Colorado LegiSource

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

Category: Constitutional Requirements

  • Supreme Court Finds General Assembly “Reasonable” in Counting Only Working Calendar Days

    By Julie Pelegrin

    As reported earlier, the General Assembly recently asked the Colorado Supreme Court to tell them whether, during a statewide public health declared disaster emergency, the General Assembly is allowed to determine the length of the regular legislative session by counting only “working calendar days” rather than consecutive calendar days. Because the General Assembly is currently in a temporary adjournment, this question of how to count the days is key to scheduling the remainder of the 2020 regular legislative session.

    Last Wednesday, the Supreme Court published its answer: Only working calendar days, “i.e., calendar days when at least one chamber is in session”, will count in determining the length of the session when the General Assembly is operating under a declared public health disaster emergency.

    As we previously explained, the voters amended the provisions of article V, section 7 of the Colorado Constitution (section 7) in 1982 to limit the length of the legislative session in even-numbered years to 140 “calendar days” and in 1988 to limit the length of all regular legislative sessions to 120 “calendar days.” The General Assembly adopted Joint Rule 23 (d) to clarify that “calendar days” are to be counted consecutively and in 2009 adopted Joint Rule 44 (g) to make the very limited exception for counting “calendar days” as only the working calendar days if the General Assembly meets in regular legislative session during a declared public health emergency.

    The Supreme Court’s decision was a 4-3 vote, so the answer was by no means a slam dunk. The analysis turned on whether the phrase “calendar days” used in the constitution is ambiguous or whether it plainly requires the calendar days to be counted consecutively from the first day of the legislative session.

    Justice Marquez, writing for the majority, concluded that the phrase is ambiguous. The Court considered the plain meaning of calendar days (i.e., days running from midnight to midnight) and the fact that the text of section 7 does not specify that calendar days are to be counted consecutively. It concluded that section 7 “may just as reasonably be construed to allot a sum of days during which the General Assembly may meet in regular session – continuously or not – to complete its work, so long as the total does not exceed 120 calendar days.”

    The Court also analyzed Joint Rule 23 (d) and Joint Rule 44 (g), first noting that, like statutes, legislative rules are presumed to be constitutional unless proven to be unconstitutional beyond a reasonable doubt. The Court specifically looked to whether the legislative rules were true to both the text and the purpose of the limitation on the length of the legislative session.

    The Court identified the purpose of the limitation as being to both preserve the Colorado tradition of a part-time citizen legislature and ensure sufficient time for the General Assembly to complete the critical work of legislating for the people of the state. The Court then concluded that the legislative rules support these purposes by defaulting to 120 consecutive days in all but the rarest of situations while allowing the General Assembly the necessary flexibility and time to legislate in response to a disaster emergency. Having already found that the text did not require calendar days to be counted consecutively, the Court held that Joint Rule 23 (d) and Joint Rule 44 (g) are consistent with the text and support the purposes of section 7 and, in combination, are a reasonable interpretation of section 7. As such, the rules are constitutional.

    As stated previously, this decision was a close call. Three of the seven justices dissented from the majority decision. Although the dissent acknowledges that the state is operating in “unprecedented times”, it cites to precedent stating, “there has never been, and can never be, an emergency confronting the state that will warrant the servants of the Constitution waiving so much as a word of its provisions.”

    In the view of Justice Samour, who wrote the dissent, section 7 is not at all ambiguous. By specifying calendar days, the provision can only mean consecutive calendar days. Justice Samour looked to the dictionary definition of “calendar day” as a consecutive 24-hour day running from midnight to midnight, and concluded that 120 calendar days must be equal to a total of 2,880 consecutive hours (120 x 24 = 2,880). The dissent also looked to the use of “calendar days” in the statutes, finding that in every instance it means consecutive calendar days even though the word “consecutive” is not included in most cases. And, when the General Assembly means something other consecutive calendar days, the statute uses another term, such as “business days.”

    The dissent also argued that, even if section 7 is ambiguous, by adopting Joint Rule 44 (g), the General Assembly is in essence amending section 7. And the General Assembly cannot by rule or statute amend the constitution; only the people can do that.

