Prospect board turns down invitation to attempt mediation

“I want to make sure the taxpayers of Gunnison County aren’t stuck footing the bill”

The board representing the property owners in the Prospect subdivision turned down an offer by Gunnison County and the town of Mt. Crested Butte to sit down together in mediation and get an unbiased perspective on a few of the many legal questions related to Prospect that are slowly making their way through the District Court.

The original litigation started when the board representing Prospect’s Developer, along with the town of Mt. Crested Butte, sued the subdivision’s homeowners to enforce the terms of a foundational ‘service agreement’ that limited the board to levying a property tax of no more than 50 mills.
After the bottom dropped out of property values in Mt. Crested Butte in 2008, the 50 mill levy wasn’t enough to both pay the more than $18 million in debt the developer accrued to build the subdivision’s infrastructure and to pay a lawyer to help rid the homeowners of the developer’s debt entirely. So more litigation ensued.
Today, hundreds of motions and claims have been filed by a half-dozen law firms and likely millions of dollars in legal fees have piled up with little resolution from the courts.
At a meeting Friday, February 7, the Prospect Metropolitan Reserve District 2 Board of Directors, along with their attorney James Bailey, formally considered the request to attend mediation with a former state Supreme Court justice. Along with the invitation to mediation, County Attorney David Baumgarten offered the board several ideas he hoped would bring an end to a long bout of litigation.
Among Baumgarten’s proposals was a request related to one of the more than 380 pleadings that have been filed in the Prospect lawsuits. In one particular motion, the County asked District Court Chief Judge Steven Patrick to reconsider his ruling that Gunnison County was required to certify a mill levy that exceeded the 50 mills set out in the subdivision’s service plan.
According to Patrick’s ruling, the county’s role in levying that tax was purely administrative, and should have been certified. Baumgarten felt like the County had a responsibility to protect the homeowners from what the Board of County Commissioners agreed was an excessive tax.    
But instead of reconsidering the ruling he made after a brief hearing in January, District 2’s attorney objected to the motion to reconsider and the matter has been unresolved in the County’s view ever since.
“I would ask you to direct your attorney to withdraw the objection to the motion to reconsider,” Baumgarten said. “Let the court hear it for more than 15 minutes.”
Bailey told the board there was no need to go to mediation, since the court already ruled in District 2’s favor. “Why the County attorney is paying taxpayer money to seek a reconsideration of a case he’s already lost on the mediation is beyond us,” he said. “We have the result we requested. There’s little reason for us to go back in and mediate.”
But Judge Patrick accepted the County’s motion to reconsider his order requiring the County to certify the mill levy on Wednesday, February 12. Under the current ruling, homeowners are being forced to pay 56.073 mills to service the $18 million debt and another 50 mills to pay “operating expenses” that amount to legal fees.
Add on the county tax and all the special taxing districts, like the school and fire protection district, and Prospect homeowners are responsible for around 175 mills, or $175 in property tax for every $1,000 in property value they own.
After the subdivision’s assessed valuation dropped dramatically after 2008, property owners in Prospect were forced to make up for the overall loss in property values and pay more in property taxes to make the bond payments.
Then in 2012, the developer, CBMR subsidiary North Village Reserve, reclassified 21 parcels of vacant land to agricultural land, drastically reducing the subdivision’s tax base.
For example, one roughly 8-acre lot that was listed on the market in 2011 for $988,000 was reclassified and valued in 2012 at just $460, according to the county assessor’s office. Such a dramatic change in value on so much of the developer’s holdings meant North Village Reserve paid a lot less in property tax, moving the debt burden squarely onto the property owners. At the same time, some of the homeowners were taking legal action to force the developer to pay off the debt.
But the developer is legally paired with the town of Mt. Crested Butte, through the service agreement, and the town is frustrated by the District’s ongoing attempts to levy more in taxes than the subdivision’s founding documents will allow for to pay a lawyer who will essentially fight the developer.
At the meeting, Baumgarten suggested, “If you believe that it is appropriate for you to have a mill levy that’s more than 50 mills, ask the town for permission to exceed it.”
Town attorney Kathleen Fogo couldn’t promise that the Mt. Crested Butte town council would sign off on a higher mill levy.
 When District 2 first asked the town of Mt. Crested Butte for the 3 mills to pay for legal counsel last year, the cash value of that tax would have been about $70,000 a year. Now, with 50 mills flowing their way and an attorney who is confident he can win, the district’s legal costs have passed $600,000.  
“All we asked for was $70,000 for a legal firm to represent us on an annual basis,” board member Jim Pike said. “We’ve spent a lot of money going back and forth. I know what our attorney’s have billed. I can’t imagine what those other eight law firms have billed or the money that’s spent at the town level or the County level to keep us from having legal representation. There’s not a court in Colorado, in my belief, that would deny us legal representation.”
Baumgarten said the county had been careful not to express an opinion on the substance of the cases being litigated, but asked how the district would pay for a lawyer without exceeding the mill levy cap in the service agreement.
And as part of his proposal to move the litigation forward, Baumgarten asked that the board set aside any money they collect through the court ordered, and still contested, 50 mill levy.
“Even if you don’t do any of this, I want to make sure that the taxpayers of Gunnison County don’t foot a bill that doesn’t belong to them,” Baumgarten said, referring to his other proposals. “So if there is money that you receive pursuant to that contested mill levy, put it in a lockbox, put it in an escrow account. Don’t spend it.”
Prospect homeowner Adelaide Biggs called into Friday’s meeting imploring the board to accept the invitation to mediation, saying she was “outraged and hurt” by the taxes being levied against the homeowners, of which her share was more than $50,000 a year. She also thought the only ones who would benefit from the ongoing litigation are the attorneys, while her property taxes were becoming unreasonable. “I can tell you now that your attorney will recommend against this mediation,” she said.
And he did. Bailey told the board that there isn’t much reason to go to mediation if the tone of the request focuses, as he saw it, solely on all the things District 2 has done wrong. And while board member Jim Pike generally agreed that the tenor of the letter placed an undue blame on District 2, he said, “Nobody wants mediation more than I do.”
But by the time Bailey finished explaining away the County’s proposals, the board, including Pike, categorically turned down every one of Baumgarten’s suggestions, except the offer to pursue a higher mill levy. All of the votes came down a divided line, with the Prospect homeowners Bob Orlinski, Jim and Paul Pike voting against the proposals and Lynn Kiklevich and Michael Kraatz voting for them.
In a final appeal to his board, Kraatz said, “The further this goes on, the more debt is incurred and the more people here get taxed. And when the mill levy cap goes to an appeal – and it will – if that decision by the lower court is overturned, then the County has to refund the money back to the taxpayers in Prospect.
“And if the County has to then tax all the taxpayers throughout the county you’ve just dragged in, not the handful of taxpayers within Prospect, but you’ve dragged in all of the taxpayers within the county. That’s not right,” he continued. “We should not be posing that kind of burden on anybody else. We shouldn’t be posing it on our own taxpayers.”
But the board voted instead to deny the invitation to mediation and the other proposals and chose to continue with the pending lawsuits.