The Big Fix

In the old days, buying a house in the mountain town of Black Hawk was like moving to Appalachia. Residents lined the cracked windows of their miners' shacks with quilts to keep out the cold. Living-room floors were made of bare dirt. Porches sagged and chimneys crumbled, and many of the homes hadn't been painted since the Great Depression. Some of them looked so shabby that the operators of the posh Central City Opera up the road donated buckets of paint to keep the place looking spiffy for music buffs who motored through Black Hawk on their way to performances.

"The town was falling down," recalls former Black Hawk mayor Bill Lorenz. "When I came up here in 1956, you could buy most any house for $5,000."

Today, though, the streets of Black Hawk are filled with the whir of buzz saws and the pounding of hammers. Every other house seems to be under construction. The ubiquitous two-bedroom cottages of Black Hawk are being rebuilt from their floorboards to their chimneys. Even the nineteenth-century city hall has undergone a dazzling renovation, right down to the antique safe used to store documents.

It's nice remodeling work if you can get it. And in Black Hawk, you don't have to try very hard. That's because the civic renaissance in this old mill town comes courtesy of Colorado taxpayers--one of the many unintended consequences of the state's introduction of legalized gambling.

The constitutional amendment allowing limited gaming approved by voters in 1990 specified that a certain percentage of gaming-tax revenues be given to the old mining towns of Black Hawk, Central City and Cripple Creek for "historic preservation." What no one could have predicted was that tiny Black Hawk would emerge as Colorado's own mini-Las Vegas, pulling in the lion's share of gaming revenues and the taxes that go along with it.

As a result, money for historic renovation has flooded into the town, which counts only 160 residents and 78 houses. Black Hawk has already spent nearly $2 million fixing up local residences--enough to give every homeowner in town more than $25,000. Several members of the Board of Aldermen, even the mayor herself, have received annual grants of up to $30,000 to spruce up their homes. One member of the town planning commission has been awarded $140,000 to renovate his house.

Historic-renovation programs in Central City and Cripple Creek have been low-key and largely low-budget affairs. Cripple Creek doesn't even have a program to refurbish private residences, while Central City limits its housing effort to homes at least fifty years old and caps annual grants at $7,500.

But Black Hawk's distribution of so much money with what appears to be very little oversight is attracting scrutiny. The local district attorney charges that Black Hawk's generous historic-renovation grants have become a magnet for unscrupulous contractors hoping to make a fast buck off the program. A state legislator who helped author Colorado's gaming laws is calling on lawmakers to investigate the program. Even Colorado Bureau of Investigation agents, in town to keep organized crime from infiltrating the gaming districts, have instead set their sights on possible corruption within the historic-restoration program, their interest piqued by letters to the editor in the local newspaper.

Earlier this year, a grand jury in the First Judicial District, which includes Gilpin County, indicted on three counts of felony theft a Black Hawk company that specializes in renovating homes. The indictment accuses the firm, Historic District Management Company, of skimming grants and illegally shifting funds to finance work that had not been authorized by the Black Hawk town board.

Dennis Hall, senior deputy district attorney for the First Judicial District, says the Black Hawk program is ripe for abuse. "The whole attitude up there is, 'We're owed this, and who are you to tell us how to spend this money?'" says Hall. "Somebody could spend their $25,000 on a golden arches and a drive-thru."

Hall says Black Hawk officials have gone far beyond what voters intended when they approved limited-stakes gaming in 1990. "They've been looking at this as one more entitlement program," he says. "Most people who've heard of this case think they want to move up there and buy a house."

Town residents have circled the wagons against critics; many of them, including Mayor Kathryn Eccker, refuse to answer questions about the program. But those who will talk staunchly defend the renovation effort. They say none of the work is extravagant, adding that it's the only way to keep most of Black Hawk's neighborhoods from sliding off steep hillsides, where onetime miners' cabins are strung out along former goat paths.

"Before, these houses were dilapidated," says Black Hawk planning director Mark Kieffer, pointing to a row of small wooden houses perched on the edge of a mountain. "The squalor in these places was horrendous. They were also fire hazards. There are still people who heat their homes with wood-burning stoves."

Without the residential-renovation program, says Kieffer, Black Hawk's neighborhoods would slowly be abandoned, and there would be nothing left but the casinos that already dwarf the town. Because Black Hawk was always a scruffy, working-class town--unlike aristocratic Central City up the hill--most of the homes were built without foundations, on sites that miners and mill hands carved out of the mountainside. That makes renovation incredibly expensive, says Kieffer, since the small homes have to be rebuilt from top to bottom. "In Denver these houses would be demolished," he adds. "It takes $20,000 to $30,000 just to bring a lot of these houses up to a marginal standard."

