Is the State of Colorado losing several hundred thousand dollars' worth of real estate to a developer of plush Summit County mountain homes? The developer says no, but the current owner of the land--the Colorado Department of Transportation--says it isn't so sure and that it will delay turning over the land at least until a political tempest in the resort town of Dillon quiets.

And at least one legislator thinks laws that permit the Department of Transportation to give away land need to be changed. "An abuse has come out here that was unforeseen, and I think we need to do something about it," says state senator Tom Blickensderfer.

At the center of the wrangle is a relatively small patch of property in Dillon. Its place in the controversy is tied to the Denver Water Department and a developer's plans to transform a highly visible piece of Summit County real estate from open space into a large retail and residential center.

The transportation department's 3-acre parcel lies adjacent to a 28-acre tract currently owned by Denver Water, which bought the land in 1956 as part of what was to become the Dillon Reser-voir. Most of the 28 acres was never used, and for the past couple of decades the water department has classified the land as surplus.

Summit County is riding high on Colorado's economic boom, but Dillon, which has little commercial activity, lags. So the town has kept a close eye on the empty water department land. In 1983 the town annexed the plot and zoned it for a mixture of commercial and residential development. Last year, eager to get on with it, the town asked the water department to sell the surplus property to a developer.

Denver's water department makes about $3 million of its $140 million yearly operating budget though the sale and lease of surplus land. The department currently holds about 10,000 acres it considers useless to its water operations; about 750 of those are in Summit County, because Denver Water owns Dillon Reservoir.

Chuck Smith, the water department's real estate manager, says that when Dillon requested he sell the 28-acre plot, he was ready. "We started working on it in the 1970s, and we've looked at the possibility of selling it several times since then, but there was no market," he says. Now there is, and last year the water department sold the option rights on the property for $2.15 million.

The tentative buyer is C&F Investments of Boulder, whose option to purchase the land is good through the end of summer. One of its partners, Larry Feldman, is shepherding plans for about 20 duplexes and 26 more single-family residences (costing up to $250,000 each) through the town's Planning and Zoning Committee. C&F also intends to develop part of the land commercially. Last week the town gave its conditional approval to the development, so nothing should prevent Feldman from writing a check and beginning construction.

Not surprisingly, the proposed development has galled several neighbors (most of whom live in unincorporated Summit County, not Dillon). Dozens of people have written to town councillors, the water department and even the governor to protest what they anticipate will be a degradation of their mountain lifestyle.

Also stirring the pot are what neighbors say were promises from Denver Water officials to keep the land empty and open. "While the property has been zoned for development for quite some time," wrote homeowner Laura Johnson, "the residents of Piney Acres have been assured by employees of the Denver Water Board on numerous occasions that they would never sell the parcel, because they use it to monitor the Dillon Dam. The residents of Piney Acres relied upon these past assurances of the Denver Water Board that the property would not be sold when we purchased our property and built our homes."

Smith concedes that the 28-acre plot does contain three gauges used to monitor any movement in the dam. And he admits that he may have said at one time that the land around the actual monitors--they each take up about one foot square--would never be sold. But Smith stresses that the land was always targeted as surplus and that any verbal comments he may have made were not legally binding. Besides, he adds, this year the department began monitoring the dam by satellite, making the land-based monitors unnecessary.

Regardless of whose memory is best, the Denver Water Department at least seems to have received a fair market value for its land. In preparation for the sale, the parcel was appraised at $1.6 million; C&F's bid came in at $550,000 over that.

The status of the Colorado Department of Transportation's land next door, however, is a bit more confusing.

CDOT obtained the three-acre property in 1963 and vacated it in 1972, when the state reconfigured the junction of routes 6 and 9 to merge. Although the only structure on the abandoned plot now is a Summit County Chamber of Commerce visitors' center, the land is ripe for commercial development. It also has become part of a rapidly disappearing dividing point between Dillon and its sprawling neighbor, Silverthorne.

According to the byzantine set of laws governing Colorado's highways, most roads no longer needed by the state must be abandoned. This sets the agency apart from other state departments, which generally are required to sell their unused land for fair market value. Ed Tormohlen, right-of-way manager for CDOT, says the abandonment law was intended to provide belated compensation for landowners whose property was taken by eminent domain and to provide a legal framework to turn old state roads over to local governments.

But Dillon doesn't want the CDOT land, says Lee Merkel, Dillon's town manager. So, according to CDOT's rules, that means the old Highway 6 land is to be returned to adjacent property owners. In this case, that would be the Denver Water Board and, by extension, C&S Investments, which holds the option to buy the water department property.

As a result, both Smith and Feldman have considered the CDOT land effectively theirs. Smith, for instance, says he included CDOT's three acres when he appraised the water department's land for sale. And Feldman included it as a crucial part of the preliminary development plans he submitted to the town of Dillon for approval. In fact, according to his drawings, the CDOT land would be the entrance to the entire development.

But that was before agitated neighbors of the proposed development started pulling strings. One of the most vocal opponents of C&F's development is Tim McManus, a Greenwood Village city councilman, who owns vacation property there. He contacted Blickensderfer, a member of the Colorado Legislature's Joint Budget Committee. The senator in turn called Kristen Epley, an analyst for the committee, and asked her to figure out how the private owner of an expensive development might end up with highly desirable state land without the state receiving a penny.

The ensuing ruckus has put a burr in CDOT's britches, and the department also seems to be reaching the conclusion that turning over three acres free of charge might not be a very good idea. "Because of the politics, we're going to revisit the whole thing," says Sam Gamboe, the region's right-of-way supervisor. "We don't want to be perceived as giving something away. We're taxpayer-funded, and we want to make sure we're doing the right thing."

So what once seemed a straightforward property transfer has become a political knot. Concedes Merkel, the town manager, "It's not a very clean arrangement right now."

Last week Tormohlen (who calls Feldman's and the water department's assumption that they already in effect own the property "interesting") ordered his department to study the transfer in more detail. And, he says, upon closer reflection, it now appears that CDOT may be able to sell the three acres after all, rather than give it away.

The reason is a technicality. While CDOT's rules say it must abandon unused routes, there is nothing in the law that actually defines a route. And Tormohlen says the segment of the old Highway 6 in question, which is 750 feet long, may not be long enough to be considered a route.

Which would place the land into another CDOT category: excess land. Which would mean the transportation department would be free to sell it for market value. Whether or not Feldman (who referred calls to Smith and Merkel) would buy it remains to be seen.

Meanwhile, the land scramble has also led Epley, the state budget analyst, to contemplate whether CDOT's land-abandonment laws make sense. "It does raise some broad issues," says Epley, who says she hopes to present the Dillon case to the Joint Budget Committee this fall. "We hear from the department of transportation that they don't have enough money to make their budget. So we have to be asking, `Is there some way we can make money off of this?'


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