Colorado Municipal Bonds - a Revolution

JurisdictionColorado,United States,Federal
CitationVol. 4 No. 6 Pg. 1055
Publication year1975
4 Colo.Law. 1055
Colorado Lawyer

1975, June, Pg. 1055. Colorado Municipal Bonds - A Revolution


Vol. 4, No. 6, Pg. 1055

Colorado Municipal Bonds --- A Revolution

by Michael D. Groshek

Within the past decade, the law and customs relating to municipal bonds issued throughout the United States have undergone frequent and significant changes. In many instances, enduring fundamental concepts were abruptly discarded and state constitutional, statutory and charter provisions had to be reinterpreted. It is the intent of this article to review in cursory fashion some of the more momentous of these national developments and their impact upon Colorado municipal bonds and local developments which relate to Colorado municipal bonds. In so doing, it is hoped that the suggested theme hereof will be sufficiently demonstrated, i.e., that we have just witnessed a revolution in the law and customs of Colorado municipal bonds.

The term "municipal bonds" appears frequently herein. It is intended that this term (or words of similar import) include all types of borrowing of the individual states (and, where indicated by the context hereof, specifically of the state of Colorado) and agencies, instrumentalities and political subdivisions thereof (e.g., state colleges and universities, counties, cities and towns, school districts, water and sanitation districts and other special taxing districts) which are payable in whole or in part after the fiscal year in which contracted and from either general (ad valorem) taxes or other special taxes or funds. This borrowing may be evidenced by bonds, warrants, notes, certificates or other paper. Also, the term "issuer" appears frequently and is intended to mean any type of municipal borrower, i.e., the states and their agencies, instrumentalities and political subdivisions.

Of the many developments that will be considered, a notable number directly and indirectly affect qualifications and procedures for voting on debt of Colorado political subdivisions. Specifically, this article will include consideration of the 1970 amendments to the debt and elective franchise provisions of the Colorado Constitution, the case law invalidating the tax-paying and property-owning qualifications for voting on debt, the Twenty-Sixth Amendment to the United States Constitution, the case law invalidating durational residence requirements for voting and relating to the purging of voter registration lists, and resulting remedial Colorado legislation relating to the foregoing. Additionally, attention will be given to the case law which at least indirectly challenged the reliance upon the general (ad valorem) property tax as the legal support for general obligation bonds of school districts, the Colorado legislation relating to long term leases and installment purchase agreements for schools, Colorado legislation and case law relating to industrial development revenue bonds, federal legislation and Treasury temporary, proposed and final regulations which concern the exemption of interest on municipal bonds from federal income taxation (specifically relating to industrial development bonds and arbitrage bonds), municipal bond insurance


and the CUSIP system for identifying municipal bonds

Hopefully, this article will serve to put these developments into perspective and will be of some practical assistance to Colorado practitioners who represent municipal issuers.


General obligation bonds generally are considered to be those obligations issued by the various states and their political subdivisions which are payable in whole or in part after the fiscal year in which contracted and which are secured by the full faith and credit of the issuer. In Colorado, general obligation bonds of political subdivisions legally are payable from general (ad valorem) taxes and any other revenue or income of such issuer and constitute "debt" (sometimes referred to as "indebtedness") which is subject to constitutional and statutory provisions or, where applicable, home rule charter provisions which may require an election or restrict the amount of debt which may be incurred (i.e., "debt limitation"), or both. Revenue bonds (subject to some exceptions) and special assessment bonds are generally considered to be "special fund" obligations payable solely from and secured by a lien upon designated special revenues or special funds and ordinarily do not constitute such "debt" or "indebtedness."

The sudden overturning of long-standing legal principles affecting Colorado municipal bonds is dramatically illustrated by the suggested conclusion that it no longer is proper to read literally all of the express language of the Colorado Constitution which relates to the qualifications of voters for elections on the incurrence of debt of Colorado political subdivisions. Specifically, the present Colorado Constitution provides that no political subdivision shall contract any general obligation debt by loan except where a home rule charter may provide differently and except for water debt of specified political subdivisons unless the question of incurring the same be submitted to and approved by a majority of the qualified taxpaying electors voting thereon, as the term "qualified taxpaying elector" shall be defined by statute.(fn1) When such debt provision is read literally with the constitutional provisions relating to general qualifications of electors for all elections,(fn2) the requirements for voting on debt proposed to be issued by a political subdivision are that a person must be a citizen of the United States and:

1. must be at least 21 years of age;(fn3)

2. must have resided in the state of Colorado for not less than three months next preceding the election;(fn4)

3. must have resided in the county or precinct in which the elector offers to vote for such time as may be prescribed by law(fn5) (prior to the 1975 Legislative Session, generally being 32 days); and

4. must be a "taxpaying elector" as defined by statute.(fn6)

As a result of decisions of the supreme courts of the United States and Colorado, the Twenty-Sixth Amendment to the United States Constitution and recent amendments to the Colorado statutes, it is suggested that the correct qualifications for voting on such debt (at least prior to the 1975 Session of the Colorado General Assembly) require that the person seeking to vote must be a citizen of the United States and:

1. must be at least 18 years of age;(fn7)

2. must have resided in the state of Colorado for only 32 days prior to the election;(fn8)

3. must have resided in the county or precinct within the political subdivision in which the elector offers to vote for 32 days prior to the election (except that where registration is not required for such an election, e.g., in special taxing districts, a resident voter need only be a resident of the special taxing district on the day of election and where the elective franchise is extended to certain nonresident voters, residence in the political subdivison obviously is not required at all);(fn9) and


4. need not have paid a property tax or owned taxable personal or real property (except in those instances, e.g., special taxing districts, where the elective franchise is extended to nonresident owners of property in the political subdivision).(fn10)

This part of the article will briefly consider the legal developments which make the foregoing interpretation compelling as well as other legal developments relating to Colorado municipal bond elections. The discussion of the foregoing voter qualifications will not appear in the order given above because it appears easier to put them in perspective if they and other developments affecting Colorado general obligation bonds and elections are considered as nearly as possible in chronological order. Thus the 18-year-old qualification is discussed under "The Twenty-Sixth Amendment;" the 32-day residence requirements are discussed under "Durational Residence;" and the demise of the "taxpaying" qualification is discussed under "Taxpaying and Property-Owning Qualifications."

1970 Local Government Debt Amendment

Prior to January 1, 1972, debt of counties, school districts and cities (except for some home rule cities) and towns was restricted by the Colorado Constitution,(fn11) but debt of other Colorado political subdivisons (e.g., water and sanitation districts and other similar taxing districts) was not restricted by the Colorado Constitution. County debt formerly could be contracted only for purposes specified in the Constitution, was limited as to amount by very restrictive debt limitations prescribed by the Constitution and statutes, and had to be approved at a general election by a majority vote of the qualified electors of the county as in the year last preceding such election had paid a tax upon property assessed to them in that county and who actually voted on the question.(fn12) Debt of school districts formerly could be contracted only for designated school purposes specified in the Constitution and only if approved at an election by a majority vote of the qualified electors of the district who had paid a school tax therein in the year next preceding the election and who actually voted on the question.(fn13) There was no constitutional debt limitation for school indebtedness, although there was a statutory debt limitation.(fn14) Debt of cities and towns (other than debt of home rule cities, which is governed by their home rule charters)(fn15) formerly was not restricted by the Constitution as to purpose for which issued. Such debt (except that contracted for supplying water) was subject to constitutional debt limitations and (again, except for debt contracted for supplying water) had to be approved at a regular election for municipal officers by a...

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