The Colorado Supreme Court on Monday concluded that a bill that would raise property taxes does not require further voter approval under the Taxpayer Bill of Rights. The decision might have averted future legal battles over HB21-1164, which received the legislature’s final approval following the court’s announcement.
The Democrat-backed HB21-1164 will gradually phase out tax credits in 174 Colorado school districts where mill levies were erroneously reduced. Proponents of the bill say it will correct a mistake that ignored the will of voters who elected to bypass revenue limits. But opponents say the measure is unconstitutional because it violates TABOR, which requires voter approval for tax increases and limits the amount of tax revenue governmental units, including school districts, may retain and spend.
Two years after TABOR was adopted, the General Assembly passed the Public School Finance Act of 1994, which established a formula for determining state and local funding amounts for school districts. The PSFA addressed TABOR’s revenue limits by limiting the property tax mill levies school districts can impose. To get around those limits, voters in nearly all of Colorado’s school districts passed ballot measures between 1995 and 2006 authorizing school districts to retain and spend revenues in excess of the TABOR-imposed limits.
However, these waivers were never implemented because the Colorado Department of Education incorrectly directed school districts to reduce mill levies in order to comply with TABOR’s revenue limits. The falling mill levies led to less local funding for schools, shifting more of the cost of education to the state. When TABOR was adopted in 1992, local school districts covered two-thirds of the cost of K-12 education in Colorado, according to Chalkbeat, while today the state covers two-thirds of the costs.
HB21-1164 is one of a few recent bills aimed at correcting the CDE’s guidance on mill levy reductions and the resulting imbalance in school funding. A bill passed last year required school districts to restore mill levies to the levels that were in place when voters approved the waivers. But taxpayers didn’t immediately see their property tax bills increase due to temporary tax credits. HB21-1164 would gradually reduce these tax credits and correct the mill levies over the next 19 years.
Shortly after HB21-1164 was introduced in March, lawmakers submitted an interrogatory asking the Supreme Court to weigh in on whether the bill’s proposed tax increase is constitutional without further voter approval. A majority of the Supreme Court concluded lawmakers need not seek voter approval because voters in the affected districts already approved the TABOR limit waivers years ago.
“House Bill 21-1164 does no more than effectuate the voters’ expressed intent,” Justice Richard Gabriel wrote in the majority opinion. “Accordingly, we perceive no basis for requiring a second election to ask the voters to re-approve what they have already approved.”
“What the court said is: We trust the voters of any district to make decisions about their own fiscal situation,” said Recht Kornfeld shareholder Mark Grueskin, who represented the Colorado General Assembly.
“I think that the point is that the court doesn’t view TABOR as a hyper-technical exercise by voters. And to the extent that voters say, ‘For our district, we don’t intend TABOR to apply,’ so that the district can do everything it is supposed to do, the court is going to honor that,” Grueskin said. “And there’s really no more powerful expression of the power of the electorate to make a collective decision … than the court did on Monday.”
In reaching its conclusion, the majority looked to its 2009 decision in Mesa County Board of Commissioners v. State. In that 2009 case, the court rejected a TABOR challenge to another bill, SB07-199, which froze mill levy rates to prevent them from falling further and allowed districts that had passed waivers to keep revenues that exceeded TABOR limits.
While the Supreme Court upheld the bill in the Mesa County case, Grueskin noted it took two years of litigation before the legal questions were resolved. The high court’s decision on HB21-1164 is a “prompt and preemptive” resolution to “ensure that there’s not going to be two years of litigation across 174 school districts,” he added.
Justice Carlos Samour agreed with the majority’s answer to the interrogatory but not its reasoning. In a concurring opinion, he wrote that “the years-long 1994 Public School Finance Act violations — not implied voter consent to static mill levy rates — serve as the better linchpin for our decision.” The mill levy decreases that resulted from the CDE’s erroneous guidance were not just mistaken but “downright illegal,” Samour wrote, and therefore void. According to Samour, this rationale avoids the assumption that voters who voted to waive TABOR’s revenue limits implicitly approved to continue the mill levy rates then in effect.
Chief Justice Brian Boatright criticized that assumption in a dissenting opinion. Due to the mill levy increase, he wrote, property owners will pay more in taxes from one year to the next. “That is the very definition of a tax increase under our constitution,” states the dissent. “Therefore, in my view, this bill violates our constitution by raising tax rates without voter approval.”
Boatright wrote that in order to conclude that HB21-1164 is “merely a legislative correction,” it had to “engage in some mental gymnastics.” The majority “asserts that because voters agreed to waive their school districts’ revenue limits, they — by default — approved of the then-existing mill levy rates,” states the dissent. But while voters in 174 school districts did waive revenue limits, allowing the districts to retain excess revenue, Boatright said, they “did not approve of any tax rate increase, and they certainly did not vote to lock in the mill levy rate in effect at the time.”
Boatright also distinguished the bill at issue in Mesa County, which “imposed no tax increase,” from HB21-1164, whose elimination of tax credits, “for all intents and purposes, is an increase in the effective tax rate.”
Boatright noted he and the majority agree that only school districts have the authority to adjust mill levy rates but questioned why the General Assembly then has the authority to “correct” the district’s decisions by increasing the levies. “In other words, even if TABOR does not apply to this situation, why isn’t it the school districts’ responsibility to correct any ‘mistakes’?” he wrote.
“We’re, of course, very disappointed that the ruling allows a tax increase without a vote of the people as required by TABOR,” said Penn Pfiffner, chairman of the TABOR Foundation, which filed an amicus brief in the case. “And I think we look to Justice Boatright’s dissent as being a very clear and very well argued and logical interpretation of the constitution that shows that absolutely this mill levy increase should get voter approval.”
Public Trust Institute director Daniel Burrows represented 36 Republican lawmakers who oppose the bill. “We’re disappointed, but not particularly surprised,” Burrows said in an email.
“The Taxpayer’s Bill of Rights has gotten second-class status in the courts for decades. Judges treat it like an annoying inconvenience rather than a constitutional right, and when politicians want some quick way around it, the courts have been all too willing to oblige,” Burrows said. “It’s unfortunate that the Chief Justice was the only one willing to enforce what our constitution plainly says: that a ‘mill levy above that for the prior year’ requires a vote of the people. Like most decisions involving TABOR, the majority opinion is an exercise of politics, not law.”
But Grueskin sees it differently. “This is exactly what the proponents of TABOR said they wanted. They wanted limits, with the understanding that voters could take on a de-Brucing parachute and take themselves out of those limits,” he said, referring to the voter approval process needed to retain revenue exceeding the TABOR limit.