Are public banks legal under the Colorado constitution?

Answer:  Very likely YesIn October 2019, Colorado’s Office of Legislative Legal Services (OLLS) issued a Legal Opinion to State Representative Jonathan Singer in which it concluded that a state public bank that qualifies as a “TABOR enterprise” would not violate the provisions of Article XI of the Colorado constitution.  Thus, a public bank would not violate Article XI, section 1, which prohibits a state or local subdivision from “lending its credit” to another; nor would a public bank violate Article XI, section 2, which prohibits a state from mingling its funds with a private entity because the public bank’s funds would not be mingled with funds of a private entity and the public bank would serve a public purpose; finally, a state public bank would not violate Article XI, section 3, which prohibits the state from contracting for debt except for limited exceptions.  The opinion further stated that there is a “heavy presumption” of constitutionality of legislation, and that a party challenging the bank on constitutional grounds would have to prove its unconstitutionality “beyond a reasonable doubt.”  There therefore appears to be an excellent probability that legislation to establish a state public bank would be upheld as constitutional by the courts if challenged.


How Could a city or county establish a public bank?


By legislation: For the same reasons that OLLS concluded that a state public bank would probably not violate the Colorado constitution, on December 19, 2019 OLLS Managing Senior Attorney Thomas Morris wrote that it was “equally certain” that state legislation to authorize cities and counties to create public banks would be constitutional.  The memo also stated that home rule cities and counties could establish their own public banks without the need for state legislation as long as they restrict their operations to their own community.  The heavy presumption of constitutionality would apply and a challenger would have to show its unconstitutionality beyond a reasonable doubt.  The local public bank could apply for a charter with the Colorado banking board.  

By executive order: Furthermore, the same presumption of constitutionality applies to an executive order of a governor, mayor, city manager or other officer authorized to issue executive orders.  We are seeking legal advice to verify that an executive order could be used to establish a public bank.


Would a public bank be subject to the limits on revenue and expenditures imposed by the TABOR Amendment? 

Answer: If a public bank is established as a self-sustaining “TABOR enterprise” under section 2(d) of the TABOR Amendment, the Amendment provides that the bank would not be a “district” as defined in the Amendment, and therefore all of its income and expenditures would be exempt from the TABOR limits on income and expenditures, and any or all of its income could be paid into the general fund of the government that owned the bank without penalty.  The enterprise exemption applies as long as the bank is government owned, receives less than 10% of its income from state or local government sources, and is authorized to issue revenue bonds, all as required by section 2(d) of TABOR. A public bank could easily meet these conditions.