Many people in Black Hawk seem to view the town's recent good fortune as compensation for the years of humiliation the town has endured from its snooty neighbor up the hill. The people who mattered in the state's gold-rush days built substantial houses in Central City with foundations and solid walls. Those mine owners, bankers and merchants tended to view neighboring Black Hawk with disdain--it was the place down the hill where everything flowed, including Central City's sewage.

Now, though, Lady Luck is smiling on the "city of mills." And townspeople aren't about to walk away from the table while they're ahead. By the time Black Hawk is done rebuilding its historic homes with gaming revenues, the town will be better-looking than ever, its former miners' shacks turned into solid, comfortable homes with all the modern conveniences. After all, says Kieffer, "the intent of the program is to make it comfortable for people to stay and live in Black Hawk."

Memories of the bad old days still resonate in Black Hawk, where life turned hard after the last gold mines shut down after World War II. With the mining industry all but dead, many residents had to leave the county to find work. The Central City Opera brought a small stream of tourists through Black Hawk, but trying to earn a living in Gilpin County was harrowing.

"It was like Russia after the commies took over," says Lorenz. "There was sixty years of absolute austerity."

Central City and Black Hawk looked so run-down by the early 1950s, adds Lorenz, that the wealthy benefactors of the opera even offered to help the locals paint their homes. "People didn't even have enough money to buy paint," he says.

Black Hawk's population nosedived again in the early 1990s, after gaming, which had fueled a healthy underground economy in the town prior to World War II, returned as a legal undertaking. Dozens of residents decided they didn't want to deal with the crowds and noise from the casinos. Most people moving to Gilpin County now avoid the gambling towns and choose to settle in small subdivisions scattered around the county. Black Hawk alderman David Spellman sees the funding for residential renovation as one way to keep people from leaving town.

"It became so frustrating for some people to live in Black Hawk," he says. "This is one way to mitigate that."

Prosecutor Hall's description of the program as an entitlement for residents infuriates Spellman. "I think that's arrogance on Hall's part," he says. "Hall finds it unfathomable that this kind of money could be spent on renovation. He'd have people believe the money is being spent in frivolous ways."

Outsiders don't understand the poverty Black Hawk experienced for decades and the toll that took on the town's housing stock, insists Spellman. "We spent the last ninety years decaying," he says. "Most of these homes have not had any serious structural work done." Much of the wiring and plumbing in Black Hawk houses is left over from the nineteenth century, Spellman says, and most residents simply don't have the resources to fund renovations out of their own pockets.

The city, by contrast, is now swimming in cash. And the grand-jury indictment alleges that Black Hawk's renovation program became easier to abuse as a result. Because there was so much money on hand, town officials dropped a requirement that residents be reimbursed only after home renovations were complete. The city now gives homeowners the cash up front, before work commences. Spellman says the old requirement was a hardship for many homeowners.

"How many have the kind of money that they can just do the work and be reimbursed?" he asks. "It's not like we just hand the money out. There's documentation of all the work done."

That documentation shows that many city office holders, including Spellman, have benefited from the grant program. Spellman has collected $76,000 for work on his home. Mayor Eccker has been awarded $26,500. Town alderman Kathleen Doles received $85,596, alderman George Armbright collected $75,000, and alderman Al Price got $34,181.

Former mayor Lorenz was awarded $76,855 for work on six houses he owns in town. City planning-commission member Jerry Cook was Black Hawk's top grant recipient, garnering $140,000 to renovate his hillside home. To help Cook get around the city's $30,000-per-year limit, the aldermen last year awarded Cook $25,000 a year through the end of the decade.

Planning director Kieffer points to Cook's home as an example of just how expensive it is to save Black Hawk's residences. While $140,000 would buy a nice house in Denver, Kieffer says the precarious nature of mountain homes like Cook's requires spending thousands to stabilize the property. Cook did not return phone calls, but Kieffer claims that about a third of Cook's house was ready to cave in, since the rear of the home is built directly into the mountain. Because of the magnitude of the problem, the Board of Aldermen decided to give Cook an emergency grant that runs into 1999.

"His house literally extended into the rock wall," says Kieffer. "As soon as they started rebuilding the wall, the whole house started moving. He had to rebuild the wall and the whole part of the house up against the wall."

