In continuation of yesterday’s discussion of proposed ballot issues, Please see the information below from Sherman & Howard on the issues surrounding Amendment 61.

1.   A State level borrower or local government that has financing plans calling for new capital projects or planned refinancings in the next couple of years should consider revisiting those plans in light of the potential passage of Amendment 61. Obligations issued before the end of 2010 would not be subject to new significant financing restrictions that would be imposed by Amendment 61 if it is adopted. If a potential financing would require voter approval, governments should consider seeking authorization for that financing in 2010. This way, if Amendment 61 is approved, the government would have the option to complete the financing in the final two months of 2010 without the additional restrictions of Amendment 61.

If Amendment 61 is approved, the State and State-level authorities, enterprises, and other entities will be prohibited from virtually all financing activities. In addition, local governments:

• Would not be able to undertake a non-enterprise financing if all of its outstanding obligations, including general obligation bonds, revenue bonds, and obligations subject to annual appropriation, when combined, exceed 10% of the assessed value of the real property included within the government’s boundaries;
• Would only be able to undertake financings consisting of bonded debt;
• Could only enter into enterprise, lease-purchase, and urban renewal authority financings (among others) with voter approval;
• Could only issue obligations that mature in no more than ten years and are subject to prepayment at any time;
• Could only refund a prior transaction with voter approval, even if the refunding bonds carried a lower interest rate; and
• Would have to seek authorization for debt in a separate election question from a property tax increase that would be used to pay that debt if Amendment 60 also is approved.

An additional reason exists to accelerate borrowing plans into 2010 if a government intends to issue Build America Bonds under federal law. The subsidy of 35% of the interest payable by the federal government may decrease if the program is extended past December 31, 2010.

2.   Any 501(c)(3) nonprofit organization or other private entity planning to utilize tax-exempt private activity bonds and any State or local issuer of private activity bonds should prepare to complete any transactions scheduled for the next few years in 2010, if possible.

As described above, Amendment 61 places significant new restrictions on borrowing that would take effect in 2011. Amendment 61 applies to “any loan” for “any reason.” Previous restrictions on governmental borrowing, such as those in Article X, Section 20 of the Colorado Constitution (“TABOR”), have been interpreted not to include private activity bond financings because the governmental issuer has no pecuniary liability to repay the bonds. However, the restrictions of Amendment 61 apply to a broader class of obligations than TABOR or any other law, and it is possible that these restrictions will apply to conduit financings as well.

3.  If a government has obligations with a final maturity in 2011 (including short-term obligations such as tax or revenue anticipation notes), it should consider preparing to prepay those obligations no later than December 2010 to avoid triggering a decrease in revenue if Amendment 61 is approved.

If Amendment 61 is adopted, governments will be required to reduce their tax revenues upon the full repayment of a financing in an amount equal to the average repayment cost of the financing. This reduction is required even if the obligation is not repaid with taxes. However, this reduction will not be required for obligations finally repaid prior to 2011.

4.  Any State or local borrower with outstanding interim financing should be prepared to convert to permanent financing prior to 2011.

Amendment 61 would prohibit any borrowing from continuing past its original term. Therefore, after 2010, any short-term financing such a construction loan could not be converted into a permanent financing with a later maturity date.

5.   A government that has outstanding variable rate debt secured by a letter of credit or standby bond purchase agreement that will expire before the debt is repaid should consider extending the term of the liquidity facility or converting the debt to a fixed rate during 2010 to avoid a potential inability to execute a new liquidity facility if Amendment 61 is approved.

As described above, Amendment 61 places significant new restrictions on borrowing that would take effect in 2011. Because these restrictions would apply to “any loan” in “any form” it may not be possible for a borrower to obtain a new letter of credit or standby bond purchase agreement to replace an existing liquidity facility after 2010 without treating the new obligation as a loan under Amendment 61. If that is the case, a new liquidity facility could be prohibited for State level borrowers and subject to new restrictions for local government borrowers. Depending on the terms of a particular borrowing, the inability to replace a liquidity facility can have very negative results for the issuing government. Generally, the outstanding bonds will be purchased by the expiring liquidity provider and will then bear interest at a “bank rate” that is significantly higher than the current rate on the bonds. In some situations, the bonds will also mature more quickly than the government will be able to pay, and the other restrictions of Amendment 61 may prevent the government from refinancing the bonds.

6.  If a special district wishes to submit property tax or debt questions at a spring election, it should consider doing so at the May 2010 election, as this may be the last opportunity to do so if Amendment 60 or Amendment 61 is approved.

Under current Colorado law, special districts generally hold their regular elections in May of even-numbered years. Special districts may submit tax and debt increase questions to their voters at those elections. Amendments 60 and 61 would change this to allow property tax and debt questions only at November elections.