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Red Handed 

With top managers' fingerprints all over it, the city's "bastard child" of a project leaves developers looking like poor little things

An effort to force Colorado Springs developers into paying their fair share has dissolved in a firestorm of controversy, with top city managers standing accused of manipulating numbers in a secret scheme that the city's own project consultant deemed "an exaction gone awry."

The controversy could seriously undermine current efforts to enact a citywide fee for developers. Such a fee -- the first of its kind in Colorado Springs -- would require commercial and residential developers to help pay for the costs of growth.

In the past, the city has been perceived as a developer-friendly community, in part because developers have a heavy hand in the makeup of the elected mayor and City Council.

In fact, developer interests are the major source of campaign contributions and, through the city's most powerful political action and lobbying group -- the Housing and Building Association of Colorado Springs -- have endorsed and heavily financed the mayor and every single elected member of the current City Council.

The current controversy started three years ago, when the developers of Woodmen Commons, a strip mall at the corner of Woodmen Road and Academy Boulevard, sought Council approval of their project. At that time, the city staff maintained that, without significant improvements, the roads were not adequate to handle the increased capacity that the development would cause.

Council approved the project with a contingency: The developers would have to contribute an unspecified amount to pay for major road improvements at the intersection of Woodmen Road and Academy Boulevard.

The City Council declined to specify a cost, contingent on approval of the project, and directed the city staff to devise a fair method and amount of payment.

Now, the developers' lawyers maintain that the staff -- many of whom represent top management at the city -- cooked up a scheme whereby they would get maximum cash from the developers rather than basing the costs on a legitimate fee structure.

Bruce Wright, a Colorado Springs lawyer who represents developer Rosenbaum/Dean, which built the Woodmen Commons strip mall, has vocally denounced the city's fee manipulations, which were detailed in more than two years' worth of interoffice memos and e-mails between top city officials.

"The most disturbing thing [that was uncovered] was a process that was closed to any public input and lacked a fundamental sense of integrity and honesty," Wright wrote to Mayor Mary Lou Makepeace and members of the City Council last month. "I personally view what happened as a very serious breach" of the public trust.

The way the city conducted the process -- without proper notification of neighbors or other commercial property owners -- has also renewed assertions that it is operating secretly and without accountability. Wright, along with former City Attorney Jim Colvin, has been harshly critical of the mayor and the current city administration.

The mess slopped over when the city staff brought the matter to the City Council for a formal approval last November. There, affected developers and homeowners living near Woodmen Road and Academy Boulevard packed Council chambers to denounce the secrecy surrounding the project. The Council set the matter on the back burner, where it has been simmering ever since.


The smoking gun

Wright said he was unaware of the methodology that the city employed -- or that the city had sent the study back to its consultants four times -- until he filed a request under the Colorado Open Records Act.

Thus, Wright and Colvin secured the e-mail correspondence from top city managers who were involved in the scheme. The e-mails constituted two years of negotiating through six of the city's departments, including planning, finance, public works, roads, legal and public communications.

In the course of the communiqus, a pattern of manipulating the numbers emerged, clearly showing the city had a specific dollar amount in mind that it wanted developers to pay. When the consultant, Denver-based Duncan Associates, did not initially arrive at the same numbers through their calculations, they were sent back four times until the "right" amount could be justified.

The formula for the impact fees was loosely based on the number of cars expected to travel to patronize the businesses.

When Duncan Associates initially submitted their recommendation, the impact fees translated to about $1 to $4 per square foot. However, the amount wasn't enough to please some city managers, and, particularly at the urging of city Public Works director Dave Zelenok, the consultants were instructed to increase the costs to the developers.

The costs eventually shot up to as much as $35 per square foot, with a cost estimate of $28 million for the road improvement project.

The developers were not included in discussions and were not aware of the shifting studies until after their lawyers filed the open records request late last year, Wright said.

When they learned of the manipulation, they were outraged at what they perceived was an unethical attempt by the city to secure the money they wanted, rather than install a fair user system -- employing a series or "tweaks" and "tricks" (their words) -- based on a valid formula.

Makepeace was unavailable for comment, however City Councilman Bill Guman recently said he was stunned by the apparent deliberate manipulation of the process by city staffers -- and the resulting breach in faith of the city's top officials.

"On the one hand, I see the city's point that we're dealing with major cost infrastructure," he said. "On the other hand, $35 per square foot?

