Use of security tokens for state capital financing
- feasibility study
- authorization of use
- legislative declaration
(1)Intentionally left blank —Ed.
(a)The general assembly hereby finds and declares that:
(I)Section 3 of article XI of the state constitution prohibits the state from issuing general obligation debt, and section 20 of article X of the state constitution generally requires the state to obtain voter approval in advance before incurring any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever;
(II)Due to these limitations, the state typically engages in capital financing by:
(A)Issuing short-term tax or revenue anticipation notes, which the state must repay within the same state fiscal year in which they are issued for the purpose of smoothing general fund cash flow; and
(B)Entering into annually renewable financed purchase of an asset or certificate of participation agreements, which grant purchasers of certificates of participation the right to receive lease payments, for the purpose of financing the construction, improvement, or acquisition of capital assets;
(III)Certificates of participation issued in connection with a financed purchase of an asset or certificate of participation agreement evidence proportionate interests in the base rentals paid by the state pursuant to the agreement; and
(IV)The use of financed purchase of an asset or certificate of participation agreements by the state for capital financing may limit the universe of investors that can invest in the state and assist in financing state capital projects and may increase the state’s capital financing costs.
(b)The general assembly further finds and declares that:
(I)The emergence of decentralized, secure blockchain technology allows security token offerings to be used for capital financing;
(II)A security token offering is a capital financing method in which security tokens, which are digital, liquid contracts made verifiable and secure through the use of blockchain technology that establish a token owner’s right to a fraction of a financial asset, are sold to investors;
(III)If the general assembly, after a study by the state treasurer of the feasibility of using security token offerings for state capital financing, authorizes the state to use this new and innovative method of capital financing, the state could substantially reduce its capital financing costs by:
(A)Allowing a much broader range of investors, including ordinary individuals, to invest in underlying financial assets such as certificates of participation issued in connection with financed purchase of an asset or certificate of participation agreements by purchasing security tokens that evidence their investments, thereby increasing investor demand for the underlying financial assets and reducing the rate of interest that the state must pay to investors; and
(B)Reducing the state’s dependence on commercial banks, institutional investors, mutual funds, and pension funds when obtaining capital financing and the high underwriting fees, interest, and other transactional costs that result from that dependence;
(IV)In addition to reducing costs, if authorized by the general assembly, the state’s use of security token offerings for capital financing will allow ordinary Coloradans, who as taxpayers collectively own state-owned capital assets, to also share in the ownership of leased state capital assets until the state has paid all of its lease obligations and obtained ownership of the assets; and
(V)Because the state has not previously used security token offerings for capital financing and the state treasurer has substantial experience and institutional expertise in capital financing and provides centralized capital financing management on behalf of many state agencies, it is necessary and appropriate to:
(A)Require the state treasurer to study the feasibility of using security token offerings for state capital financing; and
(B)Authorize the state treasurer to recommend to the general assembly that the general assembly enact legislation to authorize the use of security token offerings for state capital financing if, after completing the feasibility study, the state treasurer determines such use to be in the best interest of the state.
(2)As used in this section, unless the context otherwise requires:
(a)“Blockchain technology” means a mathematically secured, chronological, decentralized, distributed, and digital ledger or database that consists of records of transactions that cannot be altered retroactively.
(b)“Security token” means a digital, liquid contract made verifiable and secure through the use of blockchain technology that establishes its owner’s right to a fraction of a financial asset such as a stock, bond, or certificate of participation.
(c)“Security token offering” means a capital financing method in which security tokens representing fractional interests in a financial asset are sold to investors in lieu of selling the actual financial asset to investors.
(3)The state treasurer shall study the feasibility of using security token offerings for state capital financing and determine the extent to which the use of security token offerings of state capital financing would be in the best interest of the state. The state treasurer shall complete the study and report the study findings to the house of representatives finance committee and the senate finance committee, or their successor committees, and to the joint budget committee by March 1, 2023. If the state treasurer determines, after completing the feasibility study, that the use of security tokens for state capital financing is in the best interest of the state, the state treasurer may recommend as part of the report that the general assembly enact legislation to authorize such use. The state treasurer shall also post the study findings on the department of the treasury’s website.
Section 24-36-121.5 — Use of security tokens for state capital financing - feasibility study - authorization of use - legislative declaration - definitions,
https://leg.colorado.gov/sites/default/files/images/olls/crs2023-title-24.pdf (accessed Oct. 20, 2023).