AGO 86-3.

Case Date:March 10, 1986
Colorado Attorney General Opinions 1986. AGO 86-3. March 10, 1986Department of Law Attorney General Opinion FORMAL OPINION of DUANE WOODARD Attorney General Opinion No. 86-3 AG Alpha No. LE HR AGAPB Honorable Walter A. Younglund Colorado State Representative State Capitol, Room 242 Denver, CO 80203 RE: Investment of state funds in a limited partnership formed to purchase, manage and sell distressed agricultural real estate for profitDear Representative Younglund: I am writing in response to your January 22, 1986 letter requesting a legal opinion concerning the proposed investment of state funds in a real estate limited partnership. Your letter did not ask a specific question. I have reviewed the materials enclosed with your inquiry and framed specific legal questions based upon that review and my general understanding of the proposed investment. QUESTIONS PRESENTED AND CONCLUSIONS Do existing provisions of Colorado constitutional and statutory law authorize the state treasurer to invest state funds as a limited partner in a real estate limited partnership? No. The state treasurer's authority to invest state funds is limited to those specific investments approved by the General Assembly by statute. Investment in a limited partnership interest is not at present a permissible investment. Do existing provisions of law authorize the state treasurer to invest public school funds in a real estate limited partnership? No. The state treasurer's authority to invest public school funds is limited to specific permissible investments set out by statute. Present investment statutes do not authorize investment in a limited partnership. Do provisions of the Colorado Constitution prohibiting private appropriations, joint public and private ownership and pledging of the state's credit, preclude the General Assembly from enacting legislation authorizing investment of public funds in a limited partnership? In the absence of specific authorizing legislation, I am unable to provide a conclusive opinion on this question. The application of the relevant constitutional provisions would depend upon whether the statutory scheme serves a sufficient "public purpose." ANALYSIS Statement of facts. The materials you provided describe a proposed investment for state funds. I have relied upon the facts as represented in those materials. Although those facts are complex, the proposal may be summarized briefly as follows. It is proposed that a Colorado limited partnership (the "partnership") be formed to acquire, operate and dispose of distressed Colorado farms in order to profit from cash flows and long-term appreciation of the properties. If a farmer sells his property but is able to obtain financing to continue farming as a tenant, the partnership would attempt to retain the farmer on the property. Prior owners would be encouraged to repurchase their farms by a provision in the partnership agreement requiring that a small percentage of the partnership's gross income be set aside to be used toward a downpayment on repurchase by qualified purchasers. Management of the partnership, including selection of properties to be purchased, operation of the farms and disposal of the properties, would be placed in the hands of a Colorado corporation, which would serve as general partner. That corporation's compensation would include 6 percent of the gross proceeds of the sale of partnership interests, a management fee during the operating phase and real estate commissions when properties are sold by the partnership. It is proposed that the State of Colorado invest $10 million in the partnership as seed money to attract...

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