The following (amended) brief was filed on behalf of Colorado Public Banking on October 22, 2013.
SUPREME COURT, STATE OF COLORADO
2 East 14th Avenue, Denver, CO 80203
Petitioners:
Robert Bows and Jason Bosch, Proponents
v.
Respondents:
Title Board:
Suzanne Staiert, Jason Gelender, and Daniel Domenico
v.
Respondents:
Don Childears, Objector
Barbara M.A. Walker, Objector
(by)Attorney for the Petitioners:
Earl H. Staelin
Onsager, Staelin, & Guyerson, LLC
Supreme Court Case Number: 2013SA231
AMENDED OPENING BRIEF OF PETITIONERS BOB BOWS AND JASON BOSCH
STATEMENT CONCERNING ISSUES PRESENTED FOR REVIEW
1. Under the provisions of Colorado law requiring an initiative to contain a single subject, does the fact that the initiative provides that the income and expenditures of the bank shall not be limited except upon sound financial and public policy considerations deprive the Title Board of jurisdiction to set title?
2. Under the provisions of Colorado law requiring an initiative to contain a single subject, does the fact that the initiative provides that if the bank pays a portion of its income to the general fund of the state, that portion after receipt by the general fund shall not be limited and may be used to expand, maintain, or restore essential services and facilities of the state deprive the Title Board of jurisdiction to set title?
3. Under the provisions of Colorado law requiring an initiative to contain a single subject, does the fact that the initiative authorizes the bank to issue bonds or multiple-year obligations for the sole purpose of providing adequate capitalization for the bank and without specifying the amount deprive the Title Board of jurisdiction to set title?
4. Under the provision of Colorado law requiring an initiative to be clear and not confusing, does the fact that the initiative does not specify the dollar amount of multi-year obligations , leaving it to the board of directors to decide after due diligence, render the initiative confusing such that the Title Board does not have jurisdiction to set title?
STATEMENT OF THE CASE
I. NATURE OF THE CASE.
This original proceeding is brought pursuant to C.R.S. §1-40-107(2) seeking review of the action of the Ballot Title Setting Board on August 21, 2013 by which it declined to set a title for proposed initiative #45. Proponents Bob Bows and Jason Bosch timely filed a Motion for Rehearing before the Title Board pursuant to C.R.S. § 1-40-107(1). At the rehearing on September 4, 2013 the Title Board denied the Petitioners’ Motion for Rehearing. Proponents timely filed their Petition for Review in this Court, together with certified copies of the required documents within five business days after the date of hearing on the Motion for Rehearing as required by C.R.S. § 1-40-107(2).
II. NATURE OF THE MEASURE, COURSE OF PROCEEDINGS, AND DISPOSITION BEFORE TITLE BOARD.
A. NATURE OF THE MEASURE. Initiative #45 would require the state to establish a bank to be owned by the state of Colorado by adding a new section 22 to Article X of the Colorado Constitution. The bank would be authorized: to lend money at interest or at no interest to promote sustainable development, commerce, industry, and agriculture in the state, and to promote home ownership, maintenance and construction of needed infrastructure, education, public health and safety, and other purposes that support the general welfare of the citizens of the state of Colorado. (subsection 4)
The purpose of the bank would be to strengthen the economy of Colorado and to protect it from the cyclical ups and downs caused by private banks and financiers who control the creation of money and credit in the United States (subsection (1)(a)). The bank would be governed by a five-member board of directors, to be elected from five districts throughout the state (subsection 5). The board of directors would appoint a president experienced in banking. The remaining management would be hired according to the standards of the state personnel system (subsection 6(c)). The management of the bank would receive advisory input from a nine-member advisory board selected from a cross-section of the economy appointed by the Governor and confirmed by the General Assembly. (subsection 6(a)).
Capitalization of the bank is provided for in subsection 8 and consists of all taxes, revenues, and other funds of the state. If deemed necessary by the board of directors of the bank, it may issue bonds or multiple-year obligations “for the sole purpose of establishing adequate capitalization of the bank” (subsection 4).
