Denver Public Schools has quietly taken on hundreds of millions of dollars in long-term debt without voter approval — money that could otherwise be used to lower class sizes, increase teacher pay or expand student support services, an investigation by The Denver Gazette has found.

The spending comes as contract negotiations between the district and the Denver Classroom Teachers Association (DCTA) have stalled, with union leaders pointing to the district’s failure to fully fund last year’s cost-of-living adjustment.

Educators have repeatedly called for smaller class sizes, better compensation and stronger student support — the very priorities that advocates say are undermined by rising lease payments tied to long-term debt.

To bypass the Colorado Constitution’s ban on assuming public debt without voter approval, DPS officials employed a workaround widely used in public finance circles but little understood by the public: transferring ownership of schools to a corporation, then leasing the buildings back for hundreds of millions of taxpayer dollars.

“This seems to me like a really clever circumvention of the voters,” said Deborah Carroll, director of the Government Finance Research Center and a public administration professor at the University of Illinois at Chicago.

Since at least 1984, the district has employed this tactic — using what is called “certificates of participation” or COPs — to finance off-the-books projects largely out of public view. The maneuver has allowed DPS to accumulate debt that rivals the nearly $1 billion bond voters approved last fall — all without putting a single measure on the ballot.

In some cases, the district borrowed hundreds of millions under these lease agreements but ended up repaying more than twice the borrowed amount once interest and fees were factored in.

The Denver Gazette asked the district for detailed information about its lease-financing arrangements, including the total amount paid to the corporation it created, Denver School Facilities Leasing Corp., how those payments are funded and which properties are being used as collateral. The request also sought clarification on outstanding balances, the use of bond proceeds and whether any entities in addition to the leasing corporation hold ownership or collateral interest in DPS schools.

Bill Good, a district spokesperson, declined to comment, citing an ongoing lawsuit.

The Denver Gazette also reached out to the board of education for comment. No one responded.

‘The most nefarious, underhanded thing that I’ve seen’

The district formed the corporation, a Colorado nonprofit solely created to facilitate the sale of COPs and assume debt for the district without voter approval, in 1984.

The corporation operates in the background, yet its transactions have shaped millions in long-term obligations — often with little public visibility.

Key documents are often buried in board packets or budget reports.

Here’s how it works: Rather than ask voters to assume additional debt through a bond or mill levy override, the district transfers ownership of certain schools to the leasing corporation, which then sells COPs to private investors. DPS then agrees to rent the buildings — and in some cases, appears to use voter-approved bond funds for those lease payments.

This financial arrangement has not been tested in court — until now.

Lisi Owen, a civil rights attorney and founder of Vanguard Justice LLC — a firm that says it is focused on exposing public corruption — is representing the parent advocacy group Mamás de DPS in a lawsuit challenging the district’s lease-financing strategy. Owen, who ran for Denver district attorney in 2023, argues the leasing arrangement violates the state constitution. This lawsuit, which DPS spokesman Good referred to, is also challenging the school closures approved last year. 

“The DPS leasing scheme is the most nefarious, underhanded thing that I’ve seen in my career,” Owen said.

At the heart of the lawsuit is the financing tactic DPS has used for decades — one that quietly transferred ownership of dozens of public schools to a private entity that operates outside public financial disclosure laws.

Mamás de DPS alleged the district has transferred ownership of at least 31 schools across the city under leaseback arrangements valued at $6.8 billion. To put that in context, the district’s general operating fund last year was $1.5 billion.

That $6.8 billion reflects the value of the leased schools. It does not represent the principal borrowed, the interest rates, fees or other financial charges associated with the COP agreements.

These school properties frequently change hands for nominal amounts — a legal maneuver that enables the financing, not a reflection of the true value of the schools (or the land these buildings sit on).

Consider, for example, a lease agreement a decade ago involving nearly two dozen schools. In 2013, DPS transferred 21 schools — including Kepner Middle, Harrington Elementary and East High School, its flagship campus — to the leasing corporation for just $10, according to a Special Warranty Deed.

‘Not the most transparent’

While public in theory, critics said the deals are so complex as to defy accountability.

“Certificates of participation are not the most transparent or efficient to use,” said Kathy White, executive director of the Colorado Fiscal Institute.

Launched as a nonprofit in 1999, the institute uses research to advocate for what it describes as equitable fiscal policies in Colorado.

Typically, COPs surface during recessions as a creative investment structure that allows governmental entities to raise money without having to get voter approval, White said.

“This is another place where the rules in the constitution don’t allow us to do what modern governments have to do,” White said. “I’d be surprised if not every single county has done this for an infrastructure project.”

While such financing may be common, its complexity often obscures the details from the public.

Board votes to approve these lease-financing arrangements are public, but the underlying transactions are so complex that even seasoned observers struggle to follow the money.

State law does permit school districts to use lease-purchase agreements without voter approval, but only if the payments are subject to annual appropriation and are made from general or capital reserve funds. 

District records obtained through the Colorado Open Records Act (CORA) show that at least some lease payments tied to COPs appear to have been made using bond proceeds — raising questions not only about compliance with state law and the constitutional exemption these transactions rely on, but also whether they could run afoul of federal securities regulations.

In fiscal year 2024, for example, the district paid at least $15.5 million in principal and interest on lease obligations, according to financial transactions recorded in DPS’ Building Fund — the account where bond proceeds are held.

It’s unclear whether additional lease payments are being made from other funds.

Certificates of participation are deliberately structured in such a way as to avoid being labeled as debt, even though COPs function like it and the documents clearly identify the transaction as debt and delineate creditors’ rights.

“They call it a ‘debt’ everywhere, when the courts aren’t looking,” Owen said.

