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Amendment 78 asks voters to reconsider who has the power of the purse for custodial funds

Amendment 78
Posted at 6:45 AM, Oct 18, 2021
and last updated 2021-10-22 17:11:15-04

DENVER — Colorado voters will decide in November whether to change the way custodial funds are spent with a proposed constitutional amendment.

Proponents came up with the ballot question for Amendment 78 after several big legal settlements and the distribution of federal CARES Act spending by Gov. Jared Polis.

When the federal money came into the state, Polis acted alone in allocating out roughly $1.6 billion to various areas. Months later, he called a special session of the legislature to distribute the rest of the money that was coming in.

MORE: Election 2021: Breaking down the three Colorado statewide ballot issues

Proponents of Amendment 78 believe no one person or one office should have that type of power and, instead, it should be up to the legislature to determine how custodial funds are spent.

What are custodial funds?

Custodial funds are money that come into the state to be spent for a specific purpose. The money can include:

  • Emergency relief funds such as the CARES Act or FEMA disaster relief
  • Other federal money coming into the state for things like education and transportation
  • Legal settlements such as the $400 million Colorado is set to see from the opioid epidemic
  • Transportation funding
  • Grants awarded to state agencies and gifts
  • Gifts and donations given to state agencies or public colleges

Currently, custodial funds can be spent by either the governor, attorney general or agency awarded the grant or gift.

What does Amendment 78 do?

Amendment 78 requires all custodial money to be allocated out by the state legislature. It also sets up a new Custodial Funds Transparency Fund for the money to be placed in until it is spent.

The amendment calls for the legislature to hold public hearings each year to discuss how the money would be spent and to allow for public comment.

Any interest earned on the money would be placed in the state’s General Fund for the legislature to use.

The ballot question does not change the original of the custodial funds. However, state lawmakers would have the ability to make different spending decisions on how the money would address that purpose and the timing of its release.

Arguments for Amendment 78

Supporters of the ballot question say they were concerned with how the governor spent the CARES Act funding and argue that this amendment will bring more oversight to the process.

“The governor did have his authority because of these custodial funds but I think the average person would say, ‘Look, we want transparency; we want accountability,’” said Michael Fields from Colorado Rising Action, a conservative political action committee.

He believes shifting the power from one person to a larger group of lawmakers will add more voices to the process to make sure the money is being used fairly.

However, Fields does not have any clear examples of areas where he believes the CARES Act money was misspent or should have been allocated differently.

“I’m just not saying that anything was necessarily bad that they spent it on, but I think the more we learn about it, the more there could be things that are negative,” he said.

Sen. Bob Rankin, R-Carbondale, though, says he would have liked to see more of the CARES Act money go toward local health departments so they can decide how best to spend it based on their needs.

He also wanted more legislative involvement in the process.

“We are one of only four states that don’t have legislative control over federal custodial spending or some partnership,” Rankin said.

Supporters also contend that some of the custodial money is allocated out by unelected officials without public input and without accessible public records.

Others, like Rep. Patrick Neville, R-Castle Rock, say the current process has the potential to leave people behind since their state lawmakers are not part of the conversation to advocate on their behalf.

“There’s lots of moments when I was sitting there going, maybe 10% of what we spent should have been spent. And then we could’ve saved that other 90% to help out people that are being left behind,” Neville said of the CARES Act spending.

He says he is also concerned about the interest earned on the custodial funds. For years, it has been up to the governor, attorney general or custodians of the money to determine how to spend the interest earned.

Because there is often no direct mandate on how the interest must be spent, the custodians can choose to use it as they see fit.

“Republican governors and Democratic governors have used, basically, the federal dollars as a slush fund for political reasons,” Neville said.

One recent example: the lawyer who represented former Gov. John Hickenlooper during a recent ethics investigation was paid for using leftover federal funds from a 2003 economic recover federal fund called the Jobs and Growth Tax Relief Reconciliation Act of 2003.

It is common for elected state officials to have their legal counsel paid for by the state when facing things like ethics complaints.