    Finally, the dissent feared the majority opinion opens a “Pandora’s Box,” setting a precedent that future legislatures may abuse. While concerns about how a future legislature may apply the majority opinion may be well-founded, there is language in the majority opinion that arguably limits how far a future legislature can go in interpreting section 7 as allowing something other than consecutive calendar days.

    The majority decision is narrowly written and does not give the General Assembly carte blanche to change the counting of calendar days in any circumstance it chooses. The Court made the point that the very limited conditions under which only working calendar days are counted are outside the control of the General Assembly and specifically stated that “a broader rule untethered to an external event such as a public health crisis or otherwise readily susceptible of legislative manipulation would be less likely to further the purposes of article V, section 7 and could be unconstitutional.”

    So, while it is clear that so long as the current public health disaster emergency continues the General Assembly can count only the working calendar days in calculating the 120 calendar days of the 2020 regular session, its ability to do so under different circumstances in the future remains questionable.

  • History in the Making: A Temporary Adjournment and Interrogatories

    By Julie Pelegrin

    Since we last posted, everything has come to a screeching halt – sort of. Last Saturday, the General Assembly took the extremely rare step of adjourning for two weeks in the middle of the regular legislative session. The existence of a declared epidemic disaster emergency and the need to implement drastic measures to mitigate the spread of COVID-19 led the General Assembly to make this serious move.

    So why is this step so rare? The Colorado constitution prohibits both the House and the Senate from adjourning for more than three days, unless they both agree. On Saturday, both houses passed House Joint Resolution 20-1007, which temporarily adjourned both houses until March 30, 2020.

    This type of temporary adjournment wasn’t always such a rare occurrence. There was a time when it was fairly common for the General Assembly to adjourn for more than three days to a date certain (as opposed to adjourning sine die, which ends the session) during a regular legislative session. These temporary adjournments would occur for a variety of reasons, generally to manage the legislative session and provide time to develop policy or return to consider vetoes.

    So what changed? In 1988, the General Assembly referred Senate Concurrent Resolution No. 1 to the ballot to amend section 7 of article V of the state constitution. At that time, this section of the state constitution limited regular legislative sessions convened in even-numbered years to 140 calendar days; there was no limit on the length of sessions during odd-numbered years. The amendment changed the language to limit all regular legislative sessions to 120 calendar days.

    And that’s one of the reasons why this temporary adjournment is so serious: How long may the regular legislative session continue after the General Assembly reconvenes? Section 7 of article V of the Colorado constitution limits the regular legislative session to 120 calendar days. But exactly what does that mean?

    Only the Colorado Supreme Court can provide a definitive answer to that question. Fortunately, there’s a constitutional process for asking.

    Section 3 of article IV of the Colorado constitution describes the Supreme Court’s authority and specifically directs the Court to give “its opinion upon important questions upon solemn occasions when required by the governor, the senate, or the house of representatives …” While the language sounds like the Court must answer these questions — they’re officially referred to as “interrogatories” — whenever posed, the Court actually has great discretion in deciding whether to answer. The Court decides whether a question is really important and whether the occasion is sufficiently solemn.

    Since Colorado became a state in 1876, the General Assembly has sent interrogatories to the Supreme Court 88 times. The Court agreed to answer all of the questions posed 58 times, agreed to answer some of the questions eight times, and refused to answer 15 times. The governor has sent interrogatories to the Supreme Court 47 times. Nineteen times, the questions were related to legislation that was either pending in the legislature or sitting on the governor’s desk awaiting his signature. The other 28 times, the governor was asking questions that were not directly related to legislation. Most of the time – 33 out of the 47 – the Supreme Court agreed to answer the interrogatories.

    In what appears to be the first interrogatory submitted in Colorado, the General Assembly asked about the constitutionality of certain provisions of the state constitution concerning water. The Supreme Court refused to answer because the interrogatory did not relate to pending legislation. Also, the Court did not find the situation grave or urgent enough to warrant giving an answer. Most recently, the Court has agreed to answer questions about the nature of certain federal funds and the authority to appropriate them, and whether voter approval is required to approve a certain type of funding mechanism for transportation. In both situations, the questions were related to pending legislation.

