Debt by Any Other Name -- Is Still Debt

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Debt by Any Other Name -- Is Still Debt

by Christie Donner, Stephen Raher, and Ari Armstrong; December 10, 2003

Despite their oaths to uphold the law, our legislators had a tough time following the Colorado Constitution during the 2003 session. The Taxpayer's Bill of Rights requires voter approval for all multi-year financial obligations, and the single subject clause prohibits logrolling, or placing two measures in the same bill to facilitate vote-trading. So what did our legislators do? They violated both constitutional provisions in a single bill to saddle our children with $300 million of unauthorized debt.

Here's now the legislative scheme went down. Last December, the Governor's office announced it would pursue legislation to build an $80 million, 750-bed prison using debt financing. When the bill was introduced in early 2003, the original proposal had grown to a $100 million prison and a $200 million building project at the University of Colorado Health Sciences Center at Fitzsimons. This became House Bill 03-1256, sponsored by Speaker of the House Lola Spradley (R-Beulah) and Senate Majority Leader Norma Anderson (R-Lakewood). What does a medical facility have to do with a prison? The answer is simple: nothing, except that the political way to pass both measures during tight financial times was to lump them in a single bill. Some legislators felt strongly about the prison, others felt strongly about the medical school -- combine these two groups, and you have a majority.

Obviously, the state doesn't have the cash reserves to pay for $300 million of new construction. HB 1256 authorizes the issuance of "certificates of participation" (also referred to as COPs) that are marketed to investors like bonds. COP holders are repaid, with interest, in annual installments (via successive, one-year "lease-purchase agreements") until the debt is retired. HB 1256 fixes the term of the COPs at fifteen years for the prison and twenty-five years for the medical school at Fitzsimons.

The Colorado Criminal Justice Reform Coalition opposed HB 1256, arguing that it violated TABOR's requirement that voters approve multi-year government debt or financial obligations. We had our champions, especially Senators Andy McElhany (R-Colorado Springs), Doug Lamborn (R-Colorado Springs), and Peggy Reeves (D-Fort Collins). All three argued eloquently that the legislature owed it to the people of Colorado to let voters decide this issue. During the Senate floor debate, Senator McElhany stated "the precedent is well established that when we incur multi-year obligations such as the ones that are provided for in House Bill 1256, that we allow the people of the State of Colorado to vote on whether they want to pick up debt for twenty-five years."

Senator Anderson answered by claiming that, because of the annual appropriation clause, future legislatures could legally stop payments on the COPs at any time. Therefore, since there was no multi-year debt there was no need for voter approval.

And while a legislature could legally default on COPs, reality is not so simple. Treasurer Mike Coffman testified before the Joint Budget Committee in 2002 that despite the legislature's legal ability to default on COP payments, "the fact remains that a future legislature does not really have the latitude to not make the annual appropriation. The practical consequences of a decision not to make the annual appropriation, which include credit rating downgrades and quite probably being shut out of the capital markets indefinitely, are so severe that no Legislature will seriously contemplate facing them."

Coffman concluded his testimony by saying he felt that COPs should be submitted to voters for approval. HB 1256 was amended in committee to require voter approval, but this provision was stripped off on the Senate floor. The bill passed and Governor Owens signed it on April 28.

On October 7, 2003, the Colorado Criminal Justice Reform Coalition and four individual plaintiffs, through their attorney Paul Grant, filed a lawsuit in Denver District Court, challenging the constitutionality of HB 1256.

On October 29, Peter Blake wrote in a column in the Rocky Mountain News, "Logrolling votes and running up debt without a vote of the people -- those are the Colorado legislature's most popular vices. The state constitution forbids both, but hey, everything's constitutional until a court says it isn't, so why not take an occasional flier and see if anyone cares enough to sue?...[S]omeone did care enough to sue the state in an effort to nullify the bill. The plaintiff is the Colorado Criminal Justice Reform Coalition."

This lawsuit is about more than just TABOR. At its core, it is about making the legislature adhere to the principles enshrined in our constitution.

(c)2003
The Independence Institute

INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is President of the Institute.

Christie Donner and Stephen Raher are co-directors of the Colorado Criminal Justice Reform Coalition. Ari Armstrong is a Libertarian activist, author, and publisher of the Colorado Freedom Report. All three are Plaintiffs in the lawsuit. If you would like to sign up to receive periodic email updates on the lawsuit, get information on ways you can help support the lawsuit, or read more, please go to www.ccjrc.org/lawsuit.

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

The Colorado Freedom Report--www.freecolorado.com