On November 2, Amendment 61 will require Colorado voters to decide whether to alter the way the State and its local governments finance and construct public improvement projects. Amendment 61 is joined on the election ballot by Amendment 60 and Proposition 101. Previously, Sherman & Howard's Public Finance Department provided detailed summaries of Amendment 60, Amendment 61 and Proposition 101. In this Real Estate Advisory, we offer you a brief analysis of the effect of Amendment 61 on real estate development in the State.
First, Amendment 61 prevents the State and its political entities from borrowing money in any form, including any short-term borrowing for cash flow purposes (e.g., the State currently borrows money and loans it to school districts for their cash flow needs, and such State loans would now be barred). If passed, Colorado would be the first and only state in the nation that is prohibited from borrowing under any circumstances.
Proponents argue that Amendment 61 merely restricts the State from spending money it does not have. While the State local governments already balance budgets every year and most new borrowing is subject to voter approval (except as allowed by the Taxpayer Bill of Rights ("TABOR")), Amendment 61 would prohibit other financing mechanisms that have been employed by the State and local governments since the adoption of TABOR including certificates of participation, lease-backed financing and lease-purchase agreements. These financing mechanisms have allowed the borrowing of money based on dedicated revenue streams, annual appropriations or collateral to purchase bonds or other instruments. Over the years, the State and various local governments have collaborated with the finance and real estate industries to utilize these mechanisms to finance master planned communities, schools, prisons and other projects.
Second, Amendment 61 imposes new restrictions on borrowing by local governments (including school districts, cities and counties). While these entities would continue to be allowed to borrow, if Amendment 61 is approved:
- The types of borrowings for which voter approval is required would be expanded;
- Any new debt would have to be in the form of bonded debt and would have to be repaid within ten years (The current limit on the maturity of such debt is 40 years.); and
- The total principal amount of all debt on which the local government is obligated from time to time will be capped at 10% of the assessed taxable value of real property in the local government's jurisdiction (Currently, school districts, for example, may borrow up to 20% of the assessed taxable value of real property within their boundaries. Special districts are currently allowed to borrow up to 50% of the assessed taxable value of real property within their boundaries).
The effect would be to restrict a local government from issuing any new bonds until either (1) property values within its boundaries increase or (2) outstanding debt is paid down, in each case to the point where the 10% cap is satisfied. Thereafter any new debt will remain subject to the 10% cap. The cumulative effect of these limitations can be seen, for example, in the Denver Public Schools which, if Amendment 61 is approved, has estimated that it will be precluded for a number of years from issuing any new debt unless and except to the extent property values increase to make room for its issuance under the 10% cap.