Signatures have been submitted to place three initiated ballot questions on the statewide ballot in November, 2010.

Any one of these questions, if it passes, will wreak significant damage upon the functioning of state and local governments in Colorado. If all three pass, the apparent desired end of the proponents, that is, to starve government to death, will be very near a reality.

The first issue, Initiative 10, has been renumbered as Proposition 101, and would eliminate an estimated $88 million annually from specific ownership taxes to special districts, with far more significant losses to state, municipal and county governments.

Initiative 12, now to be referred to as Amendment 60, establishes onerous conditions on property tax collections, including citizen petitions to lower or eliminate property taxes; cancelling all past voter approved revenue changes concerning property taxes, and limiting any future voter approved revenue changes to not more than 4 years.

Initiative 21, now Amendment 61, prohibits any borrowing of any kind by the State, and severely limits local governments borrowing ability.

The following analysis of the terms and impact of these measures was done by the Public Finance Department of Sherman and Howard, LLC, a leading law firm in municipal law and finance, and reprinted here with permission.

Proposition 101: Reduce Vehicle, Income Tax and Telecommunication Revenues

This proposal is a statutory change that reduces the State income tax, various motor vehicle fees and taxes and fees on telecommunication services. When fully implemented, the provisions of this proposal would reduce State income tax revenues, State and local revenues from a range of sales taxes and vehicle fees, and State revenues from telecommunications charges and fees. While official estimates are not available, it is possible that annual revenue losses will be substantial.

Vehicle Fees and Taxes
Starting January 1, 2011, the following rules would apply:

• Specific ownership taxes must decrease in four equal yearly steps to $2 for new vehicles and $1 for old vehicles.
• All registration, license, and title charges combined shall total $10 yearly per vehicle.
• There will be no State or local taxes on vehicle rentals or sales.
• There will be no State or local taxes on the first $10,000 of value of vehicle sales prices (this is phased in over four yearly equal steps).
• All registration, license, and title charges shall equal $10 per vehicle.
• All other State and local charges on vehicles and vehicle uses must cease (except for the charges listed above and tax, fine, toll, parking, seizure, inspection, and new-plate charges).
• Any new charges would be deemed to be taxes, which would apparently invoke the voting requirements of the Constitution.

Editor’s Note:  A preliminary estimate indicates an annual loss to special districts of approximately $88 million in revenue from the decrease in specific ownership taxes.

Income Taxes
The 2011 income tax rate shall be 4.5 percent (a reduction from the current rate of 4.63 percent). Later rates shall decrease 0.1 percent yearly, in each of the first ten years that yearly income tax revenue net growth exceeds 6 percent, until the rate reaches 3.5 percent.
   
Telecommunication
Starting January 1, 2011, no charge by, or aiding programs of, the State or local governments shall apply to telephone, pager, cable, television, radio, internet, computer, satellite, or other telecommunication service customer accounts. Any new charges would be deemed tax increases, which would apparently invoke the voting requirements of the Constitution. Emergency 911 fees are permitted to continue at 2009 rates.

The proposal provides that “this voter-approved revenue change shall be strictly enforced to reduce government revenue.” The phrase “voter-approved revenue change” seems to refer to Article X, Section 20 of the Constitution (“TABOR”). It may be that the drafters intend to reduce the TABOR permitted revenue limits by this proposal and this may apply to governments that have had revenue change (i.e., debrucing) elections. 

The proposal is self-executing, severable, and a matter of statewide concern that overrides conflicting statutes and local laws. Prevailing plaintiffs (but not defendants) must have their legal fees and court costs repaid. The State must audit yearly compliance “to reduce unfair, complex charges on common basic needs.”

Amendment 60: Limit Property Taxes
This proposal amends Article X, Section 20 of the Colorado Constitution (“TABOR”) by adding a new section to establish additional limits on property taxes. This section will be in addition to all other provisions of TABOR. Some of the provisions of this proposal appear intended to override court decisions interpreting TABOR and to roll back certain prior voter approvals under TABOR.
    Beginning in 2011, the following new rules are in effect:

• Electors may vote on property taxes where they own property.
  This allows persons who own property in a jurisdiction, but don’t live there, to vote on property tax measures. The proponents’ website says  “Under this reform, Colorado adults qualified to vote (now registered or not) who own any real property here (cabin, condo, lot, office) recorded in their name and who are liable for property taxes can file and receive election notice comments, sign a petition, and vote on any property tax issues.”
• All local governments must allow petitions from citizens to propose property tax reductions.
  This is probably true under current law for most municipalities, but creates new rights for citizens of school districts, counties and special districts.
• All property tax elections must be in November.
• Property tax increases must be voted separately from related debt questions.
  This overrules TABOR case law which has allowed debt and related tax increases to pay the debt to be voted in a single question.
• Property tax bills may list only property taxes and late charges.
  Under current law, it is possible for delinquent fees and charges or for special assessments to be collected on the property tax bill. This would apparently no longer be allowed.
• Enterprises and authorities must pay property taxes. Since this will result in an increase in revenue to the taxing entities, the tax rates must be lowered to avoid windfall revenues.
  Since enterprises, such as water utilities, are business-like activities, this will apparently require an increase in the rates charged by the utilities. Oddly, this means users will pay higher utility rates (which are not deductible for federal income tax purposes) and lower property taxes (which are deductible).
• Enterprises and unelected boards may not levy mandatory fees or taxes on properties.
  This appears to be addressed in part at storm-water enterprises. Editor’s Note: But how about a golf course enterprise? Could the enterprise impose green fees?
• Any future property tax increase may only be for 10 years.
• Extension of an expiring tax is a tax increase.
  This overrules a court case interpreting TABOR. It also means that in the future such tax extensions will have to comply with TABOR’s more restrictive election rules applicable to tax increases.
• Prior revenue change (i.e., debrucing) elections allowing property tax revenues to be retained are of no force and effect. Future debrucings expire in four years.
  This would nullify all past debrucing elections relating to property taxes. With the expiration of the debrucings, governments may have to recalculate permitted revenue increases pursuant to TABOR’s formula from the date TABOR became effective.
• By 2020, school districts must phase out one-half of their 2011 tax rates (excluding debt service levies). The State must backfill the lost revenues. 
  Editor’s Note:  With what, since state revenues will be reduced so drastically if these proposals pass?
• Nothing in this proposal is to limit the payment of bonds issued before 2011.

