Voters last month dismissed two ballot measures intended to pay for billions of dollars in transportation projects, but the Colorado Department of Transportation did get a $545 million boost in its funding Sept. 26, on top of $500 million out of the 2018 legislative session. And they’re ready to spend it.
It’s how that $545 million got funded that's worth looking at.
It started with Senate Bill 267 in 2017, which converted the state's hospital provider fee -- a fee that helps pay for expanded Medicaid and child health benefits -- to an enterprise fund rather than part of the general fund. The law freed up $500 million under the state general-fund spending cap set by the Taxpayer’s Bill of Rights and saved Colorado hospitals, including a dozen rural ones, from a budget cut.
But that bill also allowed the state to raise up to $500 million through the “lease-purchase” of state buildings. The buildings are in effect sold and then leased back to the state. The money raised is then repaid over 20 years.
Then, the state architect, state treasurer and Office of State Planning Budgeting came up with a list of 25 buildings that could be sold to raise the money.
On Monday, the Joint Budget Committee reviewed how that transaction was set up with JBC Principal Analyst Steve Allen. And Allen told the committee he was surprised by what he found.
The state's building inventory is valued at $12.6 billion, based on a December 2017 report from the state architect. That covers 2,355 buildings across 40 state agencies and public colleges and universities, totaling 48.4 million gross square feet. About 55 percent of that is in buildings on public college and university campuses.
But higher education was left untouched in the list of buildings put up for sale.
Allen explained that the first borrowing took place in September 2018 and the revenue received was more than what was anticipated by SB 267, at around $545 million instead of $500 million.
Allen said that there was more property put up than anticipated, too. The additional revenue, which SB 267 allows for, is because those buying the securities tied to the lease-purchase arrangement believed the buildings are worth more than their stated replacement value.
Allen also said he was surprised by some of what the state put up for sale: A dozen buildings owned by the Department of Corrections.
"I wasn't expecting that," Allen told the JBC, adding: "What good is a prison in Cañon City" to someone who could take possession if the state fails to pay back the loans?
It's because those buildings are considered "essential state assets," Allen said. Prisons are considered an essential state asset because "you can't turn people loose without a lot of public blowback."
These are bonds with really good security, Allen added. Investors say, "We take your prison if you don't pay for it," although there's little chance the state won't pay back those bonds, he said.
According to his analysis:
"Standard & Poor’s Global and Moody's Investor Service rated the SB 267 securities before they were issued. Standard & Poor's assigned an AA- rating, three notches below the highest AAA rating while Moody’s assigned an Aa2 rating, two notches below the highest Aaa rating. Borrowers with higher credit ratings pay lower interest rates; the rate on a 10 year AAA tax-free [municipal] bond has recently been about 0.15 percent lower than on an AA bond. On $500 million borrowed, this amounts to $750,000 less interest annually."
Under SB 267, 25 percent of the money raised has to go to highway and other transportation projects in rural Colorado, defined in the bill as counties with populations of 50,000 or less.
On Oct. 18, CDOT published its list of where those dollars will go, combined with the dollars the department also will get from SB 1. More than half will be spent on I-25, both north and south of Denver.
Under a resolution adopted by the state Transportation Commission, which oversees CDOT, seven of those projects will receive the first dollars in the 2018-19 fiscal year. They are:
- US 550/160 Connection - $54,400,000
- I-25: Colorado-Springs Denver South - $25,000,000
- I-25 North: SH 402 – SH 56 (Segment 6) – $165,000,000
- I-70: Westbound PPSL – $20,000,000
- SH 13: Reconstruction – $30,500,000
- SH 9: Frisco North – $9,500,000
- I-70 East: Failing Pavement - $33,100,000
The rural projects include Colorado Highway 13, which runs north of Meeker to the Wyoming state line and through Garfield and Moffat counties. Highway 9 starts in Fairplay, in Park County and runs north through Frisco to its endpoint in Kremmling in Grand County. The U.S. Highway 550/160 intersection is just south of Durango, although La Plata County is not considered a rural county under the definition set forth in SB 267.