Defects issue fuels legislative races
Money pours in for candidates as debate over reform rages
M
illionsstate legislators’of dollars campaignshave flowed in intorecent years from both sides of the contentious construction defects debate, even as opposing camps managed to reach a key compromise last week on what has proved to be an intractable issue.
Construction defects reform has pitted condominium developers and other business interests against trial lawyers, who benefit from suing developers over defects in their buildings. The groups altogether have spent more than $2 million on state legislative races since 2010.
According to a Denver Post analysis of campaign finance reports filed with the Colorado Secretary of State’s Office, the Colorado Trial Lawyers Association and law firms that specialize in defects cases have given more than $1.1 million to Democratic legislative candidates and political action committees since 2010, while builders, bankers and Realtors have given close to $900,000 to candidates and groups on the GOP side during that time.
While it’s impossible to determine what portion
of those totals are meant to specifically influence legislation linked to construction defects reform, over the past seven years, contributions on both sides have steadily increased during even-numbered election years as the conversation has become more heated and Colorado’s condo shortage has become more and more acute.
“We’re just stuck in trench warfare,” said Terrance Carroll, a former Democratic Colorado House speaker and now an attorney with Butler Snow. “There have been long-held philosophical positions about what’s stopping condo building, even when I was in the legislature.”
The ice was broken for the first time just a few days ago, when lawmakers reached compromise on House Bill 1279, which would require homeowner consent before a legal action could be taken against a condominium builder for construction flaws. The agreement, announced Wednesday, resulted in handshakes and backslaps all around, even luring Gov. John Hickenlooper to the Capitol for a celebratory news conference.
But the convivial mood on display last week doesn’t mean the fight over construction defects reform is over. While HB 1279 appears on the road to success, a number of other constructiondefect reform bills introduced this session have died in committee or are headed for the legislative dustbin.
Scott Smith, CEO of the Colorado Association of Homebuilders, isn’t predicting a rush of condo construction projects in Colorado if HB 1279 becomes law. “Time will tell,” he said. Condos in Colorado have dropped to around 3 percent of all housing starts, compared with 20 percent a decade ago. Developers blame state law, which they say makes it too tempting and easy for homeowners or condo association boards to sue for shoddy workmanship. That, in turn, drives up insurance rates for large-scale multifamily projects and chases builders out of the market.
Those opposed to reform say if builders provided a quality product from the start, there would be no need for anyone to take action. They are adamant about preserving a homeowner’s right to seek redress in a court of law, especially when it involves the biggest investment most people ever make in their lives.
Money cementing those opposing positions has flowed into the legislature year after year, coinciding with four consecutive sessions during which lawmakers have been unable to craft a bill that could survive the political debate — until now. HB 1279 passed a critical committee vote in the House last week, and with widespread bipartisan support, will likely make it through both chambers and to the governor’s desk.
“Unseen pressure”
The usual heated debate over construction defects reform was subdued last week largely because of the intense deal-making that went into writing HB 1279. Republican bill sponsor Rep. Lori Saine said every after-hours negotiation in the last few weeks became “construction defects night.”
But at an early morning breakfast put on by the South Metro Denver Chamber in March, when a compromise at the state Capitol was still a far-away prospect, several reform advocates were clear about where they think the problem lies.
Mike Kopp, president of the Homeowership Opportunity Alliance and head of business advocacy group Colorado Concern, referred to the “unseen pressure” that is keeping legislation from moving forward. Trial attorneys taking builders to court over defects claims make exorbitant fees, he told the audience of several dozen in Centennial.
Just the specter of a lawsuit, Koelbel & Co. president Buz Koelbel said at the breakfast, adds $15,000 in insurance premiums to the cost of building a condominium unit in Colorado. And once litigation starts, it means millions of dollars in preparing a defense and hours of time giving depositions, he said.
According to a December report commissioned by the State Court Administrator’s Office, there are approximately 200 construction defects lawsuits brought annually against builders in Colorado, a number extrapolated from three-month periods in 2013 and one in 2014.
“Politicians have to understand the attorneys don’t want this to happen,” Koelbel said of construction defects reform. “The attorneys are the ones that are putting the pressure on the politicians.”
