Colorado Court of Appeals: An Election Not Required Where There Is an Affirmative Obligation on City to Renew Leased Public Facilities

The Colorado Court of Appeals issued its opinion in Fischer v. City of Colorado Springs on September 16, 2010.

Multiple Fiscal Year Financial Obligation.

Plaintiff appealed the grant from a motion for judgment on the pleadings and dismissal of the complaint. The Court of Appeals affirmed in part, reversed in part, and remanded the case.

The City of Colorado Springs (City) and the U.S. Olympic Committee (USOC) entered into an Economic Development Agreement (EDA) for the purpose of developing facilities for use by the USOC. To raise funds, the EDA provided for a lease purchase agreement between the City and the Colorado Springs Public Facilities Authority (PFA), a nonprofit corporation operated by City officials. Under the lease purchase, the City authorized the PFA to issue certificates of participation. With the proceeds, the PFA was to purchase from the City the Police Operations Center and Fire Station No. 8, assigning its rental income to the investors who had purchased the certificates. The lease between the PFA and the City was to be annually renewable, subject to future city council decisions to appropriate money to fund it.

The City was to use the revenue from the sale of the police and fire stations to acquire and renovate a downtown building and lease it to the USOC for either no charge or for one dollar per year, and then convey it to the USOC for no additional cost after thirty years.

Plaintiff challenged the validity of the EDA on three grounds: (1) the certificates amounted to a contract obligating the City to commit future revenues, which is prohibited unless first authorized by an election, by the Colorado Constitution and the City’s home rule Charter; (2) the scheme was an unconstitutional donation to a private corporation; and (3) the EDA conflicted with the PFA’s articles of incorporation, which prohibited arrangements not consistent with the Colorado Constitution and the City’s home rule Charter.

The trial court determined the lease purchase agreement “does not constitute a general obligation debt or multiple fiscal year financial obligation.” It granted the City’s motion for judgment on the pleadings and dismissed the complaint with prejudice.

On appeal, plaintiff argued that it was error to grant judgment on the pleadings as to whether the certificates could not be issued unless first authorized by an election. In essence, he argued that because future city councils effectively would be obligated to appropriate money from the general fund to renew the City’s lease of the police and fire stations each year, an election was required under the Colorado Constitution, Article XI, § 6, and the City Charter, § 7-90. The Court disagreed.

The Constitution and Charter provisions proscribe any arrangement in which the City is contractually obligated to incur a debt, the repayment of which will obligate future city councils to commit revenues from the general fund. Such a constitutional debt arises only if the agreement affirmatively requires the payments to be made.

Plaintiff alleged that the City would never walk away from its police and fire facilities. The Court noted that despite the importance of the collateral, the City still could determine each year whether to continue the arrangement.

Plaintiff argued the PFA was the alter ego of the City because every member of the PFA was a city council member. The Court noted that the certificates did not pledge any specific source of revenue for repayment. Therefore, even if the PFA’s obligation to the investors could become the City’s, the investors remained entitled only to an interest in the annually appropriated lease purchase agreement to the extent the City chose to fund it.

The Court concluded that even taking as true plaintiff’s allegation that future city councils would face overwhelming political pressure to renew the lease of the police and fire stations, there was no material fact in dispute. An election is not required unless there is an affirmative obligation placed on the City to renew, which is not the case here. Judgment on the pleadings against the plaintiff was affirmed.

Plaintiff argued that it was improper to dismiss the remaining claims in his complaint, specifically that the EDA provides for an unconstitutional gift to the USOC and the PFA’s articles of incorporation do not authorize the issuance of the certificates. The Court agreed that further proceedings were required.

The trial court essentially determined, following a status conference, that it only had to reach the issue of whether an election was required. Plaintiff never abandoned his other claims and continued to raise them; therefore, they were remanded for consideration by the trial court in the first instance.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on September 16, 2010, can be found here.