Colorado LegiSource

An informational and educational resource for the Colorado General Assembly by the Office of Legislative Legal Services.

Month: January 2017

  • Creating an Enterprise Pursuant to TABOR – Part 2

    by Esther van Mourik

    This week we are continuing our discussion about the definition of an “enterprise” under TABOR. If you missed Part 1 of our discussion, please click here for that article.

    Part 2

    Part 1 focused on the definition of an enterprise and what kinds of activities might qualify as enterprises. But might there be a time when the activity of an entity is too tenuous to qualify as a business? The 2015 and 2016 debates around the hospital provider fee are illustrative of the difficulty in determining what a government-owned business really is.

    The hospital provider fee was established in 2009 under the Health Care Affordability Act of 2009. This act requires Colorado hospitals to pay a fee to the state, which, when added to certain state funds, is then matched through a federal government program. The fee is combined with federal money and the total amount ($805 million dollars in FY 2015-16) is distributed back to Colorado hospitals as compensation for health care services provided to individuals covered by Medicaid. The fees paid by the state hospitals are currently counted as state budget year revenue under TABOR and count toward the state’s budget year revenue limit. Because state revenue has been forecasted to exceed the limit, some have proposed creating an enterprise to collect the hospital provider fee. Removing the fee revenue from the calculation of the state’s budget year revenue, would allow the state to collect other revenues without exceeding its TABOR limit while still ensuring that the hospitals can receive state and federal moneys for the provision of Medicaid services.

    At the time the hospital provider fee enterprise was first proposed, no new statute had been written or court decision rendered about the definition of an enterprise since the Colorado Bridge Enterprise or CBE decision. As a result of the debates over the proposal, several new opinions are now available regarding the matter, one from the Office of Legislative Legal Services (Office), one from practitioners in this legal area, and one from the Colorado Attorney General.

    Our Office’s opinion, dated December 31, 2015, states that, while legislation enacted by the General Assembly is presumed constitutional, an enterprise created only to charge and collect the hospital provider fee is not a business for purposes of enterprise status under TABOR. The conclusion hinges on the fact that all the entity would be doing is collecting money to leverage and obtain more money from the federal government. If that is all the entity would be doing, there would be no “fee for service” because there is no real service being provided. The opinion also relies on there being no private sector analogue for paying a fee in order to leverage that fee to seek matching federal money for Medicaid services.

    Not everyone agreed with our Office’s conclusion. Trey Rogers of Lewis Roca Rothgerber Christie, LLP, and Jon Anderson of Holland & Hart, LLP, issued their own opinion on February 11, 2016, concluding that since the fee is collected to access a program that helps hospitals defray the costs of providing medical services to Coloradans who could not otherwise afford to pay for health care, there is a “fee for service” and the activity qualifies as a business. They further argue there is no requirement for a private sector analogue after the CBE decision and, even so, the service provided by the entity would be similar to services provided by insurance and investment brokers to the private sector. The hospitals paying the hospital provider fee are paying the entity their money in exchange for access to greater returns, the increased amount of federal money available to reimburse the hospitals for the provision of Medicaid services.

    On February 29, 2016, Attorney General Cynthia Coffman released her opinion on the matter, concluding that a hospital provider fee enterprise would survive a constitutional challenge. First, she points to the enactment of the hospital provider fee as a fee, not a tax, thus ensuring the entity does not have the power to tax, something the Nicholl decision held to be inconsistent with the characteristics of a business. Second, the Attorney General argues that the fee pays for services that reduce the amount of uncompensated care hospitals are exposed to. Finally, she points out that the entity would be financially distinct from its parent government, a fact that both the Colorado Supreme Court and the Colorado Court of Appeals found important in their respective Nicholl and CBE decisions.

    While the hospital provider fee enterprise debate was continuing, the General Assembly created a new enterprise in 2016. Senate Bill 16-115 creates an electronic recording technology board, which is allowed to impose an electronic filing surcharge when someone records a document with a county clerk and recorder. This fee is to be used to develop and modernize electronic filing systems throughout the state. As stated earlier, legislation passed by the General Assembly is presumed constitutional. But, what is the fee for service here? A better filing system? Fewer headaches when recording deeds? Being able to electronically access recorded documents? It’s not really clear what specific service patrons recording documents with county clerks and recorders will be getting for this additional surcharge, but it’s arguably an activity conducted in the pursuit of a benefit.

