Opinion ID: 2572575
Heading Depth: 2
Heading Rank: 1

Heading: Exclusion of Jobs Act Funds from Custodial Moneys

Text: Turning first to Interrogatory Number Two, we examine the exclusionary language of House Bill 04-1098, which states that federal funds that are subject to allocation by the state for the support of general or essential state government services of the type for which expenditures are made in the most recently approved annual general appropriation act do not constitute custodial moneys subject to executive control. Because the exclusionary language of House Bill 04-1098 is essentially the same as the language of the Jobs Act, [6] we have a concrete example of the type of federal grant implicated by House Bill 04-1098. Therefore, we can state with a sufficient degree of certainty that funds distributed to the state in the manner described in House Bill 04-1098 at section (3)(b)(III), are not custodial moneys. This is because funds such as those under the Jobs Act, disbursed to the state with such minimal guidance as to the process by which such funds shall be allocated and as to the purposes for which the funds may be spent, cannot fairly be described as custodial in nature. Rather, such funds are more appropriately deemed general fund moneys. Thus, House Bill 04 1098 may constitutionally exclude such funds from the definition of custodial moneys. We therefore answer the second interrogatory in the affirmative. A consideration of the totality of circumstances surrounding the allocation of Jobs Act funds to Colorado, consistent with our prior decisions, supports our conclusion that the funds such as those provided for in the Act are not custodial. Specifically with regard to the first factorthe origin of the fundsthe Governor argues that the source of the funds, in this case the federal government, is in and of itself determinative of the funds' status as custodial. The General Assembly, on the other hand, argues that the source of the money is but one criterion to be considered in evaluating the nature of the funds. We agree with the General Assembly that the fact that the moneys come from the federal government cannot, without more, determine whether funds are custodial. In MacManus, we stated rather broadly that federal contributions are not the subject of the appropriative power of the legislature. 179 Colo. at 222, 499 P.2d at 610. Nevertheless, since we issued that opinion, we have found that some funds deriving from the federal government are more akin to state moneys, and therefore subject to legislative appropriation. For example, we held that federal block grants which were subject to state matching funds or which could be transferred by the states to other block grant programs allowed states too much flexibility to be deemed custodial, and therefore must be allocated as general fund moneys via the legislative appropriation process. Lamm III, 738 P.2d at 1172-73. Thus, we cannot rest our analysis of the Jobs Act funds on the nature of their source, but must instead consider the remaining factors regarding the process by which the funds may be allocated and the purposes for which the funds may be used. The Jobs Act provides virtually no guidance as to what process must be followed in allocating the funds at the state level. The Act requires only that the state pre-certify that it will use the funds in compliance with the Act, 42 U.S.C. § 801(e), but beyond that lacks any form of post-distribution regulation to ensure that the funds are in fact being used and distributed appropriately. Thus, as with the federal block grants we addressed in Lamm III, Congress has left the issue of state legislative appropriation ... for each state to determine. 738 P.2d at 1169. Lacking any explicit guidance from Congress regarding the appropriation process under the Jobs Act, we turn finally to the degree of flexibility which Congress has afforded the states in allocating the funds. Both the Governor and the General Assembly have placed a great deal of reliance on the Act's language directing the states to use the funds for essential government services, 42 U.S.C. § 801(d)(1)(A), although they disagree as to the implication of that directive. The Governor argues that by limiting the use of the funds to essential government services, the federal government has provided a limited range of purposes within which the executive retains ultimate discretion as to the specific uses. See, e.g., Lamm I, 700 P.2d at 525 (describing a fund as custodial where the Governor retained some authority to determine which specific purpose among several options should be benefited). On the other hand, the General Assembly argues that by directing states to use the Jobs Act funds on essential government services, Congress has not limited the states in their use of the funds at all, and that such broad flexibility cannot be consistent with the notion of custodial funds. See, e.g., Lamm III, 738 P.2d at 1173 (finding that the amount of flexibility allowed states in transferring certain block grant funds was inconsistent with a description of the governor's exercise of authority over the funds subject to transfer as `essentially custodial in nature'). We agree with the General Assembly that Congress has afforded a degree of flexibility regarding the allocation of Jobs Act funds which cannot fairly be described as custodial. We have previously defined custodial funds as those funds not generated by tax revenues which are given to the state for particular purposes and of which the state is a custodian or trustee to carry out the purposes for which the sums have been provided. Lamm I, 700 P.2d at 524. Applying that definition to the Jobs Act funds at issue today, we conclude that, based on the degree of flexibility accompanying the funds, the moneys granted under the Act are not custodial in nature. Instead, such moneys necessarily become part of the state's general fund subject to the legislative appropriation process. Looking at the plain language of the Jobs Act, the broad category of essential government services is not a particular purpose, but rather allows each state to use the Jobs Act funds as it sees fit, based on its own budgetary needs. Moreover, the debate surrounding state fiscal relief under the Jobs Act demonstrates that the Senators intended states to use the funding as they deemed necessary in a time of fiscal crisis. For example, Senator Susan Collins of Maine stated: By no means do we intend to prohibit States from using the revenue sharing portion of this amendment on services or other spending that the State cut in its most recent budget. If a State wanted to use a portion of these funds to restore all or part of a vital service it was forced to eliminate or reduce, it should be allowed to do so. We know that the State is the best judge of how to prioritize these funds, not the Federal Government. 149 Cong. Rec. S6148-02, at S6208 (daily ed. May 14, 2003) (statement of Sen. Collins)(emphasis added). Additionally, we find particularly instructive the fact that the Jobs Act was altered from its original form in order to remove a list of specific governmental programs and activities which the funds should serve, and instead listed essential government services as the only guidance in directing states regarding use of the Jobs Act funds. See H.R. Conf. Rep. No. 108-126, at 168 (2003). Finally, because once the state has received the Jobs Act funds it is no longer subject to any meaningful federal regulation regarding the use of the moneys, the State acts more in the role of an outright owner of those funds than as a guardian or custodian. As such, the moneys should be treated as part of Colorado's general fund and therefore subject to legislative appropriation, rather than as custodial moneys subject to executive control. Based upon our consideration of all of the above circumstances, we find that the funds at issue today cannot be described as custodial. Unlike those block grants held to be custodial in Lamm III, the Jobs Act funds do not specify the purposes the state is directed to accomplish with the money, the manner in which the purposes are to be accomplished and the restrictions placed on use of the funds by the federal government. 738 P.2d at 1173. We therefore affirm that House Bill 04-1098 is constitutional insofar as it expressly excludes from the definition of custodial moneys funds distributed in the same manner as those allocated pursuant to the Jobs Act.