However, Fields and supporters of Amendment 78 want the interest or leftover money to be put in the state’s General Fund instead.

The state legislature recently passed a law requiring more reporting requirements for how the custodial funds are spent, but that’s after the fact.

Rankin believes the constitutional change is necessary but says the legislature will have to think carefully about how to implement it and will likely have to pass new laws to give the Joint Budget Committee more resources and control over the funding should Amendment 78 pass, which will require 55% of the vote.

Arguments against Amendment 78

Opponents of the ballot question say this is a political move that doesn’t make sense and could hurt the state in the long run.

Sen. Chris Hansen, D-Denver, contends that the governor needed to move quickly and decisively to get money out the door fast during the pandemic in order to help communities and that bringing the legislature in would have added more red tape and unnecessary delays to the process.

Once some of the initial funding was out the door, the governor then called a special session to allow the state legislature to determine how to spend roughly $700 million more in CARES Act money.

One argument against Amendment 78 is that by bringing in the legislature, the allocation of federal money could be significantly delayed as lawmakers debate its allocation, potentially slowing financial aid to things like natural disasters.

“My fear is what this will lead to is shenanigans and showdowns in the legislature, issues being over-politicized,” said Scott Wasserman, the president of the Bell Policy Center. “Do you want legislators essentially re-arguing or relitigating issues that were already dealt with on the congressional level?”

Supporters of the amendment disagree and say the legislature could issue spend-ahead authority each year in the event of a disaster to get money out the door quickly.

Hansen points out that the supporters of the amendment have not been able to clearly identify any ways the pandemic relief money was misallocated.

“I think the ballot initiative this year is really a solution in search of a problem,” Hansen said. “There’s not a discernible problem here and the proponents have not been able to demonstrate that.”

Hansen also points out that former Republican governors like Gov. Bill Owens have had this power in the past and it has never been an issue until now.

Beyond that, Hansen, who sits on the JBC, says this constitutional change will add more work onto the agendas of a part-time legislature.

Another argument against the ballot question is that the change could jeopardize Colorado’s competitiveness when it comes to federal grants since the money’s allocation will be subject to changes by the state legislature and could potentially not be spent as intended.

“You don’t want the federal government asking itself whether or not Colorado can really be trusted with these dollars,” Wasserman said.

He believes the ballot question could cause the federal government and others to attempt to bypass the state bureaucracy created by the amendment and send the money directly to local communities that may not be equipped to receive it.

Wasserman also worries about whether the ballot question could affect research, particularly controversial research, at colleges and universities if some lawmakers don’t like the topic.

“If someone doesn’t like the purpose of a research dollar, perhaps they find it controversial, it would be very easy for a legislature to block that funding or to leverage it for other things they want,” he said.

Hansen shares Wasserman’s concern that the amendment could have unintended consequences and could take the decision-making away from independent experts, making it unnecessarily political.

Attempts to block Amendment 78 from the ballot

The ballot question is also facing a legal challenge in the courts. The Bell Policy Center has filed a lawsuit attempting to have the question either removed from the ballot or invalidated so the results would not be released.

The center argues that the question does not belong on an off-year statewide ballot at all since it does not have a direct tie to the Taxpayer's Bill of Rights.

Questions on off-year ballots must have a tie to taxes and TABOR in order to be included.

Part of the ballot question’s language says all custodial money and the interest earned on it would be exempt from the state’s constitutional revenue limits, which falls under TABOR.

However, Wasserman and others say that is already the case, these funds are already TABOR exempt, and so the amendment changes nothing and, therefore, doesn’t belong on the ballot.

“There was some clever lawyering here,” Wasserman said.

The issue is now in a district court awaiting a hearing and could eventually head to the Colorado Supreme Court.

Fields disagrees with the lawsuit and says he is prepared to fight it.

“We think it will get thrown out and that there’s no merit to it and that it’s frivolous,” he said.

A final judgment on it is not necessarily guaranteed before the election. For now, the fate of the ballot question is still uncertain, even as voters get ready to cast their ballots.