The debts and obligations of the bank are backed by the full faith and credit of the state of Colorado, and the bank is not required to join the Federal Deposit Insurance Corporation (FDIC). The measure also provides that the revenue and income of the bank shall not be limited, and that its expenditures shall not be restricted, except upon sound financial and public policy considerations (subsection 4). In addition, the bank may transfer funds from time to time to the general fund of Colorado, and the funds transferred are not subject to limitations imposed by the Colorado Constitution or other state laws, and may be used to expand, maintain, or restore essential services and facilities, and to enable the state to maintain a balanced budget (section 9).
B. COURSE OF PROCEEDINGS AND DISPOSITION BEFORE TITLE BOARD.
At the first hearing of the Ballot Title Setting Board (“Title Board”) on August 21, 2013 the board declined to set a title for proposed initiative #45 on the ground that the initiative contains multiple subjects on a 2 to 1 vote. The proponents timely filed a motion for rehearing. At the end of the rehearing on September 4, 2013 the Title Board voted 2 to 1 to deny the motion for rehearing. Proponents timely filed a Petition for Review in this Court.
C. STATEMENT OF THE FACTS
Initiative #45, subsection 4 provides that there shall be no limitation on the income of the bank or the expenditures of the bank, except upon sound financial and public policy considerations, and that the measure supersedes any conflicting constitutional or statutory provision, namely the limitation of income and expenditures under Const. Article X, §20(1), (4) and (7)).
Objectors objected that this provision violates the single subject rule (Rehearing Before Title Board, September 4, 2013, Michael Hoke, 15/4 – 15/11). Proponents assert that the provision is necessarily connected to the operation of a state-owned bank, since the bank has the same authority as other banks in Colorado (subsection 4, third sentence), although the bank must follow the “sound banking practices” of non-profit banks operated in the public interest, such as the Bank of North Dakota, rather than the speculative and fraudulent practices engaged in by private for-profit banks (see examples provided to the Legislative Council at the Review and Comment Hearing on July 22, 2013 at 11:20 – 29:08; e.g. 11:20- and 14:30- studies showing the small concentration of 147 bank holding companies controlling most of the world’s economy; 16:04- rigging of financial markets through high speed trading; 17:00- the LIBOR scandal involving manipulation of interest rates; 18:11- rigging of the municipal bond market, and betting on derivatives; 21:14- interest rates swaps and derivatives; 22:00- the MERS system problems and the confusion and loss of reliable deed records; 26:50- commodity trading and speculation). Under subsection 4 the state-owned bank’s practices must be based upon “sound financial and public policy considerations” (as defined in subsections 3(a) and 3(c), respectively). (Certified Audio CD of Review and Comment Hearing)
Initiative #45 appears to be the first initiative considered by this Court that involves the potential creation of substantial new revenue for the state that does not involve a new or increased tax or fee or an increased valuation for tax purposes. The entire focus of Colorado Const. Art. X, §20 (the TABOR amendment) is upon income or revenue of the state produced by new or increased taxes and fees to taxpayers. The term “revenue” is not defined in TABOR (see definitions (Article X, §20(3)), and none of its examples of taxes or charges that require a vote of the electorate lists “interest” (Article X, §20(4)(a), (5), and (6)). Thus, the entire premise for limiting the growth of government and restricting revenue and expenditures appears to be that all new income of the state involves new or increased taxes and fees.
Second, the measure provides that the bank may from time to time pay money to the general fund of the state, and that such money once transferred shall not be limited nor shall the expenditures associated with such transferred funds be limited by the provisions of the Colorado Constitution, namely Art. X, §20 (9) of TABOR. Objectors assert that this provision violates the single subject rule. (Rehearing before Title Board, September 4, 2013, Hermine Kallman, Lewis Roca Rothgerber, for Elector Barbara Walker, Executive Director of Independent Bankers of Colorado, Tr. 25/14 – 26/15).
Proponents assert that this measure is fundamentally different from the tax measures addressed by TABOR because the state-owned bank does not require or involve any new taxes, but rather produces a large amount of new income for the state from existing assets (Hearing before Title Board, August 21, 2013, Robert Bows, Tr. 13/24 – 14/3), and can be expected to provide the equivalent of the average of approximately 20% return on equity per year earned by the Bank of North Dakota, compared to a maximum of 3-4% return on equity in Colorado where the state’s funds are instead deposited or invested in the major Wall Street banks and other private financial institutions (Review and Comment Hearing, July 22, 2013; Robert Bows, speaking as Proponent: 1:07:55 – 1:09:11).