    Taking all of these opinions, the newly created electronic recording technology enterprise, and the presumption of constitutionality, where do things stand on the definition of an enterprise for purposes of TABOR? We’re still not absolutely certain, and the analysis has clearly evolved over the past 24 years. Each proposed enterprise needs to be considered in light of the relevant court decisions, legal opinions, and examples of existing enterprises. Members of the General Assembly are encouraged to contact the Office to discuss whether a particular activity may appropriately be characterized as an enterprise under TABOR.

    As a final tool to assist you, the Office has developed this relatively simple flow chart to help determine whether an activity could be designated as an enterprise:

  • Creating an Enterprise Pursuant to TABOR

    by Esther van Mourik

    While the Legislative Council’s December Economic Forecast highlighted improvements in economic gains, it also stated that this optimism is tempered by global economic uncertainty, indicating that the outlook still shows a heightened downside risk. It also laid out the budget realities for the Colorado General Assembly as it begins the 2017 session: “Assuming the $169.2 million shortfall in FY 2016-17 is addressed by reducing the required reserve, revenue will exceed the amount required to maintain the same level of appropriations in FY 2017-18 as is currently budgeted for FY 2016-17 by $215.7 million, or 2.1 percent.”

    The Taxpayer’s Bill of Rights, or TABOR, is a Colorado constitutional provision added by an initiative approved by voters in 1992 that contains tax, revenue, and debt limitations. If a district, including the state, brings in revenue above its limit, as the state did in the 2014-15 budget year, it must refund those excess revenues in the next fiscal year. The December forecast shows that the state is currently projected to exceed the limit again in the 2017-18 and 2018-19 budget years, prompting estimated TABOR refunds of $279.4 million in budget year 2018-19 and $287.2 million in budget year 2019-20. Those refunds are made from the general fund, thereby diverting dollars that would otherwise be available to pay for programs.

    The possibility of TABOR refunds raises the reality that the Office of Legislative Legal Services (Office) will see more bill requests proposing a variety of approaches to retain excess revenues. One such approach that many are talking about is creating an enterprise in order to classify certain governmental activities outside of the requirements of TABOR.

    TABOR applies to all “districts,” which are defined to include the state or any local government, excluding “enterprises.” This means that an enterprise is exempt from the limitations imposed by TABOR, including TABOR’s revenue limit that restricts how much revenue a district can bring in each budget year. If an enterprise generates revenue, that revenue is not counted as part of a district’s budget year revenue for purposes of the district’s revenue limit. Creating an enterprise to classify certain governmental activities outside of TABOR before a year in which revenues are anticipated to exceed the limit, requiring TABOR refunds, has the effect of reducing, if not eliminating, the projected refunds.

    Although enterprises are getting more attention recently, the exception for enterprises was included in the original initiative, and the state designated a variety of activities as enterprises starting shortly after TABOR was adopted. The multi-million dollar question is what activity can qualify as an “enterprise.” Multi-million from the perspective of what would or wouldn’t be counted as part of the state’s revenue limit, thereby possibly helping out with budget constraints, but also from the perspective of the penalties TABOR provides. If the state is successfully sued for creating an enterprise in a refund year that doesn’t fit the definition, it potentially faces serious consequences set forth in the constitution. So, while the court has never struck down an enterprise established by the state, it is clear why many want to know what can and cannot be appropriately classified as an enterprise under TABOR.

    The Colorado Constitution defines an enterprise as a “government-owned business authorized to issue its own revenue bonds and receiving under 10% of annual revenue in grants from all Colorado state and local governments combined.” The reference to “annual revenue in grants” requires an annual determination that an enterprise meets all elements of the enterprise definition. Even from a lawyer’s perspective, this language is less than clear, and its meaning has been heavily debated since 1992. Part 1 of this article gives a primer about those debates. Part 2 – to be posted next week – will cover more recent discussions and will conclude with what the Office thinks we know now.

