FTS investigation: Arvada redevelopment project sits mostly vacant, costing taxpayers nearly $800,000

Face the State Staff Report

After the Arvada Urban Renewal Authority condemned and forcibly acquired an elderly small business owner's property in 2004, the land was transferred to a private developer who was given the property free of charge. Now city leaders and other project supporters are lauding the project with awards, despite the fact that the new development sits mostly vacant. The total tab to taxpayers thus far is estimated at nearly $800,000 and counting.

Kozik's former propertyFTS Staff Photos

Paul Kozik's fight with AURA began in 2001, when his tenant on the property, Bruce Odette of Carpet Exchange, alleges that he was approached by the AURA Executive Director Tim Steinhaus, and told condemnation of the property was "a done deal." The property, located on the corner of Grandview Avenue and Old Wadsworth Boulevard, is in the heart of the city's Olde Town neighborhood, and at the core of previous urban renewal efforts. Odette testified in court "that he did not want to move but that he was part of 'AURA's urban demolition program.'"

Kozik, who owned the property since 1981, sought counsel from Alan Hale, a Denver land use attorney. According to Hale, the litigation began in 2001 and lasted three years until the case culminated in a week-long trial in 2004. Jurors sided with AURA, allowing the government to acquire the property, for which Kozik was paid $550,000 out of taxpayer funds.

The rent Kozik generated from the property, at $8,000 a month, was his primary source of income.

"They have no respect for property owners," said Kozik.

Kozik maintains that jurors were told lies. "I don't know what I could have done," he told Face The State. "[AURA officials] can say anything they want to say and get away with it. They are completely protected."

AURA was created in 1981 and currently oversees three different development districts in Arvada. Of the three districts, the Arvada City Center district that contained Kozik's land sunsetted in 2006, while the other two were created in 2003 and will sunset in 2028. The City Center district, although not currently under active development, is still overseen by AURA even though no tax revenue is still being collected.

After winning in court, AURA condemned Kozik's land and transferred it to private developer Landon Enterprises free of charge in 2005, with taxpayers taking a loss of $550,000 in addition to the city's litigation costs of $230,000. On the same day Landon acquired the property from AURA, the private company flipped the property to its corporate subdivision, Grandview Plaza Partners. Grandview currently holds the deed to the land, and Landon contracted with Starker Construction to redesign the property for commercial mixed use. The project was completed in September of 2008.

Over the last several years, AURA has been the subject of multiple investigations regarding questionable spending and expenses by its board members. Most recently, Face the State discovered that while AURA's board has cut back on spending in the last few years, taxpayers are still being charged for travel and luxurious dinners. In addition, AURA made national headlines in 2004 when the Colorado Supreme Court ruled against its effort to condemn and pave over a privately owned lake to make way for a Wal-Mart parking lot.

Urban Renewal Critics Cry Foul Play

After Kozik's condemnation trial, AURA officials gained possession of the property on March 30, 2004 (PDF), and went to work seeking requests for proposals from developers. For the next 29 months, the property sat vacant with Kozik's previous development bulldozed and the neighborhood using the land as an informal parking lot.

AURA turned the property over to Landon in August 2006. According to Maureen Phair, AURA's redevelopment manager, it took between four and six months to select a developer and then another year for Landon to finalize the design and obtain the proper permits before the deed was transferred.

In a recent conversation with Kozik, he told Face the State he had already made plans to sell the property before he found out it would be condemned for a price that was more than twice what he was paid by AURA. After potential buyers learned that the property was the target of government re-development, however, Kozik maintains that its value plummeted.

"They screwed me so bad it's unbelievable," he said. "[AURA] wouldn't even let me sell the property before they condemned it. I [would have] had it sold for twice as much as what I got for it and they refused to take off the condemnation so I could sell it."

Denver land use attorney Bob Hoban is an expert on urban renewal cases, and sees Kozik's case as an example of a gap in current law to protect private property owners.

"The Kozik case is a prime example of why eminent domain law needs to be amended so that a condemnee has the right of first refusal if a property acquired through eminent domain is not put to the public use for which it was acquired," Hoban told Face the State.

Prior to 2006, state law permitted local governments to take private property for purposes related to economic development, including generating additional tax revenue. This changed with the passage of House Bill 1411, sponsored by former Rep. Al White, R-Hayden, who now serves in the state Senate. After the bill's passage, property can only taken for public use, such as transit, or if the property presents a threat to public health or safety, as established by a series of statutory factors.

The most significant reform measure passed, House Bill 1203, was sponsored by then-Representative Shawn Mitchell, R-Broomfield in 2004. The bill amended the standards necessary for designating property as “blighted”, requiring the government to satisfy at least four of ten often duplicative factors factors that constitute blight. Unfortunately for Kozik, the legislation was passed months after his property was seized and could not be retroactively applied.

In addition to Kozik's land, AURA acquired a parking lot adjacent to his property for the Grandview Plaza. That parcel was already owned by the City of Arvada, which gave it to to AURA free of charge. According to Phair, the parcel was never assigned a value by AURA because the property was exchanged with the city, and not sold.

"The city owned [the parking lot] and we owned the parcel where the new library is, so we just swapped parcels," said Phair. "So we didn't ever value it because we just did a swap with the city."