    Generally, in deciding whether to accept interrogatories, the Supreme Court has said the interrogatory must “be connected with pending legislation, and relate either to the constitutionality thereof or to matters connected therewith of purely public right.“

    So, returning to the question at hand concerning the meaning of 120 “calendar days,” on Saturday, the General Assembly passed House Joint Resolution 20-1006 asking the Supreme Court to answer the following question:

    Does the provision of section 7 of article V of the state constitution that limits the length of the regular legislative session to “one hundred twenty calendar days” require that those days be counted consecutively and continuously beginning with the first day on which the regular legislative session convenes or may the General Assembly for purposes of operating during a declared disaster emergency interpret the limitation as applying only to calendar days on which the Senate or the House of Representatives, or both, convene in regular legislative session?

    On Monday, March 16, the Supreme Court accepted the interrogatories. The General Assembly, the Governor, the Attorney General, and any other interested persons are invited to submit briefs by Tuesday, March 24. Sometime after that, the Supreme Court will issue its answer. Stay tuned!

  • A Tale of Two Amendments: The Property Tax Dilemma

    By Vanessa Cleaver

    As any long-term resident of Colorado knows, over the past five years the state has undergone an explosive growth in population, making it one of the fastest growing states in the United States. Consequently, Denver’s housing market is booming, and Denver-metro residents have likely seen a steady rise in their property’s value. This increase would normally correlate to an increase in residential property taxes, but because of an interesting provision in the state constitution known as the “Gallagher Amendment,” residential property tax rates remain unequivocally low. For rural areas that are primarily supported by property taxes, and where property owners have not seen the exponential increase in property value that Denver has, the Gallagher Amendment has left local governments with less revenue to support a steadily growing population.

    Enacted as part of a constitutional amendment in 1982, the Gallagher Amendment was initially designed to maintain a constant ratio between property tax revenue from residential property and from commercial property. Although perhaps not its original intent, Gallagher has since kept property taxes low for homeowners so they aren’t financially overburdened by their property tax bill should their property value increase. It establishes a formula precluding the assessed value[1] of all residential property from being more than a target percentage[2] of the total assessed value of all real property in the state. Businesses, on the other hand, are responsible for fulfilling the remainder of that target percentage.

    Rather than set varying assessment rates across the state, Gallagher instead sets one statewide rate for residential property and one for commercial property. The commercial assessment rate was set at a fixed 29 percent while the residential assessment rate (RAR) was left to float up or down. Since there’s no set minimum for the RAR, it can drop as low as it needs to in order to uphold that constitutionally mandated balance between commercial and residential property. As complicated as all that sounds, basically what it comes down to is this: When residential property values go up relative to non-residential values, the RAR decreases; when property values drop, the RAR is technically supposed to increase again.

    But to add to the complexity of Gallagher, in 1992 voters passed an amendment to the Colorado constitution, commonly known as “TABOR,” which states, in part, that all increases in the valuation for assessment ratio for a property class must be approved by voters. This new restriction made any rise in the RAR subject to voter approval. Even in those years when Gallagher dictated an increase, the RAR remained unchanged because the General Assembly did not seek voter approval for the increase under TABOR. Since the inception of Gallagher, and especially since being tethered to TABOR, the RAR has been in steady decline. In 1983, the RAR established in the state constitution was 21 percent, the highest the rate has been in the past 30 years. Currently, the RAR is 7.2 percent,[3] and it appears that the General Assembly may need to lower it again in future reassessment cycles.[4]

    So what does all this have to do with local governments?

    With the exception of municipalities, a large number of local governments get most of their revenue from property taxes. Services such as fire protection, public education, and the establishment and operation of local libraries are primarily funded through the collection of property taxes. If there’s a decrease in that revenue, then those types of local governments struggle to provide even the most necessary services to their residents. Over the last few years local governments in rural Colorado have seen a significant decrease in property tax revenue. Specifically, fire districts, school districts, library districts, and other special districts have been impacted in their ability to support the populations they serve. This drop in revenue is primarily attributed to the continued fall of the RAR.

    As property values increase in the more metropolitan areas of the state, the RAR continues to fall to keep property taxes from going over the target percentage required by the Gallagher Amendment. For the Denver metro area, this drop in the RAR hasn’t had nearly as significant an impact on revenue, because it has a denser population to support it, and because home values in Denver have skyrocketed. But in rural Colorado, home values, as well as local populations, aren’t experiencing that same boom, and in some cases rural residents are paying less in property taxes than they have in years past.