    PART 1

    After TABOR took effect, the General Assembly passed legislation during the 1993 session to further define some of the terms used in the new constitutional provision in order to assist in administering the law at the state level. Those definitions are laid out in section 24-77-102, C.R.S. The statutory definition of an “enterprise” is identical to what is found in the Constitution. However, that definitional section does clarify the meaning of a “grant” and the “state,” which are not defined in TABOR. Most important is the list of things that are not a “grant,” such as federal funds. The Colorado Supreme Court upheld the General Assembly’s ability to define terms since the General Assembly was seeking to comply with the provisions of TABOR by defining the terms consistent with TABOR.

    During the same legislative session, the General Assembly also created several state enterprises. Those enterprises include higher education auxiliary facilities, the state lottery, a student loan division in the department of higher education, and the veterans’ community living centers. No legal challenges were made to the creation of these enterprises. Subsequently, the General Assembly enacted legislation creating additional state enterprises in 1994, 2000, 2001, 2002, 2004, 2005, 2009, and most recently in 2016. (A list of state enterprises can be found here.)

    An enterprise created by a duly enacted statute is presumed constitutional. What does this presumption of constitutionality mean? If a person claims that a statute is not constitutional, the courts require that person to prove the statute’s unconstitutionality beyond a reasonable doubt (a very high standard that gives great deference to the General Assembly’s law-making authority). And, if a court can read the statute two ways, a constitutional way and an unconstitutional way, the court must choose the constitutional interpretation. (See “Statutory Construction: Legislative Intent and the Presumptions Used to Interpret Statutes”)

    The first (and only) Colorado Supreme Court case that gave direct guidance regarding the creation of enterprises was decided in 1995 in what is often referred to as the Nicholl decision. The case involved the E-470 Public Highway Authority (Authority), which was created by several counties. One of the counties took issue with some of the actions the Authority was taking and sued, claiming that the Authority violated TABOR’s debt and revenue limitations. In response, the Authority claimed that it was an enterprise and thus not subject to TABOR’s limitations.

    The Colorado Supreme Court broke the issue down into three questions: 1) whether the Authority is “government-owned,” which the Court dispatched with ease (the contracts creating the Authority said it was a political subdivision of the state), 2) whether the Authority is a business, and 3) whether the Authority receives more than 10% of its annual revenue in grants from the state and local governments, which the Court noted it did not. With respect to the second question, the Court said that a business is generally understood to mean an “activity which is conducted in the pursuit of benefit, gain, or livelihood.” The Court found that the Authority was organized with the express intent that it provide access to its highway in exchange for the payment of tolls and user fees, thus indicating that the Authority would fit the general understanding of a business. However, because the Authority had the power to levy a tax, a power that the Court found to be inconsistent with the characteristics of a business and the definition of an enterprise as a whole, the Court held that the Authority was not an enterprise. The General Assembly remedied the problem by immediately passing legislation to eliminate the taxing power of the E-470 Public Highway Authority. Because the Authority has continued to satisfy the three-part test every year since, it remains an enterprise to this day. The Nicholl decision established that, to qualify as a business for enterprise status, an entity’s activities have to be conducted in the pursuit of benefit, gain, or livelihood and the entity may not have the power to tax.

    Because of the lack of an abundance of Colorado Supreme Court cases on this topic, secondary interpretations have been helpful. The Colorado Attorney General, private practitioners, and municipal attorneys have opined on what constitutes an enterprise, so it can be useful to consider their opinions as well.

    In 1995, Gale Norton, the Colorado Attorney General at the time, wrote an opinion to answer the question of whether an enterprise providing internal services such as telecommunications and insurance operations to its government-owner, in addition to the public, disqualifies it from being a business. The conclusion was that such entities are still businesses and therefore can be enterprises. Ms. Norton stated that, in order to meet the “business” requirement, an enterprise must be independent, self-supporting, and financially distinct, and must provide goods and services for a fee. The fact that the enterprise also provides services for a fee to its government-owner doesn’t change the result because the Nicholl decision didn’t question the identity of the customers but examined the activity carried out by the entity. The opinion generally states that an enterprise’s provision of goods and services should be something that is commonly carried on for profit outside the government and that the activities should bear the indicia of arms length, market exchanges.