"That's outrageous," he said.

Wright crowed when he found what he calls "the smoking gun," an e-mail dated Oct. 16, 1998, from the City's budget director Mike Anderson. In the e-mail, sent to the city's comprehensive planning manager Ira Joseph and Assistant City Attorney Al Ziegler, Anderson opined that factoring in additional costs related to a second interchange at Woodmen and Academy was unacceptable.

"Including the second interchange will likely invoke a significant reaction from Rosenbaum/Dean and rightfully so," Anderson wrote. "When we negotiated the Rosenbaum/Dean agreement, the city was negotiating in good faith and we need to maintain that commitment.

"Besides, we must continue to be ever cognizant of the fact that what we do with this impact fee will be carefully scrutinized by the development community when it comes to presenting the community-wide impact fee. We have to be reasonable (and keep our word) in the preparation of the Woodmen/Academy impact fee."

Just a week before, Joseph had indicated that the consultant on the project, Clancy Mullen of Duncan Associates, also had reservations about the process. "In case you're curious, Clancy Mullen refers to this project as 'an exaction gone awry,' " Joseph wrote in an e-mail to Anderson.

Yet over the next year, the city managers sent the study back to their consultant four times for adjustments. At one point Zelenok suggested the consultant should be fired and replaced with someone who would recommend a higher impact fee. And in a Feb. 17, 1999, e-mail, he suggested he wanted to be able to collect a half-cent surcharge from the developers.

"So long as we can collect the full $0.05 for the full 20 years I don't care how we get there," Zelenok wrote.

At one point, other city managers expressed concerns over Zelenok's aggressive approach to generating more money. "I'm worried because I think we have reached the maximum point where the percentage amount captured from developers is defensible," Joseph warned on Feb. 4, 1999.

Though the content of the e-mails do not reflect this rationale, Zelenok now claims the reason the study was sent back to the consultant for reconfiguration four times was because of a "number of errors" that resulted in miscalculations by Duncan Associates. He defended the city's process, and said it had also been used by the developers themselves.

"The methodology that we used in arriving at that [final] number [was] the same exact methodology that Rosenbaum/Dean's own consultant used to calculate the number of trips," Zelenok said. "That's one thing they've forgotten about."

In addition, Zelenok said he never really wanted to fire Duncan Associates. Though City Manager Mullen this week referred questions about the process to Zelenok, the public works director downplayed his involvement in the entire project. "My involvement was really on the periphery," he said, referring many questions about the methodology to Joseph.


Opportunity for loopholes

Notably, Joseph is the one who, toward the end of the process, expressed concern that he was going to be the one to take the heat if anything went wrong.

"Once again, I feel that I am holding the bag on this bastard child of a project," Joseph complained in a Dec. 9, 1999, e-mail to the city's director of planning, Quinn Peitz.

Joseph said his frustration came after the City Council ordered a task force be assembled following their disastrous November meeting that had brought out angry developers and surrounding homeowners who had not been previously notified about the city's plans for the intersection. The nine-member, all-male task force, composed of developers, affected business owners and their lawyers, was charged with studying the impact fee process at the Woodmen/Academy interchange.

"I think everybody involved in that thing knows that if they had the project to do over again they would have made the final plan approval contingent upon working out all of the mechanics that were in the agreement," Joseph said.


Breach of trust

As early as July 1997, city staffers were aware of the developers' dissatisfaction with this methodology, and conceded that they would likely get sued over the deal, costing city taxpayers even more money. Yet the managers persevered in their efforts to justify as many fees as they could.

At one point Joseph suggested ditching the Woodmen improvement costs entirely. "I have an interest in seeing that this effort does not 'poison the well' regarding calculation of impact fees citywide," he wrote in a June 23, 1999 e-mail.

The staff detailed many of the problems it was having with the developers as well, noting that one of the original goals was to develop a methodology that would be a model for a citywide impact fee. Now, some fear that the exercise will cast a cloud on efforts to force developers in Colorado Springs to pay such a fee in the future.

Meanwhile, the task force responded to the manipulation with fury. In a Feb. 7, 2000, letter that was sent to the Colorado Springs City Council, the task force outlined its concerns. Not only was the process "flawed," they argued, but the outcome was predetermined and the deliberations conducted in secret. By conducting itself in such an underhanded way, the task force argued, the city had committed a serious "breach of the public trust."

