C153719 Misc Corespondances

• Contract/PO #: C153719
• Contractor Name: Johnstown, Town of
• Contract Type: Loan
• Water District: 13
• County: Larimer
• County: Weld
• Bill Number: SB 94-029
• Loan Projects - Doc Type: Report

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John Van Sciver
Page 2

CONFIDENTIAL

be used to compel performance by public officials of a plain legal
duty devolving upon them by virtue of their office. . . ." Sherman v.
City of Colorado Sprinqs Planning Com'n, 763 P.2d 292, 295 (Colo.
1988). Courts will issue mandamus only when the plaintiff shows
that (1) the plaintiff has a clear right to the requested relief;
(2) the defendant has a clear duty to perform the requested act;
and (3) there is no other available remedy. Id. A borrower's
failure to collect sufficient revenues via its water rates to repay
its loan to the CWCB would constitute a breach of the loan
contract. The Colorado Supreme Court has held that for any breach
of contract, there exists an adequate remedy at law which abolishes
the need for an equitable remedy such as mandamus. Hawkins v.
Cline, 420 P.2d 400, 404 (Colo. 1966).

The CWCB's enabling statute requires the CWCB to "have the
ownership and control of such portions of said projects, or shall
take a sufficient security interest in property or take such bonds,
notes or other securities evidencing an obligation, as will assure
repayment of funds...." ~ 37-60-120 (1), C.R.S. (1990). David Kaye
and I have discussed what constitutes adequate collateral for CWCB
loans, and what is the best type of collateral for the CWCB. We
have noted that, ideally, the CWCB should be able to get possession
of the collateral as quickly and simply as possible. In the
scenario proposed by Mr. Peltz, the remedies available to the CWCB,
which include mandamus, specific performance of the rate raise
covenant, or injunctive relief, all would require the initiation of
a lawsuit that would not necessarily guarantee positive results.

Because of my concerns that this proposal does not appear to
provide the CWCB with a quick method to access the collateral for
the loan, I sent a memo with Tom Peltz's proposed contract language
to David Kaye and Richard Pennington to obtain their opinion of the
proposal. They do not think that this proposed collateral for CWCB
loans meets the requirements of ~ 37-60-120(1). Richard told me
that David Kaye has researched the legislative history of ~ 37-60-
120(1) and has concluded that the legislature intended that the
CWCB would take traditional security interests as collateral for
its loans. Richard thinks that this proposal, while appropriate in
the context of revenue bond financing, falls outside of the
traditional security interest context.

In addition, from a policy standpoint, the CWCB's acceptance
of enforcement (presumably via a court order) of a rate-raise
covenant as its sole remedy places the CWCB in a position of
appearing as the "heavy" by being the direct cause of the rate
raise. Since CWCB loan contracts now contain a promise by the
borrower to raise its rates if necessary, with the existence of
another source of collateral apart from revenues (physical assets
or a CD), it is left to the borrower's discretion whether to raise
its rates or risk foreclosure on the collateral. This results in
the CWCB remaining in the background as long as possible when a