    Amy Kennedy and Dee P. Wisor, two attorneys practicing in the area of government law, wrote an article in 1998 in The Colorado Lawyer further explaining enterprises. The authors questioned whether there is a necessity for the enterprise to have a “private business analogue” or, in other words, whether the enterprise must have a private business counterpart with customers who freely choose to use it. They argued that the Nicholl decision may have implied the private business analogue was necessary when the Colorado Supreme Court cited to an unrelated case that defined a government business as “a function of a government which offers any goods or services to the public for which there are reasonable substitutes provided by nongovernmental entities.” The authors came to this conclusion: “Unless and until the Colorado Supreme Court directly rules on whether ‘businesses’ under [TABOR] must provide services that also are offered in the private sector,” be careful.

    The Colorado Municipal League (CML) has also weighed in on the issue in its publication “TABOR: A Guide to the Taxpayer’s Bill of Rights.” CML created this publication to assist municipal officials in interpreting and applying TABOR in their local government operations. In both its 1993 and 2011 revised versions, CML points out that there are two interpretations: 1) the business must have some counterpart in the private sector, the “private sector analogue”; or 2) the activity is irrelevant so long as the enterprise subsists on an annual budget which includes less than 10% in state and local grants, making it more or less self-supporting, thus making the revenue stream the determining factor. By recognizing both of these conflicting interpretations, the CML guide illustrates the difficulty of developing a consistent test to determine whether specific governmental activities can be classified as enterprises.

    In 2014, the Colorado Court of Appeals issued the Colorado Bridge Enterprise or CBE decision. This case stemmed from the creation of the Colorado Bridge Enterprise in 2009, defined as a government-owned business within the Colorado Department of Transportation and authorized to impose a bridge safety surcharge on motorists’ registration fees to fix certain Colorado highway bridges. In 2012, the TABOR Foundation filed a lawsuit claiming, among other things, that the Colorado Bridge Enterprise does not qualify as an enterprise. The TABOR Foundation relied on Gale Norton’s 1995 opinion that a government-owned business must gain its revenue from market exchanges taking place in a competitive, arms-length manner. However, the Colorado Court of Appeals declined to follow that opinion and decided that the Colorado Bridge Enterprise is indeed an enterprise because it pursues a benefit (fixing bridges) and generates revenue by collecting fees from service users through car registrations, which the Court ruled is not a tax.

    The Colorado Supreme Court declined to take the CBE decision up on appeal, and the Colorado Court of Appeals decision doesn’t provide a thorough analysis indicating that service users must actually attain a benefit for an activity to rise to the level of a business. We can only speculate why the Colorado Supreme Court declined to take the case. We know that Justice Eid would have reviewed the case to look at three issues, including whether an enterprise must involve market exchanges taking place in a competitive, arms-length manner. But one Supreme Court Justice’s opinion on the petition for certiorari doesn’t rise to the level of law. The CBE decision is undoubtedly current law, but it still leaves governmental entities uncertain about what activities can be designated as enterprises. Perhaps CML’s analysis that the entity’s activity is irrelevant so long as all the other factors are checked off is spot on. Perhaps not. At best, the CBE decision begs the question whether the activity, or service provided, would ever be too tenuous to reasonably argue that the entity is truly a business for purposes of enterprise status. Please tune in next week for further discussion on this topic.

  • Legislative Legal Services: Drafting and much more

    by Dan Cartin

    Legislative Legal Services is the General Assembly’s nonpartisan legal counsel and staff agency. Our staff, consisting of attorneys and other professionals, provides a variety of written materials and services to legislators in addition to their bill and amendment drafting needs. We hope each legislator will learn about and make full use of these ancillary services available from our staff during the 2017 session. Please visit the Legislative Legal Services website for a better idea of the types of services and products we can help with. Our homepage is located at leg.colorado.gov/agencies/office-of-legislative-legal-services.

