Amendment 61 - Would Limit State and Local Government Debt

This proposal amends Article X, Section 20 of the Colorado Constitution ("TABOR") to add a new section to prohibit State debt and limit local government debt.  It also amends certain sections of Article XI.  The amendments to TABOR will be in addition to all other provisions of TABOR.  The proposal applies after 2010 and provides that all conflicting laws, rulings and practices would be repealed, overturned and superseded.

The proposal applies to "any loan, whether or not it lasts more than one year; may default; is subject to annual appropriation or discretion; is called a certificate of participation, lease-purchase, lease-back, emergency, contingency, property lien, special fund, dedicated revenue bond, or any other name; or offers any other excuse, exception, or form." 

This definition appears broad enough to include all government borrowings, including conduit borrowings on behalf of private entities such as private activity bonds.

The State is prohibited from borrowing, directly or indirectly, money or other items of value for any reason or for any period of time.  This applies to any loan, whether it lasts more than a year or not, regardless of its form.  Specifically, this addresses lease purchase agreements and certificates of participation and other obligations subject to annual appropriation which have been exempt from voting requirements under existing law.  This prohibition applies to the State and its enterprises, authorities and other state political entities. 

Apparently, this means that the Colorado Housing and Finance Authority, Colorado Educational and Cultural Facilities Authority, the institutions of higher education, State Transportation Commission and all other State level entities will be absolutely prohibited from borrowing money for any purpose.  There is not even an option for voter approval. Under current law, the State or its related entities have been able to borrow without a vote through lease purchase agreements, notes payable within the fiscal year, or enterprise revenue bonds.  These will all be prohibited.

Local governments and their enterprises, authorities and other local political entities may borrow money, but only after a November vote.  All local government borrowings are subject to voter approval under this proposal. 

Under current law, a number of entities, borrowing activities and borrowings are exempted from voter approval, such as: enterprises, refundings at a lower rate, urban renewal authorities, and notes payable within the fiscal year.  Also, some entities have been able to have elections at times other than November under TABOR, such as certain municipalities and all Title 32 special districts.  All elections on borrowings would now be in November. 

For entities other than enterprises, there will be a debt limit of 10 percent of the assessed taxable value of the real property in the jurisdiction. 

Note that this excludes personal property.  Also, for some entities, this would be a real decline from existing law.  For example, school districts have a debt limit which is generally 20 percent of assessed value. 

Any new borrowing apparently has to be in the form of bonded debt, be subject to prepayment without penalty (and at any time) and mature within 10 years.

It is not clear whether contracts that represent a multiple-fiscal-year financial obligation, but not a borrowing, are covered under either the State prohibition or the local government election requirement.  For example, are any of the following a borrowing covered by the proposal: employment contracts, construction contracts, operating leases, agreements between governments to share revenues, or economic development agreements between a government and a private entity?

The proposal states that "No borrowing may continue past its original term."  The proposal also provides that "all current borrowings shall be paid."

Perhaps this means that there can be no extension of a borrowing through a refunding, or perhaps it means that if a borrowing is not paid at maturity, it is deemed paid.  Some are suggesting that the phrase "all current borrowings shall be paid" means that outstanding borrowings must be paid off in 2011.  However, it does not say when the borrowing must be paid, so perhaps it means the borrowing must be paid when due in accordance with its original terms.  The proponents' website explains this provision as: "Subparagraph (iii) prevents borrowing from going beyond its payoff date; that would be a new borrowing after 2010. Any borrowing before 2011 must be paid, whether legal or not." So it appears that the intent is that this is in the nature of a savings clause - that nothing in the proposal impairs existing borrowings.

Except for enterprise borrowings, when a borrowing is repaid, tax rates must decline in an amount equal to its planned average repayment, even if the debt is not repaid from taxes. 

So if a City issued tax increment revenue bonds for its downtown development authority, City tax rates would apparently have to go down when the debt is paid.  This may effectively turn the local government election requirement into a debt prohibition for borrowings not paid from taxes.  

The proposal also makes some changes to Article XI of the Constitution, none of which seem significant given the TABOR provisions, except that the proposal adds to Section 6 a requirement that the ballot title specify the use of the funds, which shall not be changed.

If you have any questions regarding this article or its possible impact on your activities and operations, please contact your Sherman & Howard attorney or one of the attorneys in our Public Finance Group.

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© 2010 Sherman & Howard L.L.C.                                                  February 5, 2010