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" . . , Robert o. Engelke December 7, 1988 Page Two The City of Fruita collects substantial revenues each year from a city sales tax and also receives a designated portion of the Mesa County sales tax collections. These revenues are presently pledged as collateral and as a payment source for outstanding city of Fruita general obligation bonds. We assume that these sales tax revenues are collected pursuant to valid elections or agreements, and that they will continue. We have not examined the regularity of those elections or obtained any independent opinions concerning them. The Fruita City Charter generally requires any extension of the city's full faith and credit to be adopted by general election. Fruita City Charter ~8.20. It would not be possible for the city to make a binding commitment to repay the CWCB obligation from its general revenues. However, the City may pledge special revenues for virtually any municipal purpose. Specifically enumerated among the special revenue sources are "the available proceeds of any sales tax, use tax, or other excise tax.. " Fruita City Charter ~8.21(c). Colorado state law specifically authorizes such a transaction as well. Part 4 of Article 35 of Title 31 of the Colorado Revised Statutes addresses municipal sewer and water systems, and their financing. C.R.S. ~31-35-42(I) (i) specifically permits a pledge of special revenues to secure municipal borrowings for water and sewer systems, so long as "no debt on the credit of the municipality is thereby incurred in any manner for any purpose." This action is specifically authorized to be taken without any municipal election. C.R.S. ~31-35-41(1). Subject to the city's contractual obligations arising from existing pledges of those same sales tax revenues, if any, the City may validly pledge its sales tax revenues as replacement collateral. Care should be taken in the documentation not to create a general municipal obligation, however. ' There are other options the City might pursue as well. For example, the Fruita City Charter authorizes the creation of general obligations for the purpose of the "construction, improvement or extension of any municipal utility system. . ." This language could be interpreted to authorize the creation of general obligations in connection with this problem; However, we have not researched whether or not this collateral substitution in these circumstances would fit the description in the Charter. A question would exist whether this particular transaction involves the water system or general city finances.