    Prior to the passage of TABOR, a special district could float its mill levy (the number of mills assessed by a local government against the assessed property value, resulting in more property tax revenue) to counteract any cyclical economic cycles and help protect its primary revenue source. For example, a special district could raise its mill levy when the RAR decreased to ensure the incoming property tax revenue remained constant, and then decrease the levy if property values increased again. Since TABOR’s passage, though, special districts can float their mill levies down but are prohibited from floating their mill levies back up without a vote of the people, a costly and sometimes fruitless endeavor.

    Fire protection districts in particular have voiced great concern over their capacity to fight the wildfires that ravage the state every summer with a steadily decreasing budget, staff, and resources. In 2018, after being urged by the Colorado State Fire Chiefs, in conjunction with the Special District Association of Colorado, former Governor John Hickenlooper filed interrogatories with the Colorado Supreme Court asking them to weigh-in on the issue. The former governor submitted three legal questions: 1) whether TABOR and the Gallagher Amendment conflict with one another in the way they affect property taxes; 2) whether TABOR should take precedence over Gallagher; and 3) whether Gallagher should be stricken from the constitution altogether. The Court, however, declined the interrogatories.

    The property tax dilemma has, for now, been left in a state of uncertainty. Until a more permanent solution is reached that meets both the needs of taxpayers and local governments, the Gallagher Amendment in its current construct will continue to govern property tax law.

    [1] “Assessed value” is the base amount, which is equal to the actual value multiplied by the assessment rate, upon which property taxes are levied. A local government may assess a certain number of property tax mills against the assessed value of a piece of property. A mill is equal to 1/1000 of one dollar or $0.001.

    [2] The target percentage is used to maintain the ratio between residential property tax revenue and commercial property tax revenue. At Gallagher’s onset the target percentage for commercial property was 55 percent, with residential property responsible for the remaining 45 percent. But over the years the target percentage has slightly deviated from this 55/45 split. To give you an idea, in 2017 it was 54.33/45.67, and in 2015 it was 54.24/45.67. https://apps.larimer.org/tencounty/conference/2017/Gallagher-Slides-updated.pdf

    [3] § 39-1-104.2 (3)(p), C.R.S.

    [4] The Residential Assessment Rate Study for 2019-2020 projecting the new residential assessment rate to be 6.95 percent: https://drive.google.com/file/d/1o3HgqYCkWnDIQkRQx4YIxPi2Z0EiQHDz/view

  • Surprise! The 2019 Legislative Session Convening a Week Earlier

    by Patti Dahlberg

    In case you missed the discussions on House Joint Resolution 18-1021 in the final few days of the 2018 legislative session, the 2019 Legislative Session will begin on Friday, January 4. Of course, this also means that the 2019 Legislative Session will adjourn almost a week earlier than usual – by Friday, May 3.

    Traditionally, a legislative session in Colorado commences on the second Wednesday in January — but it can start sooner. The convening date and other important Colorado legislative timelines are specified in the state’s Constitution.  The provision determining when the legislative session annually convenes is in section 7 of article V of the state constitution. It requires the General Assembly to meet in regular session at 10 a.m. “no later than the second Wednesday of January each year.” In 2019, the General Assembly is convening on the first Friday in January. This is necessary because section 1 of article IV of the state constitution requires the newly elected Governor, Lieutenant Governor, Attorney General, Treasurer, and Secretary of State to take office on the second Tuesday of January, which falls on January 8 in 2019. And section 3 of article IV of the state constitution requires the General Assembly to declare the winners of the election for Governor, Lieutenant Governor, and the other three statewide elected officers, or to decide who the winners are if the general election ends in a tie or is contested. To declare the winners, the General Assembly must be in session. So each time all five statewide elected officials are elected, the General Assembly must convene before the second Tuesday of January.

    Because the convening date for the 2019 legislative session starts on a Friday instead of a Wednesday, House Joint Resolution 18-1021 also adjusted most of the legislative deadline days delineated in the House and Senate Joint Rules. The convening date and any necessary adjustment of deadline days for the 2020 legislative session will be decided by the 72nd General Assembly, most likely by a joint resolution adopted during the 2019 legislative session.