Kieffer insists that spending $140,000 to save a modest wooden house is justified. "There aren't any gold-plated faucets up here," he says. "Black Hawk is never going to be Aspen. I doubt if Jerry Cook would get $120,000 for his house if he put it on the market."

However, housing prices have risen in Black Hawk since the start of gaming. Local real estate agents estimate that homes once valued at $50,000 now sell for anywhere from $90,000 to $120,000. "If it's totally trashed and away from downtown, you might be able to pick up something for $75,000," says Les Peats of Golden Eagle Properties, which sells homes all over Gilpin County. But that doesn't mean homes are gold mines. While some casino workers and retirees are interested in living in Black Hawk, most families moving to the area don't want to live near the casinos. Peats says most of the people he talks to prefer to buy in outlying subdivisions. And that's just the problem, say Black Hawk officials.

"We're trying to reweave this fabric called Black Hawk," says Kieffer. "That includes stabilizing the residential community."

It also includes redefining what qualifies as a "historic" property. Black Hawk, for instance, now allows renovation grants to be awarded to any home built before 1990. That way the city doesn't exclude from the program the handful of residents whose homes were built after World War II.

"Most of our homes were built eighty to ninety years ago," says Spellman. "We had a few built in the '60s and '70s, and we didn't want to have second-class citizens who couldn't access these funds. The constitutional amendment says these funds will be used for the preservation and restoration of the community. We believe restoration means keeping our neighborhoods intact."

Spellman notes that in 1873, Central City paved the sidewalks in front of the Teller House hotel with silver to honor the visit of President Ulysses S. Grant. And he says Black Hawk should be allowed to celebrate its own newfound wealth in similarly grand fashion.

The use of gaming revenues to install new kitchens and bathrooms in century-old Victorians, to strip and replace electrical wiring and plumbing, to rebuild quaint porches and to add roofing shingles that sparkle in the sun is nothing more than progress in Spellman's eyes. Says the alderman, "Black Hawk is going from the nineteenth century into the twenty-first."

Legal authorities, however, say the town's leap forward could be accompanied by a bad case of future shock.

The indictment handed down by the grand jury goes beyond describing the alleged offenses of the Historic District Management Company. The document also paints a picture of a historic-preservation program that's become a virtual candy store for Black Hawk residents.

In 1992, notes the indictment, the city retained a consultant to write detailed guidelines that were to regulate the town's historic-preservation effort. Homeowners were to submit applications laying out exactly what the funds would be used for, and those plans were to be carefully examined by the city's Historic Architectural Review Committee (HARC). If that committee approved the plans, the request was to be forwarded to the city council for final approval. Homeowners could collect the funds--up to $30,000 per year--only as a reimbursement after the work was completed.

Initially, the city followed those guidelines. But according to the grand-jury indictment, that had all changed by 1995. By then, the city was releasing funds to homeowners before the work commenced. The city also allowed grant applications to be made on behalf of homeowners by third parties, such as contractors. The city had become so lax in guiding the program, says the indictment, that it began allowing tax funds designated for historic preservation to be used for anything that would "enhance the comfort of Black Hawk residents." In theory, at least, a hot tub had become as good as an antique bathtub when it came to justifying a renovation request.

Black Hawk's anything-goes attitude led directly to the crimes allegedly committed by the Historic District Management Company, says the indictment. According to the grand jury, the company and its chief executive officer, Dennis Murphy, applied for historic-renovation funding on three properties in Black Hawk. Acting on behalf of the owners, Murphy's company then secured grants totaling $85,000, with the understanding that the company would handle all the contracting for the renovations. The indictment alleges that more than $16,000 of that money was used for unauthorized expenditures.

Colorado Bureau of Investigation agent Robert Brown, who spent several months investigating Black Hawk's historic-renovation program, says the money was used to make a down payment on one house and to fund unauthorized work on another. "Our position is that if grant money is received, the person holding the money in trust has an obligation to make sure that money is only used on that property," says Brown.

Jack Hyland, the attorney representing the Historic District Management Company, says he will ask the court to rule that there's insufficient evidence to prosecute his client. He insists the firm was following city guidelines and didn't misuse the funds. "It's our position there's not probable cause to find the company did anything criminally wrong," he says. "We were doing what the town permitted."

A hearing on the case is set for next month. Meanwhile, Black Hawk officials say the indictment has cast an unflattering light on a perfectly legitimate program. "We've handed out $1.9 million, and this indictment centers around $15,000," says Spellman. "It's a small fraction of the total grants."