The proposal also contains the following provisions aimed at overturning judicial interpretations of TABOR related to property tax increase, extension and abatement rates after 1992:

• Property taxes exceeding state laws and tax policies, or limits violated, changed, or weakened without state voter approval are terminated. Those laws, policies, and limits, including debt limits, are restored.
  This provision seems to overturn the Supreme Court’s decision upholding the legislature’s mill levy freeze for school districts.
• Taxes that exceed the one annual fixed, final, numerical dollar amount first listed in their tax increase ballot title, as stated in (3)(c) of TABOR, are invalid.
  This provision requires that a tax increase be stated as a specific dollar amount that cannot be exceeded without further voter approval. So, for example, a ballot question that authorized a tax increase of $100,000 in the first year and then whatever amounts are raised annually by a specified tax rate in subsequent years would, under this provision, only authorize a maximum collection of $100,000.
• Those property tax rates imposed after 1992, without voter approval of a ballot item as stated in (3)(c) of TABOR, are terminated.

    This provision overturns a court decision that an expiring tax could be extended without using TABOR’s mandatory ballot formulation for tax increases.
    Under this proposal, the State must annually audit and enforce the provisions. Any person may file suit to enforce the strictest compliance with all property tax requirements of TABOR. Successful plaintiffs shall always be awarded costs and attorney fees; districts shall receive neither. This voter-approved revenue change supersedes conflicting laws, opinions, and constitutional provisions, and shall always be strictly interpreted to favor taxpayers.

Amendment 61: Limits Governmental Borrowing
This proposal amends Article X, Section 20 of the Colorado Constitution (“TABOR”) to add a new section to prohibit State debt and limit local government debt. It also amends certain sections of Article XI. The amendments to TABOR will be in addition to all other provisions of TABOR. The proposal applies after 2010 and provides that all conflicting laws, rulings and practices would be repealed, overturned and superseded. The proposal applies to “any loan, whether or not it lasts more than one year; may default; is subject to annual appropriation or discretion; is called a certificate of participation, lease-purchase, lease-back, emergency, contingency, property lien, special fund, dedicated revenue bond, or any other name; or offers any other excuse, exception, or form.” 

This definition appears broad enough to include all government borrowings, including conduit borrowings on behalf of private entities such as private activity bonds.

The State is prohibited from borrowing, directly or indirectly, money or other items of value for any reason or for any period of time. This applies to any loan, whether it lasts more than a year or not, regardless of its form. Specifically, this addresses lease purchase agreements and certificates of participation and other obligations subject to annual appropriation which have been exempt from voting requirements under existing law. This prohibition applies to the State and its enterprises, authorities and other state political entities. 

Apparently, this means that the Colorado Housing and Finance Authority, Colorado Educational and Cultural Facilities Authority, the institutions of higher education, State Transportation Commission and all other State level entities will be absolutely prohibited from borrowing money for any purpose. There is not even an option for voter approval.

Local governments and their enterprises, authorities and other local political entities may borrow money, but only after a November vote. All local government borrowings are subject to voter approval under this proposal. 

Under current law, a number of entities, borrowing activities and borrowings are exempted from voter approval, such as: enterprises, refundings at a lower rate, urban renewal authorities, and notes payable within the fiscal year. Also, some entities have been able to have elections at times other than November under TABOR, such as certain municipalities and all Title 32 special districts. All elections on borrowings would now be in November. 

For entities other than enterprises, there will be a debt limit of 10 percent of the assessed taxable value of the real property in the jurisdiction. 

Note that this excludes personal property. Also, for some entities, this would be a real decline from existing law. For example, school districts have a debt limit which is generally 20 percent of assessed value. 

Any new borrowing apparently has to be in the form of bonded debt, be subject to prepayment without penalty (and at any time) and mature within 10 years.

The proposal states that “No borrowing may continue past its original term.” The proposal also provides that “all current borrowings shall be paid.”

Perhaps this means that there can be no extension of a borrowing through a refunding, or perhaps it means that if a borrowing is not paid at maturity, it is deemed paid. Some are suggesting that the phrase “all current borrowings shall be paid” means that outstanding borrowings must be paid off in 2011. However, it does not say when the borrowing must be paid, so perhaps it means the borrowing must be paid when due in accordance with its original terms. The proponents’ website explains this provision as: “Subparagraph (iii) prevents borrowing from going beyond its payoff date; that would be a new borrowing after 2010. Any borrowing before 2011 must be paid, whether legal or not.” So it appears that the intent is that this is in the nature of a savings clause - that nothing in the proposal impairs existing borrowings.

Except for enterprise borrowings, when a borrowing is repaid, tax rates must decline in an amount equal to its planned average repayment, even if the debt is not repaid from taxes.

So if a City issued tax increment revenue bonds for its downtown development authority, City tax rates would apparently have to go down when the debt is paid. This may effectively turn the local government election requirement into a debt prohibition for borrowings not paid from taxes. 

The proposal adds to Section 6 of TABOR a requirement that the ballot title specify the use of the funds, which shall not be changed.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.  

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