Finally, the measure provides that the bank may issue bonds (multi-year obligations) if it deems it necessary for the “sole purpose of establishing adequate capitalization of the bank” (initiative subsection 4), and that it supersedes any conflicting state constitutional provisions of law, namely Article X, section 20(4)(b) of the Constitution (last sentence of initiative subsection 4). Objectors assert that this provision also violates the single subject rule. (Hearing before Title Board, August 21, 2013, Michael Hoke, 8/24 – 10/1). Proponents assert that such provision is necessary to ensure that the bank will be able to operate with an adequate level of capitalization to fulfill its purposes as a bank under subsection 4. Mr. Domenico commented at the rehearing on September 4, 2013 that he is inclined to “agree with the proponents” on this issue now, because the proponents changed the measure from its wording in 2012-2013 Initiative #39, where the provision did not state that the purpose of the bonds was solely to provide adequate capitalization. (Rehearing, Mr. Domenico, Tr. 17/2 – 17/16).
Mr. Hoke argued that the authority of the bank to issue bonds causes voter confusion (Hearing, August 21, 2013, Tr. 9/22 – 10/1). Mr. Gelender argued that the failure to specify the amount of any bonds would cause voter confusion (Rehearing September 4, 2013, Tr. 27/10 – 27/25). Proponents explain that the decision regarding the amount of capitalization, whether to issue bonds, and if so, in what amount, is a complex decision requiring a thorough evaluation that must be made by the board of the bank (Proponents’ Petition for Review, part D, pp. 3-4)
SUMMARY OF ARGUMENT
The provision of subsection 4 of the initiative exempting the bank’s revenues and expenditures from limitations as to amount imposed by the Colorado Constitution or other law is necessary to enable the bank to function effectively as a bank and therefore does not involve a second subject.
Unlike previous initiatives affected by Const. art. X, §20 because they were designed to raise revenue for the state of Colorado by levying or raising taxes or fees on its citizens, Initiative #45 proposes to establish a bank that will generate substantial income from existing assets without any new or increased taxes or fees. The TABOR amendment, Article X, §20, did not envision or even consider such a means of raising revenue and therefore its “preferred interpretation” to “reasonably restrain most the growth of government” and its related provisions restricting revenue and expenditures should be deemed not to apply to initiative #45.
The provision of subsection 9 allowing the state-owned bank to transfer funds from time to time to the general fund and not to restrict such funds after transfer as to revenue or expenditures is necessarily connected to the purpose of the bank to function as an effective bank and agency of the state of Colorado and thus does not involve a second subject. In addition, because TABOR did not envision a means of raising revenue without the imposition of new or increased taxes or fees, as stated above, Colorado Constitution Article X, §20 (1), and (7)(a) and (b) should be deemed not to apply to initiative #45.
The provision of subsection 4 permitting the bank to enter into multi-year obligations solely to establish adequate capitalization of the bank is essential in order to ensure that the bank will be able to begin operations and to conduct operations at an adequate level of lending, and therefore is necessarily connected to the purpose of the measure and does not involve a second subject. Nor will that measure be confusing to voters. Further, because nowhere in Const. art. X, §20 did it contemplate or enumerate any means of raising revenue without the imposition of new or increased taxes or fees, Const. art. X, §20, and in particular its section governing bonds, §(4)(b), should be deemed not to apply to initiative #45.
STANDARD OF REVIEW
Whether the Title Board has jurisdiction to set title is a question of law that this Court reviews de novo. See e.g. In re Title, Ballot Title & Submission Clause and Summary for 1999-2000, #219, 999 P.2d 819, 820-822 (Colo. 2000) implicitly construing de novo C.R.S. §1-40-107(1), which grants the Title Board jurisdiction over motions for rehearing.
