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A Tale of Two Voters


Election Day has come and gone for Colorado voters. Yet the impact on Colorado’s municipal market remains and can be read as a tale of two voters. The first storyline saw a continuation of Coloradan’s fiscally conservative nature as voters staunchly rejected statewide tax increases and instead opted for measures at the local level with a strong approval rate. A second theme from Tuesday night is Colorado has firmly moved into ‘Blue State’ territory as democrats took helm of the Governor’s office, House, Senate as well as every other statewide office. While contradictory paths, the two seem emblematic of Colorado: a state deeply rooted in fiscal conservatism (TABOR/Gallagher) while transforming into a younger, more well-educated demographic.


We will address the first tale, Colorado’s preference for local proposals in 2018, in this paper. In a follow up, we will address the “Blue-ing” of the Capitol and what dynamics stand to play out in Colorado’s municipal market under a Polis Governorship.


Tale Number 1: Local Control over Statewide Expansion


In the lead up to the midterm we published Colorado Election: November 2018 highlighting three statewide proposals with the greatest impact on Colorado municipal bonds.



As the chart above highlights, all three resoundingly failed. Perhaps it was the sticker shock of $6,000,000,000 spelled out atop a ballotquestion or simply a continuation of Coloradan’s hesitancy to increase statewide taxes (voters rejected similar education proposals in 2011 and 2013). Regardless, the Colorado municipal market will not see a large uptick in new supply at the state level.


While statewide proposals met their demise, local efforts were met with better prospects. School districts had a particularly good night. Twenty one districts asked voters for a mill levy override (MLO) allowing increased property taxes to pay for teacher salaries and general operations. Voters approved 17 of the 21 measures that will direct nearly $200 million more per year to these districts. While not as successful as MLO requests, nineteen school districts asked voters to approve $1.7 billion in bonds for construction projects. Voters approved 12 measures that will see nearly $975 million bonds issued in the coming months.


Beyond school districts, voters were overwhelmingly supportive of municipalities bonding requests. According to the Colorado Municipal League, voters approved 78 percent of debt requests for cities and towns throughout the state. Within Colorado’s most

populous counties,voters approved 80 percent of debt requests totaling more than $160 million in bonding capacity before interest. These projects range in size from $550,000 for utility work in Cherry Hills Village to $80 million for road projects throughout Arvada.


One noteworthy development was the number of special districts asking voters for help offsetting the negative effects of the Gallagher Amendment (Gallagher). Gallagher essentially stipulates what percent of property values are derived from residential properties throughout the state. As Colorado grows and residential growth outpaces commercial, the residential assessment rate has been adjusted down overtime (most recently in 2018 to 7.20% and is expected to hit 6.11% in 2020). This adjustment down has diminished funding streams for special districts reliant upon property taxes as they cannot raise taxes without a vote of the people. As a result, 19 fire districts in the 10 most populated counties asked voters to ‘De-Gallagherize’ with 14 receiving voters’sblessing. Locally, Colorado Mountain College was one such obligor that sought approval and won. Passage of these measures will help stabilize revenue streams for numerous obligors in the municipal market and help offset any negative impacts expected from another residential assessment rate reduction in 2020.


Below we highlight a few key from Tuesday’s election and potential impacts to the Colorado municipal market.


Douglas County School District


A historically tough district to pass tax increases, voters approved 5A and 5B to increase funding for schools within the District. The first measure, 5A, provides $40 million of new funding annually for schools within the district and will go towards increases in teacher pay and improved programming. The added funding supports charter schools on an equal basis and will make these entities more competitive in terms of teacher pay as surrounding districts. For example, STEM School, with an enrollment of 1,850 students, can expect to receive $1.0 million annually on a $16.5 million budget for 2018/2019. STEM School would be able to increase expenses 5.0% across the board and still see an uptick in coverage from 1.57x to 1.89x in FY2019/2020.


Voters also approved 5B, allowing the district to issue $250 million in bonds for capital expenses related to improving school infrastructure and security.


Adams 12 Five Star Schools


Adams 12 voters approved $27 million of new annual funding through higher property taxes. As is the case in Douglas County, Adams 12 charter schools stand to benefit on an equal basis. One such charter, Stargate School, will be the beneficiary of a $950,000 increase in mill levy override (MLO) funding. The school would be able to increase salaries +6.5% and overall expenses 8.7% in FY2019/2020 and still grow their debt service coverage to 1.70x.


City and County of Denver


Voters in Denver approved two 0.25% sales tax increases (0.50% combined) to raise funds for open space (Measure 2A) and mental health (Ordinance 301). Both would bring in $45 million annually and could provide future revenue streams for Denver to bond against. Measure 2A will provide secured revenue stream to acquire and restore parks and open space while Ordinance 301 could be used to construct facilities to combat mental health and homelessness as well as suicide prevention.


Tough Choices

Voters faced tough choices Tuesday night and opted for local bond measures at the expenses billions of dollars of debt at the state level. Perhaps the sticker shock for $6 billion spelled out or the physical length of the ballot this year, Coloradans displayed their fiscal conservatism at least at the state level. For the local measures with better success, these obligors are sure to be working quickly to bring their municipal deals to market before year end. As more districts experience the firsthand restrictive nature of Gallagher, we expect to see longer ballots in the coming years. With ballots growing larger in dollars asked and questions needing answered, obligors may find it harder to achieve voter approval, both at the state and local level.


Disclosure

This report is for informational purposes only and should not be considered a solicitation to buy or sell any security. Neither Equus Private Wealth nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Nothing herein is intended to provide enough information to make an investment decision. Redistribution is prohibited

without the express written consent of the Equus Private Wealth Management, LLC. Data for this report was obtained from EMMA disclosures, Office of the Colorado Secretary of State, Colorado Municipal League, numerous County Clerk & Recorder’s offices and internal analysis. For questions about this report call Scott Hanley at (970) 963-2674.

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