    In addition to our primary function of drafting bills, resolutions, and amendments, the Legislative Legal Services staff, upon request, can provide legislators with written materials to help them understand Colorado law and what other states are doing and to help them explain their bills. Our attorneys may not always be able to respond quickly to every legislator’s request due to the time constraints created by bill and amendment drafting demands. But we will do our best to provide the requested materials as soon as practicable, time permitting and on a first-come, first-served basis. Examples of ancillary materials available upon request, time permitting, include:

    • More-detailed, written explanations of bills;
    • Summaries of changes made to a bill in committee, in the first house or in the second house;
    • Tables comparing bill provisions;
    • Explanations of state or federal statutes;
    • Summaries of case law relevant to a bill;
    • Summaries of case law interpreting a particular statute or issue;
    • Legislative histories of issues or bills;
    • Legislative histories of constitutional or statutory provisions;
    • Comparisons of Colorado law with the law of other states on particular issues; and
    • Lists of all Colorado statutes addressing an issue.

    Our office also provides written legal opinions regarding legislation. Occasionally a legislator will ask us for a written legal opinion on an issue that relates to pending legislation. We hold these requests in strictest confidence. We will not release a written memorandum to other persons without the permission of the legislator who requested it. And we will give the same answer if another legislator asks us the same question, which will result in identical legal opinions for different legislators.

    There are some limitations on the materials and services we can provide to legislators due to our role as nonpartisan legislative staff. Examples of the documents and tasks that Legislative Legal Services is not allowed to provide include:

    • Voting records on an issue or bill;
    • Talking points advocating for or opposing a policy position;
    • Carrying messages that encourage a legislator to vote for a bill or discourage a legislator from voting on a bill;
    • Soliciting legislators as joint prime sponsors, cosponsors, or second house sponsors;
    • Violating confidentiality, e.g., telling a legislator about amendments prepared for other legislators to his or her bill; telling a legislator what another legislator said or told others about the legislator’s bill; or telling a legislator what legal advice our office gave another legislator;
    • Assisting a legislator in counting votes; and
    • Advocating for passage or defeat of legislation on policy or any other grounds.

    These lists illustrate the materials or services we can and cannot provide, but they are not exhaustive. If a legislator has a request for materials or assistance, please ask us. If it’s something we can provide, we will.

    We are here to help all of the members of the 71st General Assembly achieve a successful legislative session in 2017. We encourage legislators to fully utilize the Legislative Legal Services staff for all of their legislative needs during the session, including those described here that go beyond bill and amendment drafting.

  • Minding Your Strike Types and Small Caps

    by Jessica Wigent

    Every bill, no matter the content, has a few things in common: each has numbered sections and each has at least one amending clause.

    The amending clause is not only an important tool, it’s also the bill sponsor’s friend. It announces how a bill plans to change the law and illustrates how the bill adds new language, strikes and deletes previous language, or repeals entire portions of law. A bill isn’t a bill, and it’s definitely not sitting on Capitol Hill, without it.

    Here’s how amending clauses work:

    Let’s say a bill sponsor wants to amend an entire section of law that’s in the Colorado Revised Statutes. The amending clause would look like this:

          SECTION 1. In Colorado Revised Statutes, amend 1-1-1101 as follows:

    The language following the “as follows” specifies what the bill and its amending clause are up to:

          SECTION 1. In Colorado Revised Statutes, amend 1-1-1101 as follows:

          1-1-1101. The above amending clause amends an entire section of law. (1) Within the section that the bill is amending, the changes it makes to the law are illustrated in two ways:

          (a) In small caps; or

          (b) In strike type.

          (2) If a bill adds new provisions to the law, the new language is shown in small caps.

          (3) If a bill repeals provisions of the law, the language is shown in strike type When amending, a bill can both add and remove language in the same provision.