    An early convening date means earlier bill request deadlines. This year, each returning legislator must submit three of his or her five bill requests to the Office of Legislative Legal Services (OLLS) no later than Monday, November 26, 2018. Each legislator who is newly elected to the General Assembly must submit three of his or her five bill requests to the OLLS no later than December 10, 2018. Both of these dates are about a week earlier than usual.

    Although a January 4th starting date may cut the holiday season a little shorter this year for some of us, it could be worse. The convening date could have been January 1 — like it was a hundred years ago for the 1919 Legislative Session!

    Some additional constitutional provisions regarding legislative sessions:

    • Each regular legislative session can last no longer than 120 days, including Saturdays and Sundays and any other days the General Assembly may decide to take off (section 7 of article V).
    • A regular session can last less than 120 days, which has happened as recently as 2008.
    • Section 7 of article V allows the General Assembly to meet outside of a regular session when convened in a special session by the Governor or by written request of two-thirds of the members of each house. During a special session, the General Assembly may consider only the specific subjects listed in the Governor’s call or in the written request. For more information on special sessions, see “What’s so Special about a Special Session?”
    • During a legislative session, neither the House nor the Senate may adjourn for more than three days without the consent of the other house (section 15 of article V).
    • Before a bill can become law, recorded votes on the bill must be taken on two separate days in each house (section 22 of article V).
    • During session, the Governor has 10 days to act on bills that the General Assembly sends to him or her. However, during the last 10 days of session and once the General Assembly adjourns, the Governor has 30 days after adjournment to act on bills sent to him or her (section 11 of article IV).

  • Who’s Afraid of the Origination Clause?

    by Nicole Myers

    Senators, has this ever happened to you?  You have a great idea for a bill to create a tax credit. It will provide assistance or incentives to deserving Coloradans who satisfy the criteria to claim it. You submit your bill request to the OLLS at your earliest opportunity, and within a day or two, an OLLS attorney calls you to discuss your request.  But before you can even explain your great idea, the attorney respectfully tells you that because your bill creates a tax credit, it is considered revenue raising and therefore should start in the House of Representatives.

    Now hold on just a minute.  You are a State Senator! Why is an OLLS attorney telling you that your bill, which was your idea, should start in the House?  What’s with this revenue-raising thing…did the OLLS make this up? And, how can a tax credit, which is revenue reducing, be considered a bill that raises revenue?

    Senators, your OLLS attorney gave you this unhappy news because Section 31 of article V of the state constitution requires that “[a]ll bills for raising revenue shall originate in the house of representatives, but the senate may propose amendments, as in the case of other bills.” This requirement is known as the “Origination Clause” and was likely modeled after a similar provision in the United States constitution.

    You may be wondering why the Colorado and United States Constitutions require bills that raise revenue to originate in the House of Representatives. The right to introduce money bills is an ancient privilege of the House of Commons, the lower house of the British Parliament. This privilege was awarded the lower house in the belief that the House of Lords, a permanent, hereditary body created by the king, would be more subject to influence by the crown than the House of Commons, a temporary elective body.  They thought it was more dangerous to let the Lords impose new taxes; better to leave that to the body elected by the people.

    A substantial number of state constitutions and the United State constitution maintain the privilege of the “lower” house to introduce money bills. While the limitation regarding revenue-raising bills is a remnant of Parliament’s struggles with the Crown, in modern times it expresses a preference for keeping the power to tax as close as possible to those subject to the tax. The House of Representatives, deemed the “lower” house, is presumed to more directly represent the people both because lower houses are customarily larger than their corresponding upper chamber and their membership is usually subject to election more frequently.

    There are many Colorado cases in which the court has assessed the constitutionality of bills under the Origination Clause, and there have been various interpretations of the phrase “bills for raising revenue” as stated in both the Colorado and United States Constitutions. In Colorado, the courts have determined that a bill for raising revenue “is one which provides for the levy and collection of taxes for the purpose of paying the officers and of defraying the expenses of government.” The courts have also held that “[a] bill designed to accomplish some purpose other than raising revenue, is not a revenue-raising measure.  Merely because as an incident, to its main purpose, it may contain provisions, the enforcement of which produces a revenue does not make it a revenue measure.”

