Year-after-year, voters continue to send a message to Colorado politicians that they want a chance to vote on tax increases regardless of whether legislators call them “taxes” or “fees.” With this year’s transportation bill (SB 21-260), legislators have found multiple creative ways to disregard the will of the people.
Their legal gymnastics to get around the law will cost Coloradans nearly $4 billion over the next 10 years, or about $1,750 per household.
The taxes as fees bait-and-switch
Colorado’s Taxpayer Bill of Rights (TABOR) requires that all new taxes and tax increases receive voters’ approval at the ballot box before going into effect, but it includes a significant exception, which lawmakers have exploited for years to pass tax increases without the permission of voters. Namely, if legislators call a new tax a “fee,” then according to the Colorado Supreme Court, the tax increase is not a tax and does not require a vote of the people.
The authors of TABOR actually included an exemption for fees intentionally—well, sort of. The language of the constitutional provision does not actually mention fees at all. Instead, it says that “districts” must receive voter approval to increase taxes, but it excludes “enterprises” from this obligation. Enterprises operate as government-owned businesses funded by fees rather than general tax revenues.
State and local governments generating revenue for their general funds, for example, count as taxing districts. The law classifies the Division of Wildlife, which collects operating revenue from the sale of hunting licenses and state park entrance fees, as an enterprise.
It makes sense that a state park can increase its fee from $10 to $11 without a state-wide referendum. After all, such fees really are different from taxes. The Division of Wildlife deposits entrance fees into its enterprise account, and it uses the fee revenue to maintain state parks. If maintenance costs go up, parks might need to increase entrance fees.
This was the intent of the exception created under TABOR, but now our politicians simply use it to circumvent TABOR and the democratic process.
In recent years, the legislature has used this loophole to increase taxes—disguised as fees—countless times. From the passage of TABOR to fiscal year 2017-18, enterprise revenues exempt from TABOR had already grown by over 2,300 percent, from $742 million to $17.9 billion annually, according to a 2019 memorandum by Legislative Council Staff.
Tired of politicians using this loophole to circumvent the will of the people, voters passed Proposition 117 last November. The measure requires the legislature to seek voter approval of new enterprises “if the enterprise’s revenue from fees over its first five years exceeds $100 million.”
In this way, the legislature can no longer disregard voters’ will by generating significant new revenues through enterprises. But where there’s a will there’s a way, and with SB 21-260, lawmakers have found a way.
First, if a new enterprise generates less than $100 million in five years, then it does not require voter approval under the new law. The cumulative fees in the proposed transportation bill will exceed that limit, but the bill authors cleverly split these fees into four different enterprises, none of which exceeds the limit by itself.
One fee, however, will generate far more than $100 million by itself in the first five years. For this one, the legislature has exploited another workaround to both TABOR and 117.
The so-called ‘gas fee’
The bill tacks a road usage fee onto every gallon of gas purchased in the state. It will generate $152 million in just two years, according to the bill’s fiscal note. Rather than going into an enterprise, however, the revenue will go into the Highway Users Tax Fund (HUTF). Because the money does not fund an enterprise, Proposition 117 does not apply.
One would think that because the fee does not fund an enterprise, it must count as a tax and be subject to TABOR then, right? After all, the section of the bill that establishes the fee borrows language directly from the section of the tax code that establishes the existing gas tax.
Inexplicably, simply because the legislature called the new tax a “fee,” it is not subject to section 4 of TABOR, which requires voter approval of new taxes.
In other words, the legislature will get away with increasing the gas tax by billions of dollars without the voter approval required by either Proposition 117 or TABOR. They avoid the former by putting the money into the HUTF instead of an enterprise, and they avoid the latter by calling the new taxes a fee. Very clever indeed.
While the fee revenue is not subject to voter approval under TABOR, it does count toward the TABOR limit, since it does not fund an enterprise. Typically, that would mean the fee puts taxpayers that much closer to collecting their next TABOR refund, but the legislature has found a way to prevent that, too.
The bill increases the annual TABOR revenue limit by $225 million, ensuring the enormous increase in revenue does not translate into a taxpayer refund.
Why not just ask first?
The politicians supporting this massive tax increase have assured us that the bill serves the interests of the people and has widespread public support.
Senator Steve Fenberg, a lead sponsor of the bill, justified the new fees, saying, “[W]e know when we ask voters what their number one concerns [sic], transportation is right at the top.”
At the news conference announcing the legislation earlier this month, Governor Polis said, “It’s rare to see people of so many different perspectives coming together around something that we need to do.”
These comments raise an obvious but important question: If the politicians supporting this bill are so confident in the broad public support for these costly new fees, why are they using every gimmick at their disposal to avoid asking voters’ permission?
Voters often approve new taxes when asked; they just want politicians to ask their permission before taking more money out of their pockets.
That’s why they passed TABOR. And when lawmakers found a way around that, they passed Proposition 117. The unveiling of this transportation bill has made it clear that our elected officials still have not gotten the memo.
Fortunately, the people still hold ultimate power in the state of Colorado, in part through the ballot referendum. If TABOR and Proposition 117 did not send a clear enough message to the state capitol, then perhaps voters need to send another one.
TABOR does not currently define “tax” or “fee.” This omittance has enabled the shenanigans employed in this bill and many others. A referendum defining these terms could help put a lid on the legislature’s games.
The people also have the power to decrease the TABOR limit. If the legislature passes this bill and increases the limit by $225 million, a referendum decreasing the limit would force them to come to the people next time they want more money.
If the legislature creates gas fees without asking permission, voters could simply decrease the gas tax to offset it.
Or rather than making the people of Colorado continuously go to the ballot to reign in out-of-control politicians, lawmakers could simply listen to their constituents and ask permission before reaching into their pockets.