General obligation bonds are prohibited under the Colorado Constitution without voter pre-approval. As a result, capital financing has principally been done through tax or revenue anticipation notes or certificates of participation (COPs). Tax or revenue anticipation notes are used to help cash flow of the General Fund or local school districts, but they are repaid within the same fiscal year. The State of Colorado uses COPs to finance construction of new facilities. These COPs are typically offered to lessors who assign their interests to commercial banks, mutual or pension funds, and PERA to own the property, collect lease and interest payments from the state, and make payments to investors. This method of securing state debts limits the number of businesses and organizations that can invest in the state and assist in financing capital projects.
In order to reduce the dependence on commercial banks, institutional investors, mutual funds, and pension funds, COPs could be funded by millions of individual investors through the use of secure tokens. The introduction of a policy that sets up a plan for secure tokens to be used to finance COPs would greatly expand the number of potential investors and decrease the interest rate that the state would owe on its principal loan as a result of direct purchases by retail investors. Instead of the state using investment banks that charge high fees to underwrite new COP offerings, Colorado would be able to issue secure token offerings (STOs). This approach would likely lower interest rates compared to traditional COP financing methods and the citizens of Colorado could share in the ownership of new capital assets until the state has paid back the principal and interest to each investor.