shared walls. The Court found that while CCIOA bars developers from requiring thresholds higher than 67 percent of residents to make changes to contracted declarations, it found that nothing in either law prohibited a developer from including a provision requiring it give its consent for particular amendments in perpetuity, because such a clause was not considered when establishing a voting threshold for other parts of the declaration.

Along with House Bill 1279, which was passed by the legislature this year, this ruling could provide developers with the confidence to build more affordable condo products. HB-1279 requires a majority of condo owners to approve any legal action against developers. Advocates such as CAR, have long argued that binding arbitration and requiring a majority in an HOA to approve construction defect lawsuits, are key revisions needed to protect builders and homeowners from frivolous lawsuits. Time will tell if these revisions make a difference in the stagnant condo market.

Independence Institute Considering Transportation Ballot Measure: John Caldera of the Independence Institute is considering a transportation initiative for the November ballot. “Fix Our Damn Roads” has been approved by the Secretary of State’s title board with signatures due from voters by August 7. The proposal would ask voters to authorize the State to issue $2.5 million in bonds for transportation funding with a list of projects for which the proceeds would be spent, including North I-25, South I-25 and I-70 West. It specifically excludes transit projects. The Institute is looking for allies because it’s estimated the cost to gather signatures is $1.2 million and another $3 million for a campaign.

NAR – Tax Reform Could Hurt Homeowners: The National Association of Realtors® has published a study focusing on the impacts of comprehensive tax reform. While the study did not say so, the reforms identified in the study closely mirror President Trump’s proposed tax reform plan. *

NAR’s study focused on how lower and consolidated marginal tax rates would impact income taxes. Specifically, Lowering and consolidating tax rates to three rates with a top rate of 33 percent, doubling the standard deduction, eliminating all itemized deductions other than charitable contributions and mortgage interest, and eliminating personal exemptions, which is comparable to several other income tax proposals released in the past few years. The study indicates the reforms would result in higher income taxes for those with an adjusted gross income (AGI) between $75,00 and $250,000 and lower taxes for another with an AGI over $200,000.

In addition, the study concludes comprehensive tax reform would impact the demand for owner-occupied housing by reducing the number of homeowners who claim the mortgage internet deduction, eliminating the itemized deduction for property taxes and decreasing the marginal tax rate. The authors conclude the after-tax cost of homeownership would increase and home prices would fall in the short run as housing becomes a less attractive investment. Read NAR’s summary here:

* The Trump Plan recommends a top rate of 35 percent, doubling the standard deduction and eliminating deductions except for the mortgage interest and charitable contribution deduction.

NAR Opposes USDA Reorganization: The US Department of Agriculture (USDA) has provided a report to Congress proposing their reorganization. The new plan creates an Under Secretary for Trade and Foreign Agriculture Affairs. However, it also eliminates the Under Secretary of Rural Development, a department which includes rural housing programs. Instead, rural development agencies will report directly to the USDA Secretary.

While the USDA report calls this move an “elevation” of the program, NAR is concerned that it will undermine the importance of these programs, which provide valuable access to housing financing in rural communities. USDA is not required to eliminate an Under Secretary to create a new position, so elimination of this area is unnecessary. NAR sent a letter to Congressional members with jurisdiction over USDA, asking them to retain the Rural Development Under Secretary, and keep these critical programs fully functioning.

Hearing Held on PHH v. CFPB: On May 24, 2017, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in the case of PHH Corp. v. CFPB. The court examined whether the Consumer Financial Protection Bureau’s (CFPB) single director structure is unconstitutional and whether the CFPB exceeded their authority when interpreting the Real Estate Settlement Procedures Act (RESPA). The bulk of the oral arguments focused on the constitutionality argument, rather than the RESPA concerns.

Initial reports indicate the court is unlikely to rule the CFPB is unconstitutionally structured (rejecting the previous three-judge panel decision) but will uphold the RESPA interpretation in favor of PHH (and NAR) issued by the three-judge panel in October. Recall, the three-judge panel held that payments for bona fide services provided and made at fair market value do not violate RESPA, reinforcing NAR’s support of marketing service agreements.

The court will likely publish their decision sometime in the fall at the earliest. In the meantime, the CFPB continues to issue enforcement actions on RESPA related concerns, as evidenced by the recent Consent Orders. NAR continues to work with the CFPB on these matters and the impact on the real estate industry.