Proponents preserved the issue of there being no limitations on revenue in the Proponents’ Motion for Rehearing, paragraph 3. At the hearing on August 21, 2013 it appears that the only issue on which at least two of the Title Board members agreed that the single subject rule was violated was whether the removal of limits on revenue and expenditures on funds transferred by the bank to the general fund of the state in subsection 9 of the initiative involved a second subject. (Mr. Gelender, Tr. 16/1 – 16/21; Mr. Domenico, Tr. 21/1 – 21/12).
Proponents preserved each issue during the rehearing on September 4. Mr. Bows preserved the revenue and spending limits issue by his discussion of various bond measures containing similar wording to initiative #45 (Rehearing, September 4, Tr. 2/15 – 3/25; see also Tr. 6/20 – 7/18). Proponents preserved the multi-year borrowing issue by discussing it at length at pages 10-11 and more specifically on pages 11-12 (Rehearing, September 4, 2013, Tr. 11/3 – 11/16; and 12/7 - 12/11).
The issues were also preserved in Proponents’ Petition for Review: section A, exemption of revenues from TABOR limits; section B, transfer of funds from bank to general fund and their exemption from revenue limits; section C, bonds used solely to establish adequate capitalization; section D, whether failure to specify the amount or a limit for the bonds caused confusion; section F, whether using the bank to strengthen the state’s economy involves a second subject.
ARGUMENT
I. THE BOARD IMPROPERLY REFUSED TO EXERCISE JURISDICTION TO SET TITLE FOR THE INITIATIVE BECAUSE THE PROVISION EXEMPTING FUNDS IN THE BANK FROM REVENUE AND EXPENDITURE LIMITS IMPOSED BY THE COLORADO CONSTITUTION OR OTHER LAWS COMPLIES WITH THE SINGLE SUBJECT RULE
Colorado law requires "that every constitutional amendment or law proposed by initiative ... be limited to a single subject, which shall be clearly expressed in its title." C.R.S. § 1–40–106.5(1)(a); see also Colo. Const. art. V, § 1(5.5) ("No measure shall be proposed by petition containing more than one subject, which shall be clearly expressed in its title...."). In People ex rel. Elder v. Sours, 31 Colo. 369, 403, 74 P. 167, 177 (Colo. 1903) the Court held: “A proposed initiative violates this rule if its text "relate[s] to more than one subject, and [has] at least two distinct and separate purposes not dependent upon or connected with each other."
In In re Title, Ballot Title, and Submissions Clause 2011-2012 #3, 274 P.3d 562, 563-76 (Colo. 2012) this court in discussing Sours stated: As such, the subject matter of an initiative must be "necessarily and properly connected" rather than "disconnected or incongruous." In re Title, Ballot Title, Submission Clause, and Summary Adopted April 5, 1995, by Title Bd. Pertaining to a Proposed Initiative "Pub. Rights in Waters II", 898 P.2d 1076, 1079 (Colo.1995). We used the Sours test to determine whether the initiative ran afoul of the new amendment: "In order to constitute more than one subject ..., the text of the measure must relate to more than one subject and it must have at least two distinct and separate purposes which are not dependent upon or connected with each other." Id. at 1078–79; accord In re Proposed Initiative for 1999–2000 # 104, 987 P.2d 249, 253 (Colo.1999); In re Proposed Initiative for 1997–98 # 30, 959 P.2d 822, 825 (Colo.1998); In re Amend TABOR 25, 900 P.2d at 125.
Proponents submit that exempting the funds in the bank from the revenue and expenditure limits of the TABOR amendment, Article X, Section 20 (7)(a) and (d) is essential in order to enable the bank to function as any other bank and to achieve its purposes of lending to meet the needs of the citizens of Colorado as expressed in section 4 of the initiative. Private banks do not set upper limits on their income nor do they set arbitrary limits on their expenditures. Section 4 of initiative #45 provides that the management of the revenue, income, assets, and expenditures of the bank shall not be restricted except upon sound financial and public policy considerations. Such provision is reasonable and any limits to the bank’s income and expenditures that would be imposed by Const. art. X, §20(7)(a) and (d) would substantially interfere with the lending operations of the bank. Therefore, the elimination of restrictions upon the bank’s income and expenditures are necessarily connected to the single purpose of establishing an effective bank, and do not violate the single subject rule.