Asked about that at a celebratory news conference for HB 1279 last week, House Speaker Crisanta Duran didn’t directly address whether she thinks too much trial attorney money is coursing through the process. The Colorado Trial Lawyers Association has given the Democrat nearly $4,000 over the last seven years, while three big Denver-area construction defects litigation firms — McKenzie Rhody LLP, Burg Simpson and Benson, Kerrane, Storz & Nelson P.C. — have contributed $850 to her in that time.
“We proved good policy rose above everything else,” Duran said. “We ultimately showed that we were able to come up with a solution for this issue.”
A spokesman for the Colorado Trial Lawyers Association said only that his organization “supports candidates who believe in an individual’s right to pursue justice in the courtroom.”
Suzanne Leff, a delegate to the Community Association Institute’s legislative action committee, said the money factor in construction defects is “not a one-sided issue.”
And campaign finance data show that the construction and banking sectors, along with Colorado Concern, have by no means sat out the money game. The National Association of Realtors gave $410,000 to Republican groups and candidates in the last seven years, while Colorado Concern has funded the GOP to the tune of $230,450 since 2010. The Colorado Bankers Association contributed $94,200 to Republicans in that same time period.
Leff argues that litigation, or the threat of a suit from homeowners or association boards, is not the only variable in Colorado’s condo conundrum. Her organization has consistently fought reform efforts, claiming that bills in past years threatened to strip the rights of homeowners in favor of developers.
“There are many factors driving this issue — it’s not litigation alone,” she said. “We’re in a market where rentals are a profitable product.”
A report from the Denver Metro Apartment Vacancy & Rent Survey released last week found that metro Denver builders delivered a near-record number of apartments — 3,246 units — in the first three months of the year and rents still inched upward 2.9 percent over the past year.
Big donors in 2004
Perhaps the best indicator of who has the most at stake in the construction defects debate can be found in election results going back to 2004, when a statewide ballot measure asked voters to prohibit limits on the ability of property owners to sue construction professionals for damages. The measure — Amendment 34 — was soundly defeated.
But a look at the measure’s biggest supporting and opposing donors aligns with the interests still funneling money to lawmakers and political organizations today. The Committee to Take Back Our Property Rights, which backed the 2004 measure, received almost all of its $734,000 in funding from law firms and attorneys, including McKenzie Rhody and Vanatta Sullan, which later became part of Burg Simpson.
The main opposing committee, Coloradans for Responsible Reform, took in nearly $4 million — led by the National Association of Home Builders and a slew of home-building firms, including Beazer Homes, Centex Homes and Lennar Corp.
Rep. Cole Wist, who was at the Centennial breakfast in March, last week reaffirmed his assertion that “politics has played a big role in preventing reform from happening.” But the Centennial Republican doesn’t solely blame lawyers representing homeowner associations. He also points to attorneys for the construction industry.
“The lawyers have made a lot of money off this litigation process,” said Wist, who has been a sponsor on a number of construction defects bills this session. “That has been a disincentive for reform.”
And without a doubt, reform still is hard to come by. Several bills have already died in committee, and just three days ago, a bill that would require binding arbitration rather than litigation in a construction defects dispute, was given the ax by the House State, Veterans and Military Affairs committee.
But the conversation on construction defects reform had evolved to the point where Democratic leadership in the statehouse was under more pressure to compromise, political analyst Floyd Ciruli said. He noted that not only has there been bipartisan support for reform bills in past sessions, but affordable housing advocates and a wide array of metro-area mayors are now pushing for it.
HB 1279 likely passed this time because of the greater political advantage Democrats gained in the House last November, picking up three seats to take a 37-28 majority, he said. Previous Democratic speakers had less room to negotiate when the balance of power in the House was thinner, Ciruli said, and money from the Colorado Trial Lawyers Association was critical to keeping their majority alive.
“There is no doubt that the Democratic leadership in the last couple of terms found it incredibly difficult to find compromise,” he said. “Their entire control of the body really depends on having access to those funds and having the ability to target those funds to specific seats.
“When their majority is that close, they don’t mess around.”
“We’re just stuck in trench warfare. There have been long-held philosophical positions about what’s stopping condo building, even when I was in the legislature.” — Terrance Carroll, former Democratic Colorado House speaker