    This is a nifty way to change the law, but maybe the bill sponsor still hasn’t found what she’s looking for. Let’s try it another way:

          SECTION 2. In Colorado Revised Statutes, 1-1-1102, amend (1)(b) as follows:

          1-1-1102. The above amending clause amends a specific provision of the law. (1) Sometimes a bill sponsor doesn’t  need (or doesn’t want) to amend an entire section of the law. When that happens:

          (a) The bill will specify the provision the sponsor wants to change in the amending clause; and

          (b) The bill will make changes to that section subsection of the law only.

    Maybe amending isn’t in a bill sponsor’s plans. But creating new law is:

          SECTION 3. In Colorado Revised Statutes, add 1-1-1103 as follows:

          1-1-1103. The above amending clause adds a new provision of law. (1) Sometimes the bill sponsor will want to add a brand new section of law to the Colorado Revised Statutes.

          (2) When a bill does this, all language in that section will be shown in small caps.

          (3) A bill can add new articles, new parts, new sections, and new subsections.

    Now that we’re on a roll, what if the bill sponsor wants the bill to eliminate not create law?

          SECTION 4. In Colorado Revised Statutes, repeal 1-1-1105 as follows:

          1-1-1105. Use the above amending clause if to the bill doesn’t add to or change a law, but instead removes it from the books entirely.(1) There are two ways a bill can repeal this section 1-1-1105.

          (2) The example shown here shows all of the language that was currently in law in strike type.

          (3) This is how most repeals are drafted, so that legislators and the public can see exactly what provisions are removed from the law.

    Sometimes a bill won’t show the repealed language in strike type because it’s removing the equivalent of 30 pages of law from the Colorado Revised Statutes, and the bill really doesn’t need to be that long. That’s when the bill sponsor might want to use what we in the drafting-amending-clauses-biz call a “straight repealer,” which announces that the provision of law the bill is amending is la fin; it’s over and out of the statutes, without showing the removed language in strike type:

          SECTION 4. In Colorado Revised Statutes, repeal 1-1-1105.

    The bill sponsor is in it to win it now, but maybe the bill should be even more specific:

          SECTION 5.  In Colorado Revised Statutes, 1-1-1104, amend (1) introductory portion and (1)(a); repeal (2); and add (3) as follows:

          1-1-1104. The above amending clause is good at multitasking. (1) Sometimes a bill sponsor does not want to amend an entire section:

          (a) Amending an entire section leaves the entire section open to additional amendments that fit under the title of the bill during the legislative process.

          (b) This is something a sponsor should consider when deciding how to change the law.

          (2) We should all just give up now, it’s getting too complicated.

          (3) Put the amending clause to work. In this example, the bill sponsor wanted to leave (1)(b) alone (to not make any changes to it). So the sponsor only amended, repealed, and added very specific subsections in this section.

    Okay, you say. But what if a bill is amending nearly every provision of a section, part, or article? Is there anything we can do besides use our trusty amend direction? But of course. Here’s where a bill sponsor might choose a different kind of amending vehicle—the R&RE or “repeal and reenact.” To illustrate: Instead of repealing section 1-1-1105 (Section 4 of the bill in the earlier example), let’s repeal and reenact it:

          SECTION 4. In Colorado Revised Statutes, repeal and reenact, with amendments, 1-1-1105 as follows:

          1-1-1105. Repealing and reenacting a provision of law has its pros and cons. (1) On the PRO side, it can be complicated and confusing to extensively amend a section; at some point the reader might have no idea where the strike type starts and the small caps begin. That’s when repealing and reenacting can be useful.

          (2) In the first SECTION for example, subsection (1) read “There are two ways a bill can repeal this section 1-1-1105.” However, because we’re repealing and reenacting this section, we’re removing all the existing language and replacing it with the new and newly arranged—so everything’s in small caps.

          (3) The potential issue with the R&RE is that legislators and the public can’t see, on the page, how 1-1-1105 used to read, which might make it difficult for them to know exactly how the bill is changing the law without dusting off their Colorado Revised Statutes and comparing the original version to the new one.

    We’ve only just scratched the surface of amending clauses. But it’s clear that a well-crafted bill uses amending clauses (and strike types and small caps) wisely.

    In drafting their bills, legislators should work with the drafters to ensure that their fellow legislators, the public, and especially their constituents, can clearly see how the bill is changing the law.