"I have known personally almost all of the staff involved for many years, and have a great deal of respect for them. However, there was, in this instance, both a process and a mindset which resulted in those involved seriously abusing their special position of trust and integrity as public employees," said attorney Bruce Wright.

City Manager Jim Mullen responded in a March 13 memo to the task force. Rather than directly address the task force's major concerns, Mullen downplayed the allegations and instead expressed appreciation to the task force for its "commitment" to the city. Mullen suggested that the city staff's e-mails had been "misunderstood," but did not offer specific rationalizations for many of his staff's internal comments.

"Allow me to assure you that no 'breach of the public trust' has been committed," Mullen stated, again without specifically addressing the substance of the task force's concerns.

Mullen's letter prompted Wright, a member of the task force, to respond personally.

In a March 20 letter to Mayor Mary Lou Makepeace and the City Council, Wright complained about the staff's efforts to pre-determine the amount they wanted to charge developers for impact fees, including changing the study four times before reaching a predetermined amount.

In addition, Wright accused City Manager Mullen of whitewashing his employees' actions, and downplaying the seriousness of the allegations.

"One of the task force's greatest concerns, given what it found, is that the staff would attempt to sweep this under the rug and refuse to address forthrightly the serious improprieties which occurred," Wright wrote. "Unfortunately, Mr. Mullen attempts to do just that.


No fingerprints

"Contrary to Mr. Mullen's assertion that there was no 'breach of the public trust,' I personally view what happened as a very serious breach, as do all members of the task force," Wright continued in his impassioned letter to the mayor.

On April 7, Mullen responded to Wright, this time providing a background for how the impact fee proposal had been adopted, and outlining the rationale for the impact fees.

Mullen noted that the staff believed that the only reason the improvements and interchange at Woodmen Road and Academy Boulevard were necessary was because of new development, and that the developers should be responsible for paying for them.

Mullen indicated he completely supports his managers.

However, the city manager still did not offer an explanation of why his top staff believed that massaging the formula and sending the report to its consultant four times was appropriate.

"There was a large group of city staffers who provided input into the study, and discussions were lively and varied," he wrote. "Opinions varied widely and were argued aggressively."

However, the e-mails themselves often reflect an unwillingness to release related documents to the public -- an allegation which Wright, Colvin and others have complained about.

In an Oct. 29, 1999, e-mail, Joseph reported to City Manager Mullen, indicating a reporter from The Gazette had requested a copy of the report that Duncan Associates had prepared. It was unclear whether the newspaper wanted the consultants' final report, or its previous studies as well.

That same day, the city's communications director Eugenia Echols, offered a terse response sent to Mullen and Joseph, regarding the request for public information:

"You cannot give her the report until Council/Mr. Mullen have reviewed it!" Echols wrote. "[Gazette reporter] Raquel [Rutledge] will have to wait until Monday. We do not work to her deadline. Additionally, her request for the report needs to be made in writing, in accordance with the Colorado Open Records Act."

Even after the Open Records request was made, Zelenok and Echols indicated they wanted to stall providing the document, and Echols told Zelenok to inform the reporter that the information was under review by the city's legal department.

That tactic is similar to other barriers set in place in recent months by the city's communication department to restrict Colorado Springs media from collecting and disseminating public information and documents in a timely fashion (see Independent, Nov. 11, 1999).


Pay as you grow

Not lost on City Councilman Bill Guman is the possibility that the city's credibility has taken a hard hit.

"I'm not pleased with the communication I've seen -- it looks horrible. It suggests that what we were doing was not up front, but being done under the table.

"The entire process of how the city had its consultant figure out the formula for the impact fees -- especially the way the price tag was manipulated -- needs to be revisited," Guman said.

"We've got a major credibility issue here, and yes, that opinion has been conveyed to the city manager. But is any one council member going to tell Jim Mullen that, as a result of this, an individual or group of individuals should be dismissed? No. That's a disciplinary matter between the city manager and top managers.

"The city manager's office in no uncertain terms was told this was improper," Guman said. "I have to believe a lot of it had to do with naivet -- you should choose your words very carefully when conducting official business. How the city managers could have corresponded in this manner is beyond me."

However, the councilman, a commercial landscape architect, does not buy the developers' arguments that they will be unfairly saddled with paying for a major city arterial. "They will all benefit by being in a good proximity with good visibility and access to a major thoroughfare," he said.

