DENVER -- Gov. Roy Romer has vetoed a bill that would have mandated oversight of nonrated bonds in Colorado, but signed one that set debt limits for special districts, taking a step toward preventing more defaults.
Also, the governor has signed a bill making Colorado the first state to mandate secondary market disclosure for some issuers -- a move hailed by bond dealers.
"There are times when you have things that need tighter regulation, tighter scrutiny, and this is one of them." the governor said in an interview. "I think [investors] are going to see that Colorado is a good place to do business, and a good place to bond."
Mr. Romer, a former developer, vetoed the oversight bill, S.B. 159, late Friday. Fought by investment bankers as going too far, the legislation would have created the Office of Municipal Bond Supervision to review and approve nonrated issues.
In his veto message, the governor says he was comfortable with S.B. 14, which sets limits on the amount of debt special districts can issue and requires county and municipal oversight of those authorities. He signed the bill before Friday's deadline for the governor to take action.
Mr. Romer earlier signed H.B. 1282 into law, which requires annual disclosure reports by special districts and some other issuers.
But the closely watched decision to veto the oversight bill came after the governor met last Thursday with lobbyists representing issuers and investment bankers who felt the bill was unnecessary and would conflict with the other two laws.
Some in the investment banking community felt the oversight might be a first step by the state to tighter regulation of the municipal bond business.
"We were very pleaded that the governor did veto the bill," said Alex Brown, president of the Colorado Municipal Bond Dealers Association. "We thought [S.B.] 159 was a bad precedent nationally.
"It was contradictory," he said. If an issuer were allowed to issue under the bill that sets debt limits, it was restricted under the oversight bill, he added.
But the Colorado Municipal Bondholders Association, which lobbied for the law, felt the veto was a setback for investors.
"We were absolutely stunned that the governor would bow to the special interests," said Peter Webb, a spokesman for the group. "This is a case where when the tough got going, Roy Romer took a powder."
The bondholders sought legislation to aid investors who suffered losses because of defaults and bankruptcy filings by special districts. But much of that language was dropped from the bill last month in the legislature.
During the interview, Mr. Romer agreed with investment bankers that the defaults that have occurred and those that may still come cannot be prevented by new laws.
The governor did say new laws should safeguard against the kind of reckless bond issurance that he says ignored the possibility of an economic downturn.
"It slows down those that are pushing toof ar into the margin," Mr. Romer said. "I think it will slow down those who are trying to do it in an unsound way. And that should happen."
He said the scrutiny will help restore market confidence in nonrated issuers, although he believes the state's credits have not been universally affected by nearly $500 million in defaults since 1987.
"I think the people in the bond industry will say, "Good for you, Colorado, you're correcting the things that need correcting, and we will trust the credit of your special districts more now,'" he said.
The two-term governor said the new laws are not a step toward over-regulation. "I call them one at a time," he said. "I think this does not start a trend toward massive regulation. I think Colorado has been fairly balanced in the way we regulate and what we regulate."
Like those in the investment banking community, Mr. Romer, a former state treasurer, blamed the severe economic downturn in the last decade for the troubled bonds.
"We were part of the whole Southwest and Sunbelt overreaction to where the economy was going," he said. "We did have a tougher [downturn] than the normal cycle."
Today, he said, the economic indicators in the Rocky Mountain region are improved at a time when other states are feeling the pinch in their budgets.
"We had our recession four or five years ago, and we are coming out of it now," he said. "We took our lumps. Now we are doing better than the rest of the nation."
While some 31 states are facing budget shortfalls for the coming year, the governor last week signed a $5.7 billion budget that was balanced with few problems.
However, even as Mr. Romer and other say government in Colorado has been operating economically, there are continued efforts to curtail spending and tax increases.
Douglas Bruce, author of a tax and spending limitation measure approved this year in Colorado Springs, has said he will again push for statewide approval of similar measures in 1992.
The governor is not worried. "We defeated Doug Bruce three times," he said. "I think he can be defeated a fourth time if we have to."