According to the constitutional amendment Colorado voters approved in 1990, 28 percent of the state gaming taxes paid by casinos must be transferred to the state historical fund, which is administered by the Colorado Historical Society. Eighty percent of those funds are reserved for historic-renovation projects around the state, and the historical society supervises those grants. However, the amendment mandates that 20 percent of the money deposited in the state historical fund go directly to the local governments in Black Hawk, Central City and Cripple Creek.

Since Black Hawk draws more than half of all the gaming revenues in Colorado--last year gamblers wagered more than $236 million in the town--the city also gets the lion's share of the historic-preservation funds reserved for the gaming towns. Last year Black Hawk received $1.2 million from the state to fund its renovation programs. The town made roughly half of that money available to homeowners.

Spellman says Black Hawk has the right to use its share of historic-renovation funds for anything it wants. "We think the state is no more than a clearinghouse," he says. "This is not the state's money in any way, shape or form. This is Black Hawk's money, and it's at city council's discretion how this money is spent."

The 1877 Black Hawk city hall now stands in the shadow of the giant casinos that line the town's main street. But just like them, it has become a conduit for cash. Once so run down some feared it was a fire trap, the two-story brick building has been reborn, its wooden stairs restored, its wiring and plumbing overhauled, and its walls repainted to look brand-new.

The city hired a professional renovator to retouch an antique safe painted with mountain scenes that had served the town for over a century. Old Gilpin County maps and claim surveys that had rotted in the attic for years have been meticulously patched back together and mounted. Up the hill, the city has turned a former church into a city hall annex. The town's former schoolhouse--which at one time featured a six-seat outhouse--has become the new police headquarters.

By all appearances, town leaders have sometimes had to scramble to find new ways to spend their historic-renovation money. Plaques marking historic events are all over town, for instance, and the city has funded several videos and brochures on Black Hawk history, though it's unclear whether gamblers have any intention of perusing them.

Still, it's the residential spending that continues to rouse the ire of Black Hawk's critics. "I hadn't realized so much money was going into the pockets of a couple of residents," says former state representative Jerry Kopel. "That's insane. It certainly wasn't sold that way when it was before the voters in 1990."

Kopel was a vocal opponent of gaming during the initiative campaign. After Colorado voters approved the idea, he helped write the legislation that set up the ground rules for gambling in the state. He says legislators were mainly focused on keeping corruption out of the gaming industry and didn't give much thought to how the towns would spend the historic-preservation funds.

"We were really more concerned about who would have an interest in these casinos and the power they'd have," says Kopel. To get to the bottom of the situation in Black Hawk, Kopel is calling for an investigation by the legislature. "This is the sort of thing where there should be a legislative investigation during the summer to find out what the abuses are," he says.

But despite the CBI's skepticism and the grand-jury indictment, proving that Black Hawk, its citizens or its contractors have done anything improper won't be easy. The constitutional amendment passed by voters states clearly that 20 percent of the tax money that goes into the state historical fund is to be "distributed to the governing bodies of the respective cities, according to the proportion of the gaming revenues generated in each respective city." It doesn't say anything about how the cities are supposed to divvy up the cash. What's more, because the funding mechanisms for the towns is fixed in the state constitution, the legislature may not be able to change the program's operation without asking voters to amend the constitution.

The 80 percent of the historic-preservation funding that is supervised by the state historical society has been used for projects in every corner of Colorado. Since 1993, the society has given more than $30 million to hundreds of projects, from rebuilding Silverton's city hall after a disastrous fire to repairing the roof at Denver's Union Station. The society puts a $100,000 limit on each grant and requires applicants to demonstrate the historical importance of each building nominated for funding. Every year the society receives more requests for funding than it can fulfill.

"The program has been extremely important to historic preservation around the state," says Lane Ittelson, deputy state historic preservation officer. "We're fixing up courthouses and city halls and schoolhouses. The bulk of the money has gone into publicly owned structures."

Ittelson declines to comment on Black Hawk's preservation program. But Hall says there's a world of difference between the way the state historical society has distributed its preservation funds and the way Black Hawk has used its money. "They certainly haven't taken steps to make sure the money they distribute is used the way it's supposed to be," he says. "My view of this is that these are tax dollars and should be spent for the benefit of everyone."

David Spellman, though, claims Black Hawk's detractors are simply irked that the old gold-rush town is once again in the money. A little criticism, says Spellman, "is the price of success for Black Hawk."

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