DENVER - When tax limit author Douglas Bruce spoke to Colorado bond dealers here recently, he asked how many thought the passage of Amendment 1 last month would cost them their jobs.
One man raised his hand. But while others may expect to keep working, most agree that life is going to be slow since issuers rushed out a near-record $4.7 billion of long-term debt before voters could approve the limits on state and local government Nov. 3.
At George K. Baum & Co., whose 15% of the municipal market makes it the state's leading senior manager this year, officials plan to stay busy advising clients on how to deal with the limits set by the constitutional amendment. The work, however, is not likely to lead to underwritings or revenues any time soon.
"We obviously are projecting less issuance, probably for the next year," said Robert Dalton, vice chairman of Kansas City, Mo.-based Baum, a mega-regional with 11 public finance offices nationally. "We've made a commitment to our clients to service them through this time."
Up and down 17th Street, the city's financial district, bond firms of all sizes face the same problem: a year in which remarkably few bonds are expected to be sold until the courts sort out how the tax and spending limits affect bond sales.
For national and many regional firms, it will simply mean diverting investment banking talent to neighboring states such as Utah and Idaho. For small local firms, the drought of issues may test their ability to survive in an environment that could hit general market firms the hardest.
"In 1993, it's anybody's guess of what the volume will look like," said Steve Binder, senior vice president and manager at Kemper Securities in Denver. "It's not going to be close to at least half of what we've had this year, or it could be smaller."
Walt Imhoff, chairman of Hanifen, Imhoff Inc., a Denver-based regional said his firm will look beyond its long-standing specialty in Colorado municipal bonds. "We'll just look for other opportunities," he said.
But some longtime players in the Denver market worry that local firms may be hurt the most in the rush to compete in unfamiliar markets. "The interesting point will be how the small regional firms will do in states far away," said Larry Malohn, vice president and manager for A.G. Edwards & Sons in Denver. "It may be hard to just go to a state where you are not known."
At Coughlin & Co., a local dealer founded 17n 1932 at the height of the Depression, executives say that it began diversifying beyond munis and outside the state in the wake of the Tax Reform Act of 1986, increased completion, and a flat Colorado economy.
"We realized we had to seek other things," said George F. Coughlin, executive vice president of the company, which drew half of its revenues from municipals in 1991 while continuing to expand into asset-backed deals and securitizations. "Last year we underwrote three to four times the number of issues outside Colorado as inside the state."
Even if Bruce's amendment had failed last month, bond dealers expected to face a short supply of deals well into mid-1993 because of the push to sell bonds in anticipation of the tax and spending limits being approved.
"Whether it was passed or not, a lot of what was sold in October is what would have been sold in 1993," said Russell Heise, senior vice president and manager for Dain Bosworth Inc., the state's leading co-manager in 1992. "It was clearly going to be down for six months either way."
During the two months before the election, issuers sold 48% of the year's volume, with 33 deals totaling $1.29 billion alone in October, according to Securities Data Co.
In mid-October, the largest deal to come to market was a $325 million issue sold by Jefferson County School District No. 1, the state's largest school system. The bonds were sold just days after voters authorized the general obligation debt.
While their transactions were not as large, several Colorado governments pushed for voter approval of bonds to be grandfathered from the effects of Amendment 1, so after the Nov. 3 election issuers could sell debt approved beforehand. Others structured their ballot proposals to comply with the restrictions so they could be sold after the election.
One such agency was the San Miguel School District, which recently sold an $11.5 million general obligation issue that was approved by voters to meet Amendment 1 requirements. For instance, voters were told that approval of the bonds would result in tax raises and an increase in expenditures.
"We know that some bonds were constructed with anti-Bruce provisions in them," said Dick Haber, bond analyst at Kemper Securities in Denver. However, it is not certain how many of the so-called Bruce-proofed issues are waiting to be sold.
Now, it will be at least November 1993 before taxing districts can ask voters to approve new debt sales. Under provisions of the amendment, elections can be held only on certain dates annually, and the next one is 11 months away.
Complicating the future of bond business is uncertainty over key legal questions on how bonds are affected by Amendment 1. Bond lawyers and underwriters had hoped the Colorado Supreme Court would hear arguments and issue guidelines over how the restrictions should be interpreted, but the court declined.
"As an industry, we are literally on a daily basis of ~what does this law mean?'" said Kemper's Binder. "We're looking at the market and trying to determine what we're dealing with."
The court's rejection of a request from Gov. Roy Romer to hear the case means it could be years before some of those legal questions reach final appeal. In the meantime, bond dealers say they are hopeful that their clients can survive the effects of limits on their spending and revenue sources imposed by the amendment.
"I think his view of the future of government is one that is so streamlined as to be anorexic," said Alex Brown, senior vice president at George K. Baum.