Kozik's attorney, Alan Hale, compared urban renewal authorities to bus stops for development. AURA used its power to seize private land, held title to it briefly, and then turned it over to Landon for private development.

"That is exactly what urban renewal is all about," Hale told Face the State. "The only question is at what point in the process does the developer get involved? You have the urban renewal authority serving as a bus stop so the property can change hands from the private owner to a developer."

Project plagued by vacancies, but Arvada rewards itself

Kozik's property was part of a larger redevelopment in southeast Arvada referred to by AURA as the Arvada City Center. The district, initially approved by voters, was established in 1981, with its tax-garnering authority sunsetting in 2006. The district was funded by a Taxpayer Improvement Fee, or TIF, that brought in $13.4 million annually. A TIF is a way of leveraging future tax revenue against current current construction projects that are expected to create those gains, creating a revenue stream for future redevelopment and infrastructure needs.

Kozik's property was one part of a two-parcel project, with the second part of the project, dubbed "Reno Place," located across the street. The main 5,800 square foot space at Grandview Plaza still remains vacant, as does nearly 24,000 additional square feet of the project's total 38,000 square foot design. According to Phair, a restaurant recently submitted a letter of intent to lease the space.

Since the project's completion last year, its design and construction have received numerous awards, including one from the City of Arvada and another from McGraw-Hill as the "outstanding private project" of 2008.

Because Kozik's land was turned over from AURA to Landon, Phair maintains that it is privately held and thus eligible to win the award as a "private" project.

"Starker Construction was awarded the project, built the project, and got the award," said Phair "We were a participant, but it is a private project that is privately owned. I guess you could call it a private-public partnership."

The City of Arvada's Economic Development Association also gave the project a one-time award for "innovation in design."

"It isn't an annual award," said Hazel Barker, the director of the Economic Development Association. "We recognize businesses for reasons that make sense that year. This award was for the design and the capital investment made into the community."

Total Cost of Condemnation

According to Phair, AURA'S larger condemnation efforts in the area are justified by the increased sales and property tax revenue generated for the city after redevelopment of the business district. She says occupants in the area include landscapers, engineers, and architects, who Phair says regularly spend money in Olde Town and may even move there to be closer to work. Under a TIF structure, however, property tax revenue paid back to the city's taxpayers will continue to be limited for an extended period of time. Under a disposition development agreement, known as a DDA, developers are frequently given tax breaks that typically span 10 to 20 years in length.

Prior to condemnation, Kozik received $8,000 a month in rent from his tenant, Carpet Exchange. He paid taxes on this income, as well as the property, and generated sales tax revenue for the city and the district. Kozik's annual property tax burden from 2003, the last full year he held the property, was $16,378.04 (PDF).

"AURA was in such a hurry to remove a 'blighted' business that was paying both sales taxes and property taxes to turn it into an empty lot and collect zero taxes," said Tom Wambolt, president of the Colorado Property Rights Coalition. "This is one of the biggest problems facing the hurry-up of eminent domain for redevelopment."

While the property was held by AURA between March 2004 and August 2006, it was tax-exempt and did not generate tax revenue for the city or AURA. Since turning the property over to Landon, the tax revenue generated has slowly increased.

In 2006, directly after being turned over to Landon Enterprises, the base property tax was $2,181.16. In 2007, as the redevelopment progressed, the assessed value of the property increased and the taxes were $6,384.64 (PDF). Since the completion of construction in 2008 and occupation by some tenants, the current payable property tax burden is $68,982.56. Landon and AURA declined Face The State's request to voluntarily provide a copy of the DDA. An open records request has been submitted and Face The State expects details of the DDA within two weeks.

Extensive legal fees also contributed to the total cost of condemnation. Mike Polk, the city attorney for Arvada, was assigned to work on AURA's case along with outside counsel Mark May. According to Polk, the total cost of litigation to AURA was approximately $230,000 over the three-year litigation period, and was so extensive because of Kozik's strong resistance.

"Mr. Kozik opposed the immediate possession and he filed counter claims, so the lawsuit required a lot more legal work than the normal course of activity," said Polk. "[AURA] had to defend the counter claims, which were expensive. We had to deal with three different things: the counter claims against AURA, the opposition to possession and the actual proof of value. We also had to pay for the cost of his and our appraisals, which can add up as well."

Scott Bullock, an attorney at the Institute for Justice in Virginia who litigated the famous Kelo vs. New London case before the U.S. Supreme Court says any expense of taxpayer money for attorney's fees to fight property owners is excessive.

"Taxpayers should not be forced to endure these burdens in the first place," Bullock wrote Face the State in an e-mail. "Not only is eminent domain abuse for private development wrong and often illegal, it is also unnecessary. You can have more development while still protecting the rights of existing property owners. So, in that sense, any expenditure of taxpayer funds to seek to vindicate an immoral, unconstitutional, and unnecessary exercise of power is uncalled for."

While the project may ultimately generate positive tax revenue for the area, its current quantifiable cost to taxpayers - which includes the funds paid to Kozik, legal expenses, and staff time - amounts to nearly $800,000. This figure does not include lost tax revenue due to AURA's holding costs or tax breaks provided to Landon through its DDA.