El Paso County Attorney Bill Louis is emphatic that the county hasn't borrowed a penny.
"County has no debt of whatsoever kind or nature," he writes in an e-mail, "including, but not limited to, no general obligation debt. COPs [certificates of participation] and lease-purchase financing transactions are not debt!"
Louis, he of the county's cleverly worded term-limit ballot questions, gets another A-plus in semantics. What he says is technically true. But make no mistake: Various projects have the county on the hook for $170.6 million in principal, $260.1 million with interest. The city fares better, with a total of $149.3 million in debt, interest included.
This means our local governments are over $409 million in the hole. And all those obligations likely will take priority over funding vital services if money runs short in coming years.
This may come as a surprise, considering voters are required to approve debt obligations. El Paso County voters haven't approved debt in decades, and city voters last gave their approval to borrow in 1999.
Which begs the question: How did the city and county end up this way?
Local governments have turned to lease-purchase agreements and certificates of participation, because courts have ruled those mechanisms aren't technically multi-year obligations.
Take, for instance, the $31.5 million in COPs the city issued to fund a retention project for the U.S. Olympic Committee. The city could renege at any time, but it would have to forfeit ownership of the Police Operations Center and Fire Station 8, which were put up as collateral.
County club living
The county will be paying off current debt until 2036, thanks to commissioners who took matters into their own hands. In 2002, voters said "no" to borrowing $38 million to build a jail and raising taxes for construction and operations. But commissioners borrowed anyway, using COPs. (The move triggered unsuccessful recall petitions against two commissioners.)
Unlike general obligation bonds — issued by the county and repaid with property taxes — that require voter approval, COPs are floated by a front group called El Paso County Facilities Corp. With no offices, budget or staff, the agency owns the facilities and leases them to the county until the debt is paid. (The city issues COPs through a similar organization called the Public Facilities Authority.)
Since 2002, the county has issued COPs to expand the courthouse, build a parking garage and a utilities plant, borrow against the Department of Human Services building and, most recently, acquire the Corporate Ridge office building on Garden of the Gods Road. The $55.9 million project, finalized this fall, also will remodel existing facilities in a space shuffle.
Commissioner Sallie Clark says this latest project is sensible, noting that much of the Corporate Ridge lease payment will come from federal money via the Department of Human Services and Pikes Peak Workforce Center.
The catch is that the county is locked in on payments, unless it wants to lose the things it borrowed to build.
Doug Houston, executive vice president with George K. Baum & Co., Denver, which has handled several county COP issues, says investors assume the debt will be repaid. And while $170.6 million sounds like a lot, he says it's not, compared to counties across the nation.
"The county has a very solid and conservative financial picture," he says. "The county and the city and the state of Colorado in general have very low debt burdens and debt margins compared to other comparable places."
El Paso County's financial management has been so astute, Houston notes, that Moody's Investors Service, which rates agencies for borrowing purposes, recently upgraded its rating to among the best in Colorado, leading to an interest rate of just 3.68 percent on the Corporate Ridge deal.
"There haven't been a lot of rating increases around the country during the recession," Houston notes.
That said, the county faces payments of about $13 million a year through 2018, then $12.3 million annually through 2027 and an average of $5 million in the final nine years — all without a dedicated revenue stream to fund them.
The $13 million comprises roughly 14 percent of the general fund budget, used to pay for county services, and doesn't give commissioners much wiggle room in the face of declining property tax revenues. (See "Note of depreciation from the assessor.") For the 18-month reappraisal period ending June 30, Assessor Mark Lowderman estimates a 15 percent drop ($7.7 million) in county tax revenues annually for 2012 and 2013.
It's unclear whether sales tax revenue, roughly two-thirds of county revenue, will rise enough to cover the loss. But Commissioner Dennis Hisey is optimistic. That's why he doesn't think commissioners' borrowing habits will come back to haunt them, and defends accepting the multi-decade debt.
This, even though he doesn't know how much the county owes or what the annual payments are: "I don't know where we stand at the moment."
More than the USOC
City government may look rosier to penny-pinching voters, since councilors have been less eager to take out debt without voter approval or a dedicated revenue stream.
In 1999, with voters' OK, the city took out $88 million in sales tax revenue bonds to pay for various capital improvements: new police and fire stations, road projects, stormwater and drainage systems, and recreational upgrades. With interest, nearly $42 million of that debt remains. Until it's paid off in 2016, the bonds cost the city more than $7.8 million a year.
The city also pays more than $1.3 million a year on nearly $10.8 million in remaining debt for the purchase of Red Rock Canyon, and around $360,000 a year for a $3.2 million outstanding debt for the Skyview Softball Complex. Those debts have dedicated revenue streams, including the Colorado Lottery, the voter-approved Trails, Open Space and Park sales tax, and a capital improvements fund.
This isn't to say the city has avoided general fund debt that voters never approved. It owes $6.2 million for improvements to the City Hall building, which drains the general fund of around $620,000 annually. Lease-purchase agreements for the City Administration Building and other facilities amount to about $24 million in debt and will cost $4.6 million in 2011 payments.
Then there's the city's most infamous debt — from the USOC project. With interest, the USOC will cost the general fund $63 million by the time it's paid off in 2039. In 2011, it will cost nearly $1.6 million.
While many councilors defend the city's debt, not all do. Darryl Glenn, now a county commissioner-elect, has consistently argued that voters should decide what debt the local governments take on. To Glenn, the Taxpayer's Bill of Rights signaled that citizens don't trust elected officials to make those calls.
"You always have those that try to use the representative-government-type argument, where your elected officials are empowered to make that kind of decision," he says. "...But people need to understand that we operate in a TABOR philosophy."