DALLAS - Kemper Securities Inc. warned this week that if Coloradans approve a constitutional amendment limiting government spending and taxes, local government could be financially paralyzed and temporarily shut out of the credit markets.

The brokerage said that if voters approved the so-called Bruce Amendment on Nov. 3, local budgets could be frozen at current levels while litigation to determine the impact of the measure is begun.

In general, the proposal raises more questions than answers, the firm said. "This is one of the most ambiguous and far-reaching tax limitation amendments I've ever seen," said Dick Haber, vice president and senior analyst in Kemper's Denver office. "What concerns us the most is the amendment's ambiguity. "

In its four-page report Wednesday, Kemper urged taxpayers and Colorado bondholders to study the amendment and assess how they may be affected if it passes. The report takes no formal position on the proposal.

Mr. Haber, an analyst for 20 years, compared the measure with California's Proposition 13, which limits property taxes to 1% of assessed valuation and limits annual increases to 2% a year. However, the Colorado plan limits both revenues and spending of state and local governments to an index based largely on growth.

"The growth bias we've all grown up with may be disappearing," Mr. Haber said yesterday.

He interpreted the amendment, drafted by Colorado Springs landlord Douglas Bruce, to mean that rural taxing districts could experience shrinking budgets and services in the absence of growth.

Kemper. said the same could be true statewide or even for municipalities that have traditionally experienced strong cyclical growth.

"Presumably, if the components of the growth indices were to fall, then government revenue/expenses would also be indexed downward," Kemper wrote. "Stability or decline in population, assessed values or in school enrollment would harm precisely those segments that are least able to cope with distress. And the state's ability to provide even interim assistance is likely to be compromised."

But Mr. Bruce said the proposed index bases increased revenues and spending on a formula that includes inflation and growth.

"You don't have to regress even if you don't have growth," he said. "If inflation is at 4%. then your spending can't go up over the 4% unless voters say so. The whole concept of the amendment is that if a city does not have growth, then the cost of government should remain the same in inflation-adjusted dollars."

Last month, Moody's Investors Service warned that approval of the measure could erode credit quality and put constraints on local government. For instance, under the Bruce amendment, all long-term borrowing, even lease financings. would require voter approval.

But analysts are not the only ones warning that approval of the Bruce amendment could hurt Colorado government. The state's bond dealers plan to help bankroll a campaign to persuade voters that the amendment would be detrimental.

Mr. Haber says the proposed restrictions are behind the current push, by Colorado localities to use existing bond authorizations and refund debt before the Nov. 3 election. He said the passage of the amendment would likely shut issuers out of the market, especially the market for debt backed by annual appropriations, which could be threatened if budgets become tight.

"The implications, in the short term for existing credits that have been grandfathered, is that bondholders should rest comfortably," he said. "We think those bonds will follow the California path of being more precious. Like the pre-Prop. 13 bonds, the pre-Bruce bonds will benefit from scarcity."

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