    If you are thinking “but the General Assembly can’t pass a bill for the levy and collection of taxes for any purpose,” you are one step ahead of me. Today, the accountability to taxpayers for tax increases that the Origination Clause provides is largely superseded by the Taxpayers’ Bill of Rights. TABOR requires voter approval for any legislation that increases taxes, so now the voters directly decide whether taxes should be increased. (Interestingly, a bill that includes a referendum clause asking voters to increase or decrease state general fund revenue is considered a bill for raising revenue, even though voter approval is required.) So why are OLLS attorneys still bothering you with e-mails or phone messages about revenue-raising bills?

    The Colorado Attorney General’s Office has issued several opinions regarding bills for raising revenue. One of these opinions states that a bill that would have the obvious effect of decreasing collected revenues is still a bill for raising revenue.[1] The Attorney General’s Office determined through its research that bills for raising revenue “means bills which provide for the levy and collection of taxes. A bill levying taxes may cause a tax to decrease as well as increase.  Accordingly, art. V (section) 31 precludes the senate from introducing measures that decrease state taxes”. For this reason, the OLLS advises members of the General Assembly that a bill that affects the amount of general fund revenue collected by the state is considered a revenue-raising bill and should be introduced first in the House. Bills that fall into this category include income tax credits, income tax exemptions, bills to decrease any state tax, and bills that seek voter approval for an increase or decrease in any state tax or approval for the creation of a new state tax. Bills that are not deemed to affect the amount of general fund revenue collected by the state and therefore can be introduced in the Senate include bills that delegate authority to local governments to levy local property taxes, bills that appropriate money from the general fund, and bills that create, increase, or decrease a fee or toll as compensation for the use of government facilities or for services provided by the government.[2]

    Although the OLLS does its best to advise Senators of the provisions of section 31 of article V of the state constitution, Senators have started many revenue-raising bills in the Senate. There is now precedent for these bills being enacted after starting in the Senate, and these bills are presumed to be constitutional. To our knowledge, no one has challenged any of these revenue-raising bills in court based on a violation of the Origination Clause; therefore, the OLLS does not know whether a court would give more weight to the constitutional provisions of the Origination Clause or the presumption of constitutionality afforded every measure enacted by the General Assembly. Regardless, it is interesting to note that one Speaker of the House within recent memory, to protect the House’s authority to introduce revenue-raising bills, refused to introduce in the House any Senate bill that was revenue raising. While a Senator may decide that he or she is not going to let the Origination Clause stop him or her from introducing a Senate Bill that affects the overall amount of revenue coming into the state general fund, the House of Representatives may use the Origination Clause to prevent the bill from proceeding in the House.

    As all Colorado State Senators and Representatives know, the OLLS will never tell a member of the General Assembly that he or she cannot introduce a bill for any reason. So if you are a Senator and are ever advised that your bill is revenue raising and, pursuant section 31 of article V of the state constitution, should start in the House, it is just the OLLS reminding you of the requirements of the Origination Clause. We do this in an effort to protect the constitutionality of your bill, maintain the authority of the House of Representatives to introduce revenue-raising bills, and preserve the integrity of the laws and traditions that govern the legislative process in Colorado. We leave it to you to determine whether to be afraid!

    [1] For a list of specific Attorney General Opinions discussing article V (section) 31, please see section 8.1.5 of the OLLS Drafting Manual.

    [2] For a more thorough discussion of bills that are and are not considered revenue raising, please see sections 8.1 and 8.2 of the OLLS drafting manual.

  • Teachers’ Loyalty Oaths and the Constitution

    by Julie Pelegrin

    Last week, we discovered that teachers and professors must take an oath to uphold the federal and state constitutions and to faithfully perform their duties. Originally, however, they also had to swear to “teach … respect for the flags of the United States and of the State of Colorado, reverence for law and order and undivided allegiance to the government of one country, the United States of America.”

    Several states adopted similar requirements generally starting in the 1920s and continuing into the 1950s. During this period, many people were concerned about the possibility of subversive elements within the government, including the public schools. By the 1960s, teachers and professors were concerned that taking these oaths violated their constitutional rights. So they started suing.

