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Colorado’s Proposed Amendment 61: More Problem Than Solution

July 8, 2010

At last count (and still counting), the US Federal Budget deficit stands at $1.43 trillion, and the national debt is now $13.2 trillion.  Those are big dollars, but the US is a mighty economic engine even in these recessionary times.  Still, the national debt is now over 90% of the nation’s entire economic output for a year.  Put another way, if we took 100% of all income from everyone and everything in our entire country for a whole year, we would just barely repay the current $13.2 trillion debt.   Those are disturbing numbers, and they are part of what is driving a set of ballot initiatives slated for the November elections in Colorado.

Amendment 61 is one of these initiatives and arguably holds the most potential harm for the water and wastewater industries.  As professionals in these industries, we are all well aware of the large amounts of money it takes to construct, repair, replace, and retire our infrastructure assets throughout their lifecycles.  Amendment 61 would limit local governments’ ability to finance those assets in two ways: it would require voter approval of capital acquisitions requiring financing, and it would limit financing terms to no longer than 10 years.  On its face, to everyday voters, Amendment 61 would seem like a somewhat logical check against government sector spending.  However, what Amendment 61 would actually accomplish would be to nearly eliminate investment in capital infrastructure that is sorely needed in many areas but especially to replace our aged water and sewer infrastructure.

Proponents of Amendment 61 claim that the amendment is an answer to “massive deficit spending.” However, unlike federal spending, there is no deficit spending in Colorado as the State Constitution requires a balanced budget.  Local governments also require balanced budgets, and bonds, to the extent they are used, are used for construction projects.

Imagine having to earn voter approval to replace a broken lift station, or a collapsed segment of water transmission pipe.  Then, imagine financing those improvements over 10 years instead of a more typical 20 to 30.  Now, take a big project like the Southern Delivery System in Southern Colorado, or the Prairie Waters Program in Aurora.  Imagine financing $700 million to $1.5 billion in 10-year notes.  Here’s some quick math: a $700 million project financed at 10 years at 5% will cost over $90 million/year; the same project financed for 30 years would cost $45 million.  Because utilities are funded annually by user fees, the difference in this example equates to Amendment 61 costing ratepayers twice as much each year.

In essence, Amendment 61 creates an unfunded mandate that supporters of the measure would usually decry.  With the proposed amendment in place, water and sewer utilities would have to compile massive reserve funds to cash-fund necessary infrastructure, which will also require dramatically higher user charges.  As usual, small communities are likely the hardest hit.  Mike Brod, director of Colorado’s State Revolving Fund loan program says that the State would not be able to issue bonds to leverage the federal grants that capitalize the program, thus cutting annual SRF lending to about one-third of the current amount, and the SRF loans would be limited to 10-year terms as well.

The amendment comes to the ballot in November, and current polls show it would pass if the vote were today.  At a time when the water and sewer industries are in the most need for capital investment in a generation, Amendment 61 would make that investment nearly impossible and prohibitively expensive for ratepayers. It causes problems when what we need is solutions.  Our industry can’t afford Amendment 61.

Comments (2)

2 Comments »

1. 

   Pending Calamity in Colorado
   On November 2, 2010, Colorado faces 3 tax reform ballot measures which would change the landscape of all future municipal debt issuances.

   Amendment 61 calls for prohibiting borrowings by state and local governments and require voter approval for future loans. Local governments, including special districts and enterprises would be required to have voter approval for any type of loan and require the entity to repay the new debt within 10 years. The state government would be prohibited from any future borrowings.

   Amendment 60 continues to damage government finances with the restoration of TABOR tax limits, cuts to the current mill levy rates in half by 2020, expiration dates for tax rate and revenue increases and a 10 year limit on future property tax increases. Enterprises and authorities are proposed to pay property taxes and taxing authorities shall lower their tax rates to offset the additional revenue.
   Proposition 101 (“Concerning limits on government charges”) is intended to drastically reduce a wide range of state and local taxes and fees in Colorado. The first sentence of the measure reads, “This voter-approved revenue change shall be strictly enforced to reduce government revenue.” Preliminary estimates suggest a revenue cut to state government of $1.7 billion and $622 million to local governments. Proponents also intend the measure to impose new, lower spending limits in all cities and counties in Colorado.
   While these proposed measures are being paraded as promoting government efficiency and reducing waste during an economic downturn, the real pending impacts includes crippling schools as 50% of their property tax revenue slips away and state transportation, light rail, and bridge projects come to a standstill without any new loans. Local governments, special districts and authorities start paying property taxes which forces the debt coverage ratios down and large water, sewer, storm drain infrastructure projects are decimated with 10 year bond repayment terms.
   The mere threat of such a measure gaining ground will likely spike the level of 2010 debt approved in Colorado. If passed, the legal debate will shift to the courts for several years and a wave of consolidations will be studied while a new market for privatization will emerge as cash strapped enterprises and authorities disband and dissolve to ensure continued basic water and sewer services for their customers. Government officials and finance officers are shocked these items made the ballot and scared how citizens view government during an economic downturn. Even if Colorado dodges the silver bullet this time, the public will be closely scrutinizing any new rate, fee or tax increases for a very long time.

   Comment by Gregory Baird — July 8, 2010 @ 1:02 pm

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