By Matt Masich, STATE BILL COLORADO
DENVER — Thanks to the most important Colorado Supreme Court opinion released this year so far, state lawmakers are now free to increase state revenue by more than $2 billion by repealing tax credits and exemptions most had considered untouchable under the Taxpayer’s Bill of Rights, or TABOR.
On March 16, the Supreme Court ruled on Mesa County Board of County Commissioners v. State of Colorado, a lawsuit that challenged the constitutionality of the 2007 mill-levy freeze, which increased the amount local school districts contributed to school funding. The majority opinion, written by Chief Justice Mary Mullarkey, found that the freeze was constitutional, which was significant because it meant local school districts could continue collecting an additional $100-plus million a year. But potentially more significant were the few paragraphs of the 45-page majority opinion that outlined “workable parameters” and noted two exceptions to TABOR’s tax limits.
The state’s attorney in the case, Mark Grueskin of Isaacson Rosenbaum, praised Mullarkey’s opinion.
“The court has provided some clarity, finally, about what some of the ridiculously vague terms in TABOR mean,” Grueskin said.
Richard Westfall of Hale Friesen, attorney for the plaintiffs, said the opinion allows the state legislature to increase tax revenue without a vote of the people, something he argued violated the law.
The duty to fund schools
Passed in 1992 by Colorado voters, TABOR was designed as a check on the growth of government. Its “ratchet-down” provision limits the state and local governments’ revenue to the same amount raised the previous year (adjusted for population growth and inflation). TABOR also requires that voters approve any new tax or policy that causes a net revenue increase.
Since then, nearly all of the state’s school districts — 174 out of 178 — passed “de-Brucing” laws (a reference to TABOR-author Douglas Bruce) that waived the restrictions on the money the district can raise through taxes.
School districts are funded partly by local mill-levies that generate property tax, and partly by state money. Since 1992, the ratchet-down effect has meant that as property values have increased, the mill-levy rates have decreased to avoid breaking the TABOR limits — even though de-Brucing would seem to make this unnecessary.
In 2007, the state legislature passed Senate Bill 199, widely known as the mill-levy freeze, to take advantage of the local de-Brucing laws. The bill allows those districts to keep mill-levy rates constant even if property values increase.
In 2008, the mill-levy freeze allowed local school districts to raise $117.8 million more than they otherwise could have, freeing up that much state money for other education programs.
The mill-levy freeze drew the ire of pro-TABOR groups. In the Mesa lawsuit, the plaintiffs claimed the local de-Brucing ballot initiatives didn’t directly ask voters to approve an increase in property tax revenue. Because of this, they argued, the mill-levy freeze violated TABOR and should be stopped.
Last year, Denver District Judge Christine Habas ruled for the plaintiffs, but in March, the majority of the Supreme Court found otherwise in a 5-1-1 decision.
“SB 07-199 simply applied these broad based waivers passed by school districts according to their language and we find that none of plaintiff’s assertions establish that a constitutional provision was violated in doing so,” Mullarkey wrote.
Justice Nathan Coats weighed in with a separate concurrence, saying the local waiver elections were unnecessary and that the mill-levy freeze is constitutional anyway because the district’s duty to fund schools supersedes TABOR’s revenue limits.
Justice Allison Eid was alone in her dissent. In a scathing opinion, she wrote that “the majority deprives the people of their right to vote on SB 07-199 and the $117 million tax increase it permits.” If the waiver elections were enough to justify the mill-levy freeze, Eid wrote, “one must wonder why SB 07-199 was necessary in the first place.”
Interpreting TABOR
The majority opinion didn’t stop at addressing the constitutionality of the mill-levy freeze; it went further, giving its interpretation of the part of TABOR that forbids “a tax policy change directly causing a net tax revenue gain” without a popular vote.
This interpretation approved two ways for lawmakers to change tax policy to increase revenue without a vote: If there the increase has a “de minimis impact on a district’s revenues,” or if the increase doesn’t go above TABOR’s ratchet-down limit. But because voters passed Referendum C in 2005, the ratchet-down limit is suspended until 2011. This means that any “tax policy change” is fair game.
According to the Office of Legislative Legal Services, the state’s roughly $2 billion of tax credits and tax exemptions fall under the tax policy heading. This means that, in light of the Mesa decision, any or all of them can be repealed. In the 2009 legislative session, the cigarette sales tax exemption and a capital gains tax credit were repealed, which will bring the state $50 million more per year.
With the state budget shortfall for fiscal year 2010-11 projected at $850 million, it seems likely that more credits and exemptions will wind up on the legislative chopping block.
The Mesa decision will also prevent ballot initiative proponents from interpreting initiatives after they are voted on, said John Mill, attorney with Sherman & Howard and counsel for the Colorado Department of Education, a co-defendant in the suit. This is a result of the Supreme Court’s rejection of the plaintiff’s arguments that voters didn’t intend the de-Brucing initiatives to approve property tax increases.
“The Supreme Court was very clear that what matters is the actual language of the ballot initiative itself, not extraneous evidence about what people were told about it,” Mill said.