    One of the first cases was Baggett v. Bullitt out of Washington. In 1931, the state of Washington passed a law requiring teachers to take an oath that was almost verbatim the same as the oath adopted in 1921 in Colorado. In the early 1960s, a group of faculty, staff, and students at the University of Washington sued, claiming the oath was unconstitutionally vague. Generally, courts have held that a law that forbids or requires conduct in terms so vague that persons of common intelligence have to guess what it means is unconstitutional because it violates due process.

    The plaintiffs lost at the trial court level, so Baggett v. Bullitt ended up in front of the U.S. Supreme Court in 1964 where the Court held that the oath was too vague. The Court recognized that there are many activities that could be interpreted as violating a promise to promote respect for the flag, including refusing to salute for religious reasons.

    The Court also found that it would be difficult to predict what actions could be interpreted as violating a promise to “promote … undivided allegiance to the … United States of America.” The Court found that

    It would not be unreasonable for the serious-minded oath taker to conclude that he should dispense with lectures voicing far-reaching criticism of any old or new policy followed by the Government of the United States. He could find it questionable under this language to ally himself with any interest group dedicated to opposing any current public policy or law of the Federal Government, for if he did, he might well be accused of placing loyalty to the group above allegiance to the United States.

    Despite the Baggett decision, the Colorado statute remained on the books. Then in 1967, University of Colorado Professor Alan Gallagher refused to take the oath and sued the president of the university—Joseph Smiley— and the Board of Regents. Professor Gallagher claimed the oath violated his constitutional rights because it was vague and overly broad. The federal district court for Colorado agreed. They followed the Baggett decision and issued an injunction prohibiting CU from requiring its professors to take the statutory oath.

    But before the court ruled, the CU Board of Regents in February of 1967 had adopted a resolution requiring CU professors to take a different oath:

    I solemnly swear or affirm that I will support the Constitution of the State of Colorado and of the United States of America and the laws of the State of Colorado and of the United States.

    Professor Gallagher’s case did not challenge the Board of Regents’ new oath, and the court did not consider whether it was constitutional. So, the court’s injunction prohibited CU from requiring the statutory oath, but faculty still had to take the Regents’ oath.

    A few months later in the fall of 1967, a group of CU professors and employees, this time led by Professor Elizabeth Hosack, sued claiming the Regents’ oath was also unconstitutionally vague and that it violated their First Amendment rights to freedom of expression.

    The United States District Court for the District of Colorado found that the Regents’ oath was not unconstitutionally vague, but “plain, straight-forward, and unequivocal. A person taking it is not left in doubt as to his undertaking. The obligation assumed is one of simple recognition that ours is a government of laws and not of men.”

    The panel also found that the oath did not infringe on the professors’ and employees’ freedom of expression.

    Recognition of and respect for law in no way prevents the right to dissent and question repugnant laws. Nor does it limit the right to seek through lawful means the repeal or amendment of state or federal laws with which the oath taker is in disagreement. Support for the constitutions and laws of the nation and state does not call for blind subservience.

    This opinion came out in December of 1967, and in 1969 the General Assembly passed House Bill No. 1194, which changed the wording of the statutory oath to what we have today:

    I solemnly (swear) (affirm) that I will uphold the constitution of the United States and the constitution of the state of Colorado, and I will faithfully perform the duties of the position upon which I am about to enter.

    The statutory oath is similar to the Regents’ oath; the teacher or professor is promising to uphold the federal and state constitutions and to faithfully perform his or her duties. Further, there is no mention of respect for the flags, reverence for law and order, or undivided allegiance.

    In the fall of 1969, a group of Denver Public School teachers and professors from several Colorado universities and colleges sued in federal court to prevent implementation of the new oath. Again, they were claiming that the oath was unconstitutionally vague and deprived them of their First Amendment rights. And again, the federal district court disagreed, upholding the statute as constitutional.

