Debt Detective

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+BDLTPO There are many new initiatives in 2009 that attempt to bring transparency and openness to government. The Independence Institute decided to see how easy it would be to determine how much debt has been incurred by local governments (cities, counties, etc.) in Colorado. After all, government debt is really our debt. It’s taxpayers’ debt. Our research found that information on local government debt IS available to the public … on two conditions. First, citizens must have Sherlock Holmes-like instincts. Information about local debt can be found, but plan on digging for it. And, second, the results of your search may yield information that is considerably outdated. To have transparency and openness, information must be easily accessible and complete. Within the state government of Colorado, the Department of Local Affairs (DOLA) compiles data on debt. However, the data is incomplete, poorly publicized, and difficult to use. DOLA should employ interactive internet communication to make information on local government debt more up-to-date and more accessible to Colorado taxpayers. DOLA’s website does provide some useful information about the debt of Colorado cities and counties. In fact, this is the only place we located where one can find centralized data of local government debt online. The Department prepares a financial compendium (abstract) in which data from financial statements of each of Colorado’s municipalities and counties is summarized into a single document. The compendium breaks down the financials for each

municipality and county, providing details on revenues and expenditures. And, under the expenditure category, there is information on debt. However, these debt figures are considerably outdated. As of May 2009, the 2004 financial compendium was the most recent compendium available on the DOLA website. Within DOLA’s financial compendiums, debt is broken down into three parts: general obligation debt, revenue debt, and other debt (see text box). Of particular importance is the debt categorized under “other debt.” Other debt includes Certificates of Participation (COPS). COPS are becoming a popular form of debt issuance worthy of taxpayers’ attention (see text box, page 3). Although the Department of Local Affairs keeps tabs on different kinds of debt issued by city and county governments, it is important to note that details on COPS and lease purchases are not available in the online financial compendium put together by the Department. Such information is only available in the hard copies of the financial statements of cities and counties. Some of these financial statements can be accessed online. Others cannot. However, most city and county financial statements are available as hard copies or electronic copies at the Department of Local Affairs or the State Auditor’s Office … if one has the time to travel to the state capitol, and to compile data, and is somewhat adept at reading audited financial statements.

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DOLA reports a considerable lag time from the point the financial reports are released by local governments until Local Affairs makes the (FOFSBM
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EFCU is financial compendium debt that is funded by the available to the public.1 general tax revenues of a Someone who takes the local government and is time to track down debt issued to fund particular figures may be disapgovernment projects. For pointed to discover that, example, a city that wants to at the end of their long construct sewers will issue journey, the only data general obligation bonds to available is five years old. the public to fund the sewer Reports from five years project and will then pay ago do not reflect the those bonds back at a later true, up-to-date financial date using general tax revburden that today’s taxenues. The bond is shown payers carry. A researchas general obligation debt. er’s only option? Revenue debt is debt backed Park yourself at DOLA or by a revenue stream or by the State Auditor’s Office the revenue flows generated (any taxpayer can do this) from a particular governand conduct a city-byment project. For instance, city or county-by-county if the state decides to build search for debt … and a toll road, it may issue total the debt from all the revenue bonds to fund the cities and counties yourproject. Once the toll road self. In effect, you can opens, the revenues genercreate your own compenated from tolls will pay off dium. While this method the bonds. will yield more up-to-date information for all cities “Other” debt is debt that is and counties (data from neither general obligation 2007 rather than 2004), or revenue debt. It includes it will be a very cumberCertificates of Participation some and time-consuming (COPS), lease purchases, process, especially considand loans. COPS and lease ering there are 64 counpurchases are very similar. ties and 271 municipaliBoth involve regular govties in Colorado. ernment payments on an asset over a period of time. When the payments finish, ownership over the asset transfers to the government.

