DENVER -- No matter what Colorado voters decide tomorrow about proposed tax and spending limits on local government, bond dealers expect slow times ahead.

The reason: Prompted by concerns that a proposed constitutional amendment could shut them out of the credit markets, local issuers have already pushed $ 4.2 billion in volume -- two-thirds of it new money -- into the market this year. Half of that has been sold in the last two months.

"The large general obligation issuers have combined some sales," said Alex Brown, senior vice president at George K. Baum & Co. in Denver. "Pass or fail, there will be a scarcity of Colorado paper over the next six to nine months."

But just when that expected drought of issuance ends is likely to depend on whether voters approve the Taxpayer's Bill of Rights, a strict measure that would limit taxes and spending.

The current proposal, the eighth of its kind that Colorado voters have considered in about 20 years, would tie the growth of spending to the economy and other factors.

"If the economy is bad, why shouldn't the government tighten its belt, too?" said Douglas Bruce, a Colorado Springs landlord who drafted the proposed constitutional amendment. "The government bureaucrats are saying that if there's a downturn, they should be able to take a bigger share of a shrinking pie."

But opponents say the Bruce Amendment, as the measure is commonly known, would handcuff officials with a one-size-fits-all approach and create a shift away from representative government.

"I see the Bruce Amendment as micro-management of government by popular vote, which is contrary to the republic form of government we live under," said Dick Haber, a senior analyst at Kemper Securities Inc. "The taxpayers would be overwhelmed by all the decisions this would have them make."

Others agree.

"I pray at the altar of local control," said Sam Mamet, associate director of the Colorado Municipal League, which opposes the amendment. "Bruce prays at the altar of ~let the people decided.

If voters approve the amendment, it will limit taxes and spending to a formula based on growth and inflation. To exceed those levels, voter backing would be needed The measure would also require approval of all multiyear debt that now requires no debt, such as certificates of participation.

"It will have no impact on the need for capital," said Jack Pepper, executive vice president and manager of public finance at Hanifen, Imhoff Inc. "Those things that need to be financed are going to get financed. It's just going to be more hoops to jump through."

This is the third time Bruce has tried to pass his proposals. Newspaper tracking polls last week showed support for the amendment leading opposition by seven to 10 points. Two years ago, the measures were in a dead heat before losing on Election Day.

"It has become a very tight race," said Wayne Nielsen, first vice president and manager of Kirkpatrick, Pettis, Smith, Polian Inc. As president of the Colorado Municipal Bond Dealers Association, he has been active in the No to One Committee effort to defeat the Bruce Amendment. The group takes its name from the first question on the ballot.

As in the past, the securities industry is playing a major role in the campaign.

At one brokerage here, signs declaring "No One Wins With 1" hang in downtown office windows.

Another firm mailed anti-amendment literature to its retail customers.

Some investment bankers have spent evenings at phone banks calling would-be voters, asking them to reject the measure.

But the most visible role in industry plays is in bankrolling the No to One Committee. Bankers, bond lawyers, trustee banks, and others in the securities business have donated nearly 40% of the almost $600,000 contributed through the Oct. 23 reporting period.

Of the $230,455 from the industry, the largest contribution was $67,000 from the bond dealers association, while the largest backers among firms were Dain Bosworth Inc. and George K. Baum & Co., which gave $20,000 each. Dealers predict their contributions could top $300,000.

But bond dealers are hardly alone.

Teachers, law enforcement groups, businesses, and public officials are doing their part. Some cities have drafted reports that show how the Bruce Amendment would have affected their budgets during the past five years.

They report that revenue would continually have shrank because of the dual impact of tax limits and spending limits. In suburban Westminster, officials say their current budget would have been $ 3,15 million, or 10% smaller than it now is.

Susann Stubbs, the Westminster's finance director, said the revenue decline would have been exacerbated after the economy soured in 1988. Because an economic downturn causes revenues to drop, the amendment would have lowered the maximum expenditures allowed without voter approval.

"So that when the economy started picking up, it did no good because there was no way to go back past the ceiling without a vote," she said.

How would a 10% cutback affect Westminster's budget?

"We do a lot of our capital projects on a pay-as-you-go basis," Stubbs said. "We wouldn't be able to do that. We would probably have to use debt.

Bond dealers also predict the amendment would cost governments revenues, as well as causing credit quality and local services to erode over time -- a view shared by Wall Street rating analysts.

"That is a lie," Bruce said of such predictions, citing the experience of his hometown of Colorado Springs. Last year voters there adopted city charter amendments limiting spending and taxes and mandating tax rollbacks without, he said, terrible consequences for services.

In the past year, city officials eliminated positions from some departments while adding personnel to the police force. The fiscal 1993 budget will grow by nearly 10 percent to $120 million because of the region's economic recovery.

"That's sort of misleading," said David Nickerson, director of planning, finance, and budget for Colorado Springs. "You can't look at the situation and know what the true financial status of the city is."

He said the true impact of the charter limits, which are more restrictive then the proposed Bruce Amendment, will be subtle and not immediate.

"It's like deferring maintenance," he said. "You can cut it out and nobody notices the difference, but after two or three years you have a crumbling infrastructure that will catch up to you."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.