DALLAS - Gov. Roy Romer yesterday asked the Colorado Supreme Court to interpret how the state's new tax and spending limits affect state and local governments, including their ability to sell certain bonds.
The governor raises broad issues, seeking to clarify what are districts and enterprises and whether they and annual appropriation obligations are subject to the restrictions of Amendment 1. Voters approved the measure in the Nov. 3 election.
The amendment limits the rate of growth of government spending and revenues to a complex formula, unless voters approve increases. Also, all multiyear debt must now be voter-approved.
In a midday news conference, the governor said his lawyers had filed interrogatories asking justices for a quick ruling to give state and local governments guidance on how to operate under the constitutional amendment, which many have complained is too ambiguous.
He said the questions were not an attempt to circumvent the decision of Coloradans.
"This is an effort to clarify some questions and to implement it correctly," said Cindy Parmenter, a spokeswoman for the governor.
It is not clear when or if the court will hear the questions raised by the governor. While the justices do not have to respond to the petition, many industry observers believe that Colorado governments may be unable to access the credit markets without some clear rulings.
"We think it will be helpful to have clarification on how to deal with Amendment 1," said Wayne Nielsen, first vice president and manager at Kirkpatrick, Pettis, Smith, Polian Inc. in Denver and president of the Colorado Municipal Bond Dealers Association. "Everyone's hopeful that their decision will be quick, but quick may be six months."
In outlining the five issues he hopes the high court will address, Romer yesterday said that local officials, bond lawyers, underwriters, and others helped outline major legal questions.
The governor asked the court whether special-purpose authorities that are not authorized to levy taxes are districts as defined by the amendment. Bond lawyers have said that issue could affect the ability of local housing authorities and urban renewal authorities to sell bonds.
Second, the court was asked to determine whether the amendment affects annual appropriation agreements, such as certificates of participation. Such obligations have been ruled by two previous state Supreme Courts as not being debt as defined by the Colorado Constitution. If they rule the same again, then popular COP and leaseback financings will not be directly affected by Amendment 1.
However, Ditmar Kopf, assistant vice president at Moody's Investors Service, said that even if Colorado issuers prevail, investors may shun COPs because of the financial squeeze that Amendment I puts on city operations.
"There may not be a market for these in the new environment," he said, adding that buyers may shy away from an obligation not backed by a specific or new revenue. "The market is going to be very leery."
Third, the governor asked the court to clarify when a government enterprise may be affected by the amendment. An enterprise is a self-supported business that draws no more than 10% of revenues from state and local grants.
The question asks whether the lack of express statutory or charter authority to issue bonds in its own name would prevent an entity from being classified as an enterprise.
In a separate but related question, the governor also asked whether an airport - classified as an enterprise - is exempt from the amendment if a local government is authorized to issue revenue bonds for the airport that are payable solely from airport revenues.
The question has implications for the new Denver International Airport, which is operated as a self-supporting enterprise even though the city and county of Denver issue revenue bonds under their own names.
Lawyers say an adverse ruling could mean that future airport bond issues would be subject to provisions of Amendment 1, including the need for voter approval. The airport's outstanding $3 billion of debt would not be affected.
The final issue raised asks the court to determine whether Amendment 1 dictates when and how ballot questions that are not financial may be put before voters.
Although bond dealers were pleased the governor adopted their major issues, Romer chose not to ask the justices how the amendment would affect special assessment bonds and how pre-Amendment 1 general obligation bonds would be affected if they are refunded.
Bond lawyers say it is not clear whether the refunding bonds could continue to carry an unlimited tax pledge they had when first authorized.
While some bond counsel have said they could opine that refunding bonds would continue to be backed by an unlimited tax pledge, others say a separate legal challenge may be necessary to give the market comfort.
"We haven't reached a decision about that point," said Dee Wisor, a bond lawyer at Sherman & Howard in Denver, one of the state's largest bond counsel. "Obviously, if the market isn't comfortable with [an opinion], then litigation may be necessary."