    The three-judge panel followed the decision in the Hosack case, finding that there was nothing vague about promising to uphold the federal and state constitutions. The plaintiffs then claimed that the promise to faithfully perform their duties was too vague. The judges disagreed. “The state can reasonably ask teachers in state schools to subscribe to professional competence and dedication. This portion of the oath…imposes no restrictions on a teacher’s political expressions. It is certain that there is no right to be unfaithful in the performance of duties…. ”

    At the end of its decision, the panel of judges admitted that they were puzzled as to why the plaintiffs found the taking of an oath so “obnoxious.” While the court understood that the plaintiffs felt that they didn’t know what they were promising and had reservations about what the significance of the oath was, the court refused to find these reservations as a basis for holding the oath invalid. “The decision as to [the] worth or value [of the oath] is for the legislature, and we are not prepared to say that it does not serve a purpose any more than we could say that the constitution itself is valueless.”

    The loyalty oath for teachers and professors remains in the Colorado Revised Statutes. Presumably the General Assembly continues to find that it serves a purpose.

  • Teachers Required to Pledge Their Loyalty…Still

    Teachers Required to Pledge Their Loyalty…Still

    by Julie Pelegrin

    Since 1921, the law has required elementary, junior, and high school teachers and college and university professors to take what’s called a “loyalty oath” affirming their loyalty to both the country and the state. The wording of the oath has changed over the years and been challenged a couple of times in court, but it’s still on the books as a requirement for licensed teachers or for employment as faculty in a public postsecondary institution.

    Oaths to uphold the constitution are common for elected officials. Since 1876, the Colorado Constitution has required every legislator and every other elected officer to take an oath to uphold the U.S. and Colorado constitutions and to “faithfully perform the duties of his office according to the best of his ability.”

    But in 1921, the General Assembly passed S.B. No. 123, by Senator Alexander R. Young and Representatives Mabel Ruth Baker and Charles C. Sackmann, entitled “An act to provide for an oath or affirmation of allegiance to be taken by all persons who are teaching or who may hereafter be employed to teach in public, private or parochial schools or other institutions of learning in the state of Colorado.”

    Why then? And why teachers?

    Think back to your American and world history classes. The United States helped broker the armistice that ended World War I—the “war to end all wars”— in 1918. Also, the Russian Revolution, which eventually resulted in the Bolsheviks taking over the government and installing the Communist regime, occurred in 1917.

    According to the Fort Collins Courier, in an editorial titled “Teachers Must Swear Loyalty,” published August 23, 1919, during the war, “a number of cases came to light of teachers who openly or by clever insinuation tried to undermine the children’s belief in their country, its cause and in the fundamental ideals of honest democracy. Although such cases were not common, they were numerous enough to create a real menace.” The Steamboat Pilot (“Gossip of State Capital” Feb. 16, 1921), also noted that “[d]uring the World war many disloyal teachers were uncovered, especially in Denver.”

    The Courier was in favor of a new law passed by Ohio that required all teachers in public, private, and parochial schools to take an oath of allegiance to the United States, at least for elementary, middle, and high schools. However, with regard to colleges and universities, the Courier thought “application of the law to be of dubious wisdom.” They didn’t want the law to cut off the benefits of having exchange professors who explained the viewpoints of their respective countries. They recognized that lectures by professors visiting from other countries could “bring about a pleasanter relationship based on mutual understanding.” But they also noted that the law “would of course keep out the propagandist and the man with dangerous alien doctrines.”

    Support for the bill was not unanimous across the state, however. The Leadville Herald Democrat opposed the bill in February of 1921, noting that the governor of Montana had vetoed a similar bill and urging Governor Shoup of Colorado to do the same once the bill landed on his desk. The Herald Democrat noted that requiring a teacher to declare his or her belief in the “‘American form’ of government” was supposed to “minister to a sort of super-patriotic sentiment” and keep “dangerous radicals” from putting the wrong ideas into students’ heads. But the effect of this requirement is actually to put “powerful weapons in the hands of the political heresy hunters, a phrase that [the Montana] governor uses….” It concluded with the remark: “The state needs good teachers, not automatons.” (Leadville Herald Democrat, “A False Political Test” February 6, 1921.)

    Despite the Herald Democrat‘s misgivings, the bill sailed through the legislature. It was introduced in the Senate on January 13 and passed on third reading in the House on February 7 without amendment. On February 15, 1921, Governor Shoup signed it into law.

    In June, the Herald Democrat was still railing against it. “The truth is that these and kindred measures are after-war reactions, based on the theory