District officials rejected that characterization, downplaying the risks, even as critics warn the stakes for students could be catastrophic.

“The property could, theoretically, become collateral,” said DPS Chief Financial Officer Chuck Carpenter.

But Carpenter was also quick to add that he didn’t believe the district is at risk of losing any of the public’s buildings under the COP structure.

“This never happens,” Carpenter said. “It’s not something that is practically possible.”

Carpenter did not elaborate.

Fifteen years ago, a previously unanticipated deal soured during the housing crisis.

‘Saddling future generations’

In 2008, DPS faced a $400 million problem.

Eager to get out of its internal retirement system and merge with the Colorado Public Employees’ Retirement Association, or PERA, the state’s pension system, then-DPS CFO Tom Boasberg and Superintendent Michael Bennet — now a U.S. senator — persuaded the school board to issue $750 million in COPs with a derivative component.

The borrowing carried a variable interest rate tied to market conditions, similar to the adjustable-rate mortgage structure that fueled the subprime housing bubble.

The agreement was inked in April that year, just weeks after the collapse of Bear Stearns — which publicly signaled deep instability in global credit markets.

At the time, Boasberg and Bennet maintained that the severity of the financial crisis — and its impact on the deal — was unforeseeable. They also argued the deal, over time, would save the district money. But when the financial crisis deepened, the derivative-based strategy backfired, exposing DPS to growing liabilities.

Extricating the district from the deal cost Denver taxpayers tens of millions of dollars in termination fees.

Then-board President Theresa Peña said she thought the experience would have served as a hard-earned lesson.

“The concern for me now,” Peña said, “is that we’re saddling future generations with this huge debt.”

For example, the roughly $15 million the district spent on lease payments in fiscal year 2024 could have covered last year’s shortfall in cost-of-living adjustments for educators — and then some.

Union leaders said the tradeoffs are clear.

“If you had that money every year, you could give every school an extra teacher,” said DCTA President Rob Gould, who is also a special education teacher.

The union represents roughly 4,200 teachers across the district.

And while union leaders focus on the impact in classrooms, financial records show the cost of the district’s lease deals has ballooned — in some cases, far exceeding the price of traditional, voter-approved bonds.

Take the 2011A lease agreement. The deal involved improvements at a dozen schools and the central administration building. Signed by then-school board President Nate Easley, the contract generated $396 million. But the total cost of the lease agreements, with interest and fees, was expected to cost taxpayers $897.5 million.

Owen is challenging the district’s “this isn’t debt” narrative with her own three words: Don’t pay it.

Her reasoning?

If district officials insist that lease agreements are not debt, why should taxpayers continue making payments — in some years, totaling hundreds of millions of dollars — while the district shutters schools to save $6 million annually?

“We have created a system of siphoning resources from children to profiteers,” Owen said.

The suggestion to stop paying the leases altogether stunned at least one expert.

An attorney who works in municipal finance audibly gasped when told of Owen’s proposal. And for a moment, the attorney was speechless.

‘I’m trying to wrap my head around this’

Certificates of participation are more frequently used in states like Colorado, California and Florida with strict debt limitations, leading school districts to adopt work arounds.

Still, COPs are less common than general obligation bonds.

Michael Pagano, former dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, has seen governments get creative in raising revenue. But Pagano hasn’t seen lease-back arrangements quite like DPS.

He doesn’t buy the it-isn’t-debt argument.

“Because when it’s a rental agreement, you can always walk away from it,” Pagano said.

Defaulting wouldn’t simply mean skipping out on the rent. It would mean surrendering the deeds to dozens of public schools.

He also doesn’t get the financial incentive.

Denver voters for at least the past three decades have repeatedly come through for the district, approving billions in bond measures. Given this, Pagano said the district’s strategy was baffling.

“I don’t understand the advantage of issuing certificates of participation instead of just going to the public for a bond — which they seem willing to approve,” Pagano said.

And he doesn’t understand why a school district would sign over dozens of schools to a private entity.

“I’m trying to wrap my head around this,” Pagano said.

His confusion reflects a broader frustration among advocates for government transparency — one that resurfaced over the district’s most recent bond, approved by voters in November. Some of this stems from how Superintendent Alex Marrero handled critical information in the weeks leading up to the vote.

Documents show Marrero delayed releasing his school closure list until after voters approved a nearly $1 billion bond. That’s a move critics said withheld key information that could have influenced the public’s vote.

Two days after voters approved a bond with “something for every school,” Marrero recommended closing seven campuses and restructuring three others because of declining enrollment. In Colorado, education funding — at least in part — is tied to enrollment.

The board originally wanted his closure recommendation in October.

But Marrero successfully lobbied for a one-time extension, citing the need to wait for updated enrollment data. But court filings in the Mamás de DPS lawsuit reveal Marrero’s team actually relied on earlier figures available more than a month before the bond vote. The timing has raised concerns over whether district officials had a responsibility to disclose impending closures ahead of asking voters to approve new spending.

Although the bond is wholly separate from the COPs, the bond itself was shaped by individuals involved in past lease-financing deals — including former board President Mary Seawell, who in 2013 approved the transfer of nearly two dozen schools to the district’s leasing corporation. A decade later, Seawell served on the district’s Capital Planning Advisory Committee, which drafted the spending recommendations for the $975 million bond — a portion of which is now being used to repay the lease obligations she once approved.

Without a full public accounting, critics say, Denver voters may continue approving bonds for a school system that has quietly mortgaged pieces of itself away.

“The whole point of using COPs is to not directly incur debt, but you’re increasing debt to pay back the COPs,” said Carroll, the director of the Government Finance Research Center.

Carroll added: “This really doesn’t pass the sniff test to me.”