The courts must liberally construe statutes governing initiatives to “allow the greatest possible exercise of this valuable right”, City of Glendale v. Buchanan, 578 P. 2d 221, 224 (Colo. 1978).
This Court has held that its scope of review of the Board's action on the single subject issue is limited: The General Assembly has directed that the single subject and title requirements for initiatives be liberally construed, "so as to avert the practices against which they are aimed and, at the same time, to preserve and protect the right of initiative and referendum." § 1–40–106.5(2). Matter of Title, Ballot Title & Submission Clause, & Summary with Regard to a Proposed Petition for an Amendment to Constitution of State of Colo. Adding Subsection (10) to Sec. 20 of Art. X (Amend Tabor 25), 900 P.2d 121, 125 (Colo. 1995)
In addition, this court had held that when reviewing an action of the Board, it must liberally construe the single-subject and title requirements to ensure that the rights of proponents are not unduly restricted. C.R.S. § 1-40-106.5(2). In re Proposed Ballot Initiative on Parental Rights, 913 P.2d 1127, 1131 (Colo. 1996).
A. The Restrictions of the Tabor Amendment, Const. Article X, §20 (7)(a) and (d), upon Income and Expenditures Should Be Deemed Not to Apply to Initiative #45 Because Initiative #45 Produces Income in a Manner That Was Not Contemplated or Impliedly Restricted by TABOR.
The proposed state-owned bank created by the initiative is expected to produce a large amount of additional income through lending without the imposition or increase of any taxes or fees upon taxpayers. The TABOR amendment, Const. art. X, §20, does not envision or mention the production of new income by such means. Instead the only means of raising revenue that it mentions are taxes and fees, and increases in taxes and fees, of valuation of taxable property. (See e.g. Const. art. X, §20(3) through (8), all of which refer to taxes of various kinds and never mention the possibility of interest income. The statement of purpose and the restriction on revenue, spending, and debt set forth in Const. art. X, §20(1): "Its preferred interpretation shall reasonably restrain most the growth of government…. Other limits on district revenue, spending, and debt may be weakened only by future voter approval" should be construed in the context of the remainder of the measure, whose sole focus is on restricting any new or increased taxes or fees by requiring voter approval first.
In addition, Article X §20 does not anywhere define "revenue". Therefore, this court may and should construe "revenue" to mean only revenue produced by new or increased taxes and fees or re-evaluations as specifically mentioned in Const. Article X, §20. For the same reason, the term “expenditures” should be construed as limited solely to expenditures of funds raised by taxes, fees or other means specifically enumerated in Article X §20.
II. THE BOARD IMPROPERLY REFUSED TO EXERCISE JURISDICTION TO SET TITLE FOR THE INITIATIVE BECAUSE THE PROVISION EXEMPTING FUNDS TRANSFERRED FROM THE BANK TO THE GENERAL FUND FROM REVENUE AND EXPENDITURE LIMITS IMPOSED BY THE COLORADO CONSTITUTION OR OTHER LAWS COMPLIES WITH THE SINGLE SUBJECT RULE
A principal purpose of the bank as stated in section (1)(a) of initiative #45 is to strengthen the economy of Colorado and protect it from cyclical ups and downs, and a related purpose is to lend money to support numerous purposes as set forth in section 4. Many if not most private banks are the subsidiaries of a larger holding company, or in many cases a large corporation. The proposed state-owned bank of Colorado will be a part of or an alter ego of the state of Colorado, like a division or department. Just as private banks routinely transfer a portion of their profits to a parent or holding company without restriction as to how the parent or holding company is to use those funds, so the provision in section 4 of initiative #45 exempting the portion of funds paid from time to time by the bank to the general fund from any revenue or expenditure limits imposed by Colorado law is necessarily connected to the function of the bank as a bank in the same way that private banks in Colorado and elsewhere function. Therefore, the removal of such restrictions on revenue and expenditures derived from funds transferred by the bank to the general fund should be held not to violate the single subject rule.
A. The Restrictions of the Tabor Amendment, Const. Article X, §20 (7)(a) and (d), upon Income and Expenditures Should Be Deemed Not to Apply to Initiative #45 Because Initiative #45 Produces Income in a Manner That Was Not Contemplated or Impliedly Restricted by TABOR.
