DALLAS -- Even though Gov. Roy Romer vetoed a bill mandating unprecedented oversight of Colorado's special district bonds, the measure may become law because of a bureaucratic glitch.
After extensive lobbying by bond dealers, the governor in June vetoed S.B. 159 and signed a rival measure also intended to increase oversight of the state's special districts after defaults by some districts on more than $300 million of defaulted bonds.
But an aide forgot to file the governor's veto message -- the written reasons for his opposition -- with the secretary of state as required by the state constitution.
"We literally made a mistake," said Cindy Parmenter, the governor's press secretary. "Someone filed, at the deadline, the vetoed bill without a cover letter."
Gov. Romer says the veto still holds, but the legislature sees it differently. The Colorado Supreme Court last month refused to decide the matter, so now lawyers for the governor are considering filing suit to seek a declaratory judgment from a lower state court.
The lawyers may file by September. Legislators plan to publish as law the special district bill -- and three others given a second life because of the mistake -- later this month.
"I really thought he would veto it and it would be dead," said state Sen. Ray Powers, R-Colorado Springs, the sponsor of S.B. 159. "I think it's definitely law, and we'll win the case."
For bondholders stung by special district bond defaults, the glitch could mean victory after all.
"The members were disheartened to hear that the governor had vetoed it," said Peter Webb, a spokesman for the Colorado Municipal Bondholders Association, which formed to push the legislation. "They were heartened to find that because of a bureaucratic error, it may have become law."
Colorado's securities commissioner, Phil Feigin, said precedent is on the side of bondholders who want to see S.B. 159 declared law.
In 1978, the same thing happened to then-Gov. Richard Lamm when he failed to file a veto message and a court held that the measures were law. The error has also happened at least twice before to Gov. Romer.
If the bill becomes law, Mr. Feigin could see his office transformed into an aggressive oversight agency -- perhaps more powerful than any otehr state commission in the nation.
"Most states can do nothing but keep their hands in their pockets and wait for something to happen. In Colorado, something did happen," he said in an interview. "This [legislation] wasn't my idea. They came to me."
Bondholders formed a 390-member group earlier this year in the wake of more than $500 million in bond defaults in Colorado, more than half of that coming from high-risk development driven special districts.
The organization backed S.B. 159 as the way to protect future investors from defaults that investment bankers blame on a mid-1980s land bust in Colorado.
The law would require special districts to register with a new state oversight board handled by Colorado's securities commissioner and paid for with fees from issuers.
But bond dealers and issuers opposed the measure, saying it would create a new and unnecessary bureaucracy. Instead, they supported two measures -- both signed by the governor -- to mandate secondary-market disclosure and impose some restrictions on nonrated debt. That is what S.B. 14 would do.
"I worked real hard for that bill because my concern was that because there was a problem with developer districts, we not throw out the baby with the bathwater," said Dodie Gale, executive director of the 900-member Colorado Special District Association. "S.B. 159 created a bureaucratic review of bonds that was expensive and unnecessary."
Alex Brown, president of the Colorado Municipal Bond Dealers Association, said the industry group opposed S.B. 159 because it could encourage state-by-state regulation of bonds rather than a consistent national system.
"It's the first step in that direction," said Mr. Brown, a vice president at Kirchner, Moore & Co., a division of George K. Baum & Co. "What we are seeing in Colorado makes no sense, and it makes the offering of securities more complicated."
S.B. 14 makes counties and municipalities responsible for oversight of special districts and would restrict the amount of nonrated debt those issuers could sell.
Because both Senate bills take effect Jan. 1, 1992, some officials say it is not yet clear how to address overlapping jurisdictions both measures affect.
"They certainly weren't designed to go hand in hand," admits Mr. Feigin.
Dee Wisor, a bond lawyer at Sherman & Howard in Denver, said bankers might have tried to refine S.B. 159 if they had not been sure of its veto.
"If the bond industry had thought it wasn't going to be vetoed, they might have worked harder to clean up some of the problem language," he said.
Lawmakers also passed a third law -- H.B. 1282 -- last spring that makes Colorado the first state in the nation to mandate secondary-market disclosure by special districts. That plan is not affected by the controversy over the Senate bill.
The measure requires annual reports be filed with the Colorado Division of Local Government on all nonrated securities -- a low-cost measure that could aid investors considering buying such bonds in the secondary market.
"Our approach is to provide technical assistance," said Hal Knott, executive director of the state agency. "We are not on a witch-hunt."