Colorado's Statewide Bridge and Tunnel Enterprise plans to sell $212.45 million of insured revenue bonds on Tuesday with upgraded underlying ratings since its last issuance and the potential of additional revenue to pay off the debt depending on the ultimate outcome of litigation involving the state's Taxpayer's Bill of Rights.
The senior infrastructure revenue bonds insured by Assured Guaranty will be mainly paid off with bridge safety surcharge revenue through a third lien behind other debt issued by the Bridge and Tunnel Enterprise.
Fee revenue the BTE began collecting in July 2022 is being challenged in court and is not currently pledged for the bonds and not available until a non-appealable judgment is reached.
The BTE, which operates as a government-owned business, was created in 2009 as part of Colorado's Funding Advancement for Surface Transportation and Economic Recovery, or FASTER, Act to finance, repair, reconstruct, and replace or operate bridges and was expanded by the legislature in 2021 to include tunnels.
Funding initially came from the bridge safety surcharge, which ranges from $13 to $32 on vehicle registrations based on weight and is projected to generate $116 million in fiscal 2025.
The 2021 law allowed the BTE to collect an impact fee of 2 cents per gallon on certain motor fuels that gradually increases to 8 cents on July 1, 2028. It generated nearly $21.7 million in fiscal 2024, with collections projected to reach $27.16 million in fiscal 2025, according to the deal's preliminary official statement. A BTE retail delivery fee was also authorized and it raised $8.55 million in fiscal 2024. Current fiscal year collections are projected to be nearly $10.4 million.
A lawsuit filed in Denver Circuit Court in 2022 by Americans for Prosperity and individuals cited Colorado's TABOR constitutional amendment limiting spending and revenue in their challenge to the validity of the 2021 law, which also created and funded other state enterprises in addition to expanding BTE's scope to tunnels.
In April 2024, a judge granted the state's motion to dismiss the case without holding a trial. That ruling was appealed to the Colorado Court of Appeals, which scheduled oral arguments for Tuesday.
In their appellate brief, plaintiffs contend the state is using an enterprise loophole "to circumvent TABOR and evade voter approval for new taxes by imposing 'fees' instead.
"In the 2020-2021 fiscal year, for instance, enterprise fee revenue totaled $27.8 billion, while the tax revenue subject to TABOR was much lower (only $16.1 billion)," the brief stated.
It also cited the passage of an initiated state statute on the 2020 ballot that requires voter approval of new state enterprises if projected or actual fee or surcharge revenue exceeds $100 million within its first five years.
Colorado's TABOR, which was passed in 1992, is the nation's most restrictive tax and expenditure limitation law, according to the
As a state enterprise, BTE is not subject to TABOR.
Defined under state law as a government-owned business, enterprises like the BTA are authorized to issue revenue bonds as long as they receive less than 10% of annual revenue in grants from state and local governments combined, according to an investor presentation for the bonds sale. As such, the BTE is exempt from TABOR and withstood a legal challenge more than a decade ago.
The TABOR amendment, which also requires the state to refund revenue exceeding the limit to taxpayers, has been the focus of several Colorado lawsuits over the years that sought to defend or diminish its powers.
A
"Chronic underfunding of our state caused by TABOR has hindered our ability to effectively govern and deliver on the results our constituents deserve," sponsor Rep. Sean Camacho, D-Denver, said in a statement. "The bottom line is that TABOR has harmed the lives of Coloradans for far too long."
The state is facing a more than
The BTE's upcoming sale along with a $150 million 2024 Series A issue have a third lien on bridge surcharge revenue after about $1.44 billion of outstanding senior revenue bonds and debt from an
Colorado transportation officials declined to be interviewed about the deal.
Previous attacks on the BTE's revenue stream have been unsuccessful.
The then-Colorado Bridge Enterprise dodged a threat to its surcharge revenue when voters in November 2010 soundly defeated a proposition that would have effectively eliminated the fee. That cleared the way for its inaugural bond sale – $300 million of
Outstanding bonds from that issue were refunded and defeased by a Series B $236 million BTE
A lawsuit filed in 2012 seeking to declare the surcharge and the 2010 bonds unconstitutional was ultimately decided in BTE's favor.
The 2025 bonds carry insured ratings of AA from S&P Global Ratings and A1 from Moody's Ratings with stable outlooks based on Assured Guaranty's wrap.
S&P in March upgraded its underlying rating to A with a stable outlook from A-minus.
The upgrade "reflects our expectation based on 2024 bridge safety surcharge revenue that all-in maximum annual debt service coverage will remain at least adequate even if CBTE is unable to impose the fees currently being litigated," S&P analyst Quinn Rees said in a statement.
Moody's assigned its A2 underlying rating to the 2024 Series A parity bonds, which were also insured by Assured Guaranty, and raised it a notch to A1 with a stable outlook in August in conjunction with updated rating methodology.
Moody's said its underlying rating for the deal "incorporates the somewhat broad and relatively stable nature of the state-wide vehicle registration fee revenue and solid (maximum annual debt service) coverage on total obligations at 1.4 times, following the Series 2025A issuance, provided by the bridge surcharge revenue only."
KBRA in March assigned a first-time underlying rating of A-plus with a stable outlook. The rating agency cited "generally steady" bridge surcharge revenue, which could increase amid continued population growth in Colorado, along with BTE covenants not to reduce surcharges while the bonds are outstanding.
KRBA added that bridge surcharges, which are imposed at their maximum allowable level, and the lack of a debt service reserve fund are credit challenges.
The deal led by J.P. Morgan is structured with serial maturities from 2029 through 2045, along with $139 million of term bonds due in 2050 or 2054, according to the POS. Jefferies is co-senior manager and co-managers are Loop Capital Markets, Piper Sandler, RBC Capital Markets, and Siebert Williams Shank. Stifel is the municipal advisor and Kutak Rock is bond counsel.
The deal was among those pulled from the market Tuesday and placed on the day-to-day calendar as muni