"[Impact fees] are a huge about-face," Guman continued. "We've always been accommodating to developers and this is so contrary to that philosophy that it can't help but be regarded as singling somebody out."

Still, Guman said, it "doesn't bode well" for future efforts to have developers' fees installed as a condition of project approval, as developers will likely point to the inequities of the Woodmen snafu.

City staffers and others now say the Council's decision not to specify the details of the agreement ultimately were at the root of the problems.

Colorado Springs resident Jann Nance, who worked on the city's Springs Community Improvement Program (SCIP) and is familiar with the Woodmen/Academy deal, agrees. While the city staff certainly made mistakes, the process was flawed from its inception.

"This is just a ploy by the developers," Nance said. "We knew impact fees were going to be contested by the developers [regardless] of the methodology used."

Nance briefly served on the Woodmen/Academy task force before being removed because she doesn't live in the surrounding neighborhood and "has a differing view than the developers who comprise the rest of the group," she said. Rather than an impact fee, where the methodology can always be disputed, Nance supports a voter-approved citywide excise fee paid by developers for their projects' impacts on infrastructure.

"If you've got a development community that is dead set against impact fees, and they never said what they would agree to [them], then that presents the opportunity for a lot of loopholes," she said. "So here they are contesting it, and of course they can contest it. They can hire an attorney and have the whole thing killed by saying 'It's not fair, it's not fair!' Well, what would be fair?

"The city made a mistake, but this seems like a well thought out way for developers to stall the whole thing."


Rubbed wrong

John Spillane, a Denver attorney who represents Wal-Mart and was appointed to the Woodmen/Academy task force, said he did not know about the proposal until a week before the meeting.

He denounced the secrecy surrounding the city's plans. "What we were most objecting to was the assumption that the study was being driven by the result they wanted, not the other way around," he said.

"The question of how local government will finance its infrastructure is going on all over the state, and this issue that Colorado Springs is addressing has impacts beyond Colorado Springs," Spillane said. "Smaller municipalities are looking to the big cities to see how they are financing big improvements, and that's why this financing methodology is so important.

Spillane said that his clients were angry when it appeared that they would be required to pay not just for road improvements related to their projects, but for the east-west arterial that the city planned along the Woodmen Road route. Though the city had already targeted that corridor as a major beltway, he said, that fact was never mentioned during initial discussions.

"The message was that we would need this improvement just for us, but the reality is they wanted us to pay for a real big part of a major beltway," Spillane said. "It really rubbed people the wrong way."

Now, Spillane said, his clients would prefer the impact fees be wrapped into an overall citywide fee. But, he continued, the city's credibility has taken a hit and will likely be viewed with some distrust over a citywide fee system.

City planner Peitz said that the Woodmen/Academy fee will now be likely rolled into the citywide fee that will be brought before the City Council this summer.

"Since it's been so contentious, this may just be the logical thing to do." Peitz said.

Spillane said he expects there to be "vigorous debate over the amount of such a fee and how the city plans to come up with it."


Behind closed doors

The issue, Wright contends, goes deeper than just the snafu over the manipulated Woodmen/Academy studies.

"The problem is that the mayor is allowing the city manager to develop policy for the city behind closed doors. Then they bring it to Council before informal [sessions] where public input is not allowed. By the time any formal input is allowed, the decision is already made and the public is cut out of the decision-making process. That's not the way we used to do things and it's a major shift for the city."

Wright said he plans to "raise holy Cain about it until someone pays attention.

"What concerns me with this Council and the way Mullen operates is they are making policy before getting any public input," he said. "It's an interesting thing about this city administration and Council, because the attitude is, 'How dare you challenge us?'"

He's not alone. Former City Attorney Colvin believes the city's approach is one of "imperial" arrogance. Colvin helped draft the detail-free Woodmen developers' agreement for the city before he resigned. Now, in private practice, Colvin represents one of the Woodmen businesses that would be affected by those very fees.

Wright noted that, while Makepeace's predecessor, former Mayor Bob Isaac, was a "masterful politician," he said that the city has taken an alarming shift and now operates without full benefit of an open and public process.

"No doubt this shift has been noticed by most people I know who have to deal with the city," he said.

Editor's note:

The city's internal e-mails, referenced in this story, can be accessed online at www.csindy.com

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