Governments often speak of transparency. But transparency is meaningless if accessibility is difficult. The Department

of Local Affairs is the only source in Colorado that has centralized data on local debt of city and county governments. Yet, as noted earlier, without a ton of patience, some skill at reading financial statements, and Other Debt Continued a willingness to accept data … Take, for example, a that is often years out of date, local government that tracking down aggregate figdecides to construct a ures on debt will likely be a new parking structure. very time-consuming exercise. As with any project, At a minimum, DOLA’s comthe local government pendium should be updated to will issue bonds to fund the most recent fiscal year, be the construction of the easily accessible online, and list facility. But rather all debt (breaking down “other than own the parking debt” into COPS and lease structure outright durpurchases). Implementing ing the construction such measures would make period, the government information on local debt truly will lease the facilaccessible to the public. ity and make regular payments on the lease Our search for a central reposuntil construction is itory also took us to Colorado completed. When conCounties, the Colorado struction is completed, Municipal League, the Special ownership of the parkDistrict Association, and the ing structure transfers State Auditor’s Office. While to the government. helpful, these contacts all rediInvestors will purchase rected our research back to shares of these lease the State Department of Local revenues, and the local Affairs. government will make regular payments to $PMPSBEP
$PVOUJFT – Colorado the investors. If the Counties is a nonprofit that government were to offers assistance to county default on payments to commissioners and encourinvestors, investors will ages them to work together obtain control over the on common issues. They keep parking facility. COPS counties up-to-date on issues are simply proof that that affect county operations. the investor is taking Colorado Counties did not part in the bond issuhave centralized data on debt.2 ance. $PMPSBEP
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-FBHVF – The Colorado Municipal League (CML) is a nonprofit that represents Colorado’s cities and towns in matters before the state and federal government. It

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also provides information services to assist municipal officials in managing their governments. CML is not a repository for data on local debt, but Sam Want to know how much Mamet, executive direcdebt your city/county owes? tor at CML, did point us in the right direction to To find data for local govfind such information. He ernment debt online, visit recommended we speak the following link which with the State Department directs you to the financial of Local Affairs and State compendiums put together Auditor’s Office.3 by the Department of Local Affairs. 4QFDJBM
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Association – The Special http://www.dola.state. Districts Association misco.us/dlg/resources/finansion is to preserve and cial_compendium/index. enhance the political and html#electronic legal environment for the special district form of The State Department government. They make of Local Affairs also has available information hard copies of the comand technical assistance pendiums at its office. For to special districts so more specific information that they perform their on debt (i.e. the cost of jobs efficiently and effecbonds being issued, how tively. Special Districts much has been paid off, Association does not have and what the debt is fundcentralized data on debt. ing), one must look in the Evan Goulding, execuactual financial statements tive director at Special of city and county governDistricts Association, ments. This information is suggested we talk to the typically under the section State Department of Local “Notes to the Financial Affairs and State Auditor’s Statements.” Some citOffice to learn more about ies post this information local debt.4 online, and for those who do not, this information State Auditor’s Office – can be obtained by visitThe State Auditor’s Office ing the Department of is a division operating Local Affairs or the State under the control of the Auditor’s Office. legislature. It conducts audits of the State’s agencies, colleges, and universities. It also reviews audits of local entities. According to Crystal Dorsey, the State Auditor’s Office is a repository for all the city

and county audits. It has the financial statements of local governments, but there is no specific cataloging of debt. Figures on the debt of individual $014
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cities and counties are Debt available in the financial statements of each There is an advantage city/county. Not all to governments issuthe financial reports ing COPS. According of local governments to the Colorado are available in elecDepartment of the tronic form, but the Treasury, “COPs do reports can be viewed not constitute a multiat the Auditor’s year fiscal obligation Office.5 and so can be issued without voter approval” because of the option not to appropriate the payments in any year. Thus, COPS are becoming an attractive financing tool for local governments.

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Endnotes 1

State Department of Local Affairs. Interview. Don Merrion. April 16, 2009. 2 Colorado Counties. Interview. Chip Taylor. April 7, 2009. 3 Colorado Municipal League. Interview. Sam Mamet. April 14, 2009. 4 Special Districts Association. Interview. Evan Goulding. April 9, 2009. 5 State Auditor’s Office. Interview. Crystal Dorsey. April 14, 2009.

Copyright © 2009, Independence Institute INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)3 tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights. JON CALDARA is President of the Independence Institute. DAVID KOPEL is Research Director of the Independence Institute. LUKE JACKSON is an Independence Institute intern. ADDITIONAL RESOURCES on this subject can be found at: http://www.independenceinstitute.org/ or call 303-279-6536. NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action. PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

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