A metropolitan district is a special district governmental entity that is usually formed for the purpose of providing one or more services usually provided by a municipality (e.g. water, sewer, road maintenance and operating a recreation center or library) without having the full legislative authority of a municipality. It usually has taxing power and the power to incur debt, and spending power for specified purposes, supervised by an elected or appointed board of directors.
Metropolitan Districts are expressly authorized by statute, however, to provide covenant enforcement for HOAs within their boundaries as well as set forth in the following statutory language:
(8)(a) The board of a metropolitan district has the power to furnish
covenant enforcement and design review services within the district
(I) The governing body of the applicable master association or similar
body and the metropolitan district have entered into a contract to
define the duties and responsibilities of each of the contracting
parties, including the covenants that may be enforced by the district,
and the covenant enforcement services of the district do not exceed
the enforcement powers granted by the declaration, rules and
regulations, or any similar document containing the covenants to be
(II) The declaration, rules and regulations, or any similar document
containing the covenants to be enforced for the area within the
metropolitan district name the metropolitan district as the
enforcement or design review entity.
(b) The board of a metropolitan district shall have the power to
furnish covenant enforcement and design review services pursuant to
this subsection (8) only if the revenues used to furnish such services
are derived from the area in which the service is furnished.
(c) Nothing in this subsection (8) shall be construed to authorize a
metropolitan district to enforce any covenant that has been determined
to be unenforceable as a matter of law.
Colorado Revised Statutes § 32-1-1004.
Basically, what is going on is that there is a Common Interest Community, which is governed by Colorado Revised Statutes § 38-33.3-101, et seq. (the Colorado Common Interest Ownership Act a.k.a. "CCIOA"), but there is either an HOA board that delegates the performance of its duties to the Metropolitan District on a contract basis (8(a)(I)) in a manner similar to the way that many HOAs delegate the conduct of their business to a professional management company, or the covenants appoint the Metropolitan District to act in lieu of an HOA board (8(a)(II)).
How is something like that a "government interest"? How are they (the
developers, the city) creating and enforcing extra "laws" that only
apply to certain people?
Governmental bodies, like other entities, can enter into contracts to perform tasks for others. The Metropolitan District is doing just that. It derives its authority from the authorizing statute and governing documents that apply to HOAs, and is allowed to enter into a contract like this for an HOA because the Metropolitan District Statute specifically authorizes it to do so.
This said, there is very little in CC&Rs that couldn't be enacted by a municipality as an ordinance instead. For example, a municipal government could enact an ordinance limiting home owners to two cats. Municipal governments have very broad (what is known as "plenary") power to legislate in most areas for the greater good of the community.
This arrangement is still quite unusual, because a Metropolitan District is arguably subject to constitutional limitations and other laws applicable to governmental entities that a private HOA is not. On the other hand, Metropolitan Districts are entitled to governmental immunity from liability in many circumstances which private HOAs do not enjoy.
As a side question on the above question, don't civil lawsuits require
damages. How do even HOA's prove "damages" for something like 3 cats
(vs 2) and then recover money for it?
These are expressly authorized by CCIOA, but even without CCIOA contracts can prohibit something an impose "liquidated damages" in a pre-set amount in cases where there is harm, but it is hard to quantify economically, and can give someone bound by the contract the power to seek those damages.
For example, such provisions would be common in residential leases and construction contracts.