On November 5, 2019, Colorado voters will decide on approximately $1.2 billion of K-12 municipal issuance and mill levy overrides in 20 local elections, as well as Proposition CC, a statewide ballot measure that would end the cap on state tax revenue as required by the Taxpayer’s Bill of Rights (TABOR). TABOR is a constitutional limit to the amount of revenue that Colorado and local governments are able to retain and spend or save. Excess revenue collected over the TABOR limit must be refunded to taxpayers unless voters authorize retention of the excess amount.
Historically, the State has experienced difficulty passing funding for K-12 public schools and transportation projects. As a result, the State is requesting voters approve Proposition CC, which permits excess revenue to be distributed to public schools, higher education, roads, bridges and transit beginning in fiscal year 2019-20.This strategy has recently been successful at the local level, with Colorado cities exercising similar strategies to spend TABOR funds. If the measure passes, the increases in funding may benefit our holdings of public school, higher education and transportation bonds. However, TABOR funding is unpredictable and, therefore, difficult to budget. The Colorado Legislative Council Staff projects revenue exceeding the TABOR limit will be $428.5 million in 2019, $264.3 million in 2020 and $142.9 million in 2021.
Unlike at the State level, Colorado voters have historically shown a willingness to approve local bond issues. These measures are used to finance new schools and other capital improvements throughout the state. School district bond issues on the November ballot range in size from approximately $2.5 million to as much as $395 million. Depending upon voter sentiment, this election could potentially provide the Aquila Tax-Free Fund of Colorado with a broad opportunity to invest in a variety of projects as bonds are sold later this year and into 2020.
improved retail access. However, both the inherent structure of new municipal bond issues, and the origination process itself, create challenges for retail investors hoping to place small orders for new issues.
A heightened focus regarding fees and investor protection has generated an increased number of headlines around the decades-old debate between active and passive fund management. Historically, investors have viewed the two theories of management as one-verses-the-other, and many investors have been known to fluctuate between the two based on which style is in favor; in recent years, the trend has tilted toward passive management. Lower volatility, monetary policy and economic recovery have made it more difficult for active managers to consistently beat their benchmarks. However, history tells us that when passive management becomes oversaturated, the pendulum often swings back toward active. While we don’t anticipate a major shift away from passive, there are attractive aspects of active management that should be considered – and we believe that a combination of both styles creates a strong and timeless portfolio.