Supreme Court Weighs In on Constitutionality of Two Bills

by Julie Pelegrin

For the second session in a row, the General Assembly sent interrogatories to the Colorado Supreme Court to ask whether pending legislation is constitutional. This session, the General Assembly actually sent two request for interrogatories to the Court: One regarding House Bill 21-1164, which concerns the number of mills that a school district must levy; and the other regarding Senate Bill 21-247, which addresses certain redistricting issues. And for the first time in recent memory—maybe ever—the Court agreed to answer the questions with regard to both bills.

This article provides some background to HB21-1164 and explains the question asked and the Court’s answer. A future article will cover the request for interrogatories regarding Senate Bill 21-247. In a nutshell, the Court held that the General Assembly can constitutionally require school districts to increase their property tax mill levies over time up to the number of mills that they levied when their voters waived the revenue limits in the Taxpayers’ Bill of Rights (TABOR).

Colorado funds its school districts by calculating how much each school district should receive based on a formula that takes several factors into account. The amount that each school district receives is paid for by a dual funding system; the statute specifies how many property tax mills each school district must levy, and if the amount of property tax revenue received from that levy isn’t enough to completely pay for the district’s formula funding, then the state pays the rest.

In 1994, when the state passed the current school finance act, each school district was required to levy the lesser of: 1) The number of mills required to fully fund the school district’s formula amount; 2) The number of mills that would generate tax revenue within the limits imposed by TABOR; or 3) The number of mills levied in the previous property tax year. So, if a school district’s assessed property value increased in one year, the school district would likely have to reduce its mill levy to stay within TABOR revenue limit. But if the property values went down in next year, the school district could not increase its mill levy back to the previous number of mills because the statute would not allow it to levy more than it levied in the previous year.

Shortly after the voters approved TABOR, school districts started asking their voters to waive the revenue limits, a request TABOR allows school districts to make. Eventually the voters in 174 of the 178 school districts authorized their districts to continue collecting and spending revenue in excess of the limit. Under the mill levy statute, this should have meant that, once a school district had this approval from its voters, the school district’s mill levy would never have to decrease because the revenue limit imposed by TABOR would never apply. But that’s not what happened.

The department of education advises school districts concerning the number of mills the school district is required to levy under the statute. If a school district doesn’t levy the required number of mills, then it can affect the amount of money the school district receives from the state to fully fund the school district’s formula amount. The department continued to advise school districts to lower their mill levies to stay within their TABOR revenue limits, even after the school districts’ voters had waived those limits. As explained above, this meant that school district mill levies went down, and the statute would not allow those levies to go back up. The result? The state paid more and the school districts paid less. In 1994, all of the school districts combined paid about 47% of the total formula funding in the whole state, and the state paid about 53%. By 2007, the school districts were paying 36% and the state was paying 64%.

In 2007, the General Assembly changed the statute to stop the reduction of mill levies for school districts that were no longer subject to the TABOR revenue limits. Starting in the 2007 property tax year, school districts were required to levy the lesser of: 1) The number of mills required to fully fund the school district’s formula funding; 2) The number of mills required to stay within the TABOR revenue limit, but only if the school district was still subject to that limit; 3) The number of mills levied in the preceding property tax year; or 4) 27 mills. With this change, the mill levies stopped going down, but they didn’t go back up.

In the 2020 legislative session, the General Assembly decided to do something about raising the school district mill levies back to the levels that were in effect when school district voters agreed to waive the TABOR revenue limits. They enacted [House Bill 20-1418] enrolled bill, which reset the school district mill levies for school districts that are no longer subject to the TABOR revenue limits. Starting in the 2020 property tax year, the school districts are required to levy the lesser of: 1) The number of mills required to fully fund the school district’s formula funding; 2) The number of mills the school district would have been levying if not for the reductions required by the department of education; or 3) 27 mills. But when the bill passed, the state was in the middle of a pandemic, so rather than actually require tax payers to pay more in 2020, HB20-1418 also said that each school district that was increasing its mill levy would grant a temporary tax credit for the full amount of the increase. So, even though the mill levies were reset to the previous levels, taxpayers paid the same amounts they paid in 2019.

That brings us to now. During the 2021 legislative session, the General Assembly introduced HB 21-1164, which directs the department of education to adopt a schedule to reduce the temporary tax credits by no more than one credit per year, until each school district’s tax credit is removed. At this rate, most school districts will have completely removed the tax credits by about 2024.

There was some question, however, as to whether reducing the tax credits—and thereby increasing the school districts’ mill levies—is constitutional. In addition to imposing revenue limits, TABOR requires a school district to obtain voter approval in advance for “…a mill levy above that for the prior year…”. Even though HB20-1418 and HB21-1164 are together correcting an error and restoring the school district mill levies to the levels that would have been in effect without the error, this restoration does result in school districts assessing mill levies that are higher than those assessed in the previous year. Rather than require the school districts to risk litigation, the General Assembly sent an interrogatory—a question—to the Court. Is it constitutional for the General Assembly to require school districts to eliminate the tax credits and restore the mill levies without seeking voter approval?

The Court, by a vote of 6-1, said yes, resetting the mill levies without additional voter approval is constitutional. The Court concluded that, when voters waived the revenue limits for their school districts, they essentially approved the mill levies that were in effect at the time of the election, and they expected those mill levies to continue. Since the voters had already approved those mill levies, correcting the error and resetting the mill levies to those levels does not require the voters to approve them for a second time.

Next, we’ll discuss the Court’s answers to the questions concerning SB21-247. Spoiler alert, they were not in the affirmative.