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Public improvement fees becoming more common, experts say

Money is paid to developers for roads, sewage needed for new builds
Posted at 9:45 PM, Dec 13, 2022
and last updated 2022-12-15 14:24:59-05

ARAPAHOE COUNTY — Robert Halonen noticed a little something extra on his receipt after paying for his double cheeseburger at the McDonald’s in the Shops at Tallgrass at the corner of Quincy Avenue and Picadilly Street in Arapahoe County.

At the bottom of his printed receipt, there was a note stating that patrons would be charged a 3.75% public improvement fee with each purchase. It adds that the fee goes toward improvements such as roads and parking.

“It says roads and public improvements, but I already pay taxes for roads and public improvements, so I don’t know why they’re collecting this from me,” he said.

But public improvement fees (PIFs) have been around for more than two decades in Colorado and urban planners say they’ll become more common here with new developments.

While not officially a tax, PIFs are sort of like private taxes for a property. The fees typically are collected by a business and paid to developers, who either borrowed money or paid up front for the sewers, streets, lighting and more needed to develop a commercial property that municipalities don’t fund.

It’s a legal requirement to alert the customer, either on the receipt or with a sign near the cash register.

University of Denver Real Estate Professor Jeff Engelstad said these fees are legal in Colorado and noted the history of them, dating back to developments such as Park Meadows Mall in Lone Tree and Belmar in Lakewood.

“If you remember way back in the history of Denver, the Villa Italia shopping mall was a big giant mall that had died and it was just an awful blighted place in Lakewood,” Engelstad said. “Then comes Belmar, and Belmar was a wonderful new development, but there was all sorts of things that needed to be done and needed to be funded. And that's where a PIF really comes in handy.”

Some cities list the PIFs inside their municipality. Lakewood’s website shows seven sites that charge PIFs, including Belmar and the Colorado Mills Mall area.

In Sheridan, the River Point shopping center at Santa Fe Drive and Hampden Avenue charges a 1% public improvement fee.

Colorado Springs requires PIFs to get city approval.

Most fees around the state are between 1% and 2% outside of the Shops at Tallgrass’ 3.75% fee.

According to Arapahoe County Planning Manager Jason Reynolds, this higher fee is because of how close this shopping center is to the City of Aurora boundary.

Arapahoe County has a 4.25% sales tax while businesses in Aurora charge 8% in sales tax. This means that the businesses in the Shops at Tallgrass, with the PIF, charge the same amount in taxes and fees as the Taco Bell across the street charges in taxes alone.

Reynolds said he believes these fees will pop up more frequently in Arapahoe County in the future.

“I’ll say it’s likely to happen,” he said. "We have two developments in the eastern part of the county east of 470 called Prosper and Sky Ranch...So, if they have a retail area, they could potentially use that as a method to help pay down the bonds."

Engelstad added that while people don’t like the extra fees, the research says customers will pay them.

“The trade-off is this: Do you really want to be in the nice new shopping center,” he said. “Or do you want to be across the street in the one that’s 40 years old.”

The developer of the Shops at Tallgrass declined an interview with Denver7, but said that the PIF should expire in about 10 years.

For Halonen, he just wants his cheeseburger, but now at least he knows what comes along with it.

“It definitely makes me look at my receipts now,” he laughed.

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