Proponents adopt and incorporate here the facts and reasoning set for above in part I (A).
III. THE BOARD IMPROPERLY REFUSED TO EXERCISE JURISDICTION TO SET TITLE FOR THE INITIATIVE BECAUSE THE PROVISION AUTHORIZING THE BANK TO ISSUE BONDS SOLELY FOR THE PURPOSE OF ESTABLISHING ADEQUATE CAPITALIZATION TO FULFILL THE PURPOSES OF THE BANK COMPLIES WITH THE SINGLE SUBJECT RULE
Section 8 of initiative #45 expressly provides that the issuance by the bank of bonds or multi-year obligations would be done only if deemed necessary by the board of directors, and in that event would be solely to establish adequate capitalization of the bank. “Adequate capitalization” is defined in section 3 of the initiative as capitalization adequate to meet its reserve requirements necessary to enable the bank to fulfill its purposes as described in section 4 of the initiative. Because it is anticipated that the bank would regularly earn a roughly 20% return on equity each year, it is probable that any bonds would be completely repaid in about four years. Just as the bank of North Dakota issued bonds in order to establish the capitalization necessary to begin operations, so the authorization to issue bonds will be necessary in order ensure that the bank will able to begin lending operations. Therefore, the authorization to issue bonds for the sole purpose of capitalization does not constitute a second subject.
A. The Restrictions of the Tabor Amendment, Const. Article X, §20 (7)(a) and (d), upon Income and Expenditures Should Be Deemed Not to Apply to Initiative #45 Because Initiative #45 Produces Income in a Manner That Was Not Contemplated or Impliedly Restricted by TABOR.
Proponents adopt and incorporate here the facts and reasoning set for above in part I (A).
B. THE BOARD IMPROPERLY REFUSED TO EXERCISE JURISDICTION TO SET TITLE FOR THE INITIATIVE BECAUSE THE PROVISION AUTHORIZING THE BANK TO ISSUE BONDS WITHOUT SPECIFYING THE AMOUNT THEREOF DOES NOT CREATE CONFUSION
The "confusion clause", C.R.S. §1-40-106.5 (1)(e) (II), provides that some of the practices intended to be "inhibited" by the single subject rule is "To prevent surreptitious measures and apprise the people of the subject of each measure by the title, that is, to prevent surprise and fraud from being practiced upon voters".
Mr. Gelender of the Title Board argued that the fact initiative #45does not specify the amount of any bonds to be issued by the bank renders the measure “confusing” such that the Board should refuse to set title. As explained in paragraph D of Proponents’ Petition for Review, the determination of which assets and funds of the state are available for capitalization, how much capitalization is necessary, and how much in bonds should be issued are complicated questions which the initiative reserves for the board of directors of the bank only after a thorough evaluation. The fact that it is expected that any bonds will be promptly repaid within about four years based upon the anticipated income of the bank, and the fact that the bond proceeds can only be used for capital reserves, ensures that the measure will not confuse the voters nor effect any surprise or fraud upon the voters.
CONCLUSION
For all of the foregoing reasons, Proponents request that the Court reverse the action of the Title Board and approve the initiative under the single subject rule.
Dated: October 23, 2013
Respectfully submitted,
/s Earl H. Staelin
Earl H. Staelin
ONSAGER, STAELIN, & GUYERSON, LLC
Attorneys for Proponents
Bob Bows and Jason Bosch
CERTIFICATE OF SERVICE
I hereby certify that on October 23, 2013, the Petitioners’ CORRECTED OPENING BRIEF was filed with the Court via ICCES, which will send notice of the filing to the persons listed below. A true and correct copy are also being delivered via HAND DELIVERY OR OVERNIGHT DELIVERY SERVICE to the persons listed below:
/s Earl H. Staelin
LeeAnn Morrill
First Assistant Attorney General
Office of the Attorney General
Public Officials Unit
Attorney for the Title Board
Jason R. Dunn
Michael D. Hoke
Brownstein Hyatt Farber Schreck LLP
Attorneys for Don Childears, Objector
Respondents
Hermine Kallman
Lewis Roca Rothgerber, LLP
Attorneys for Barbara M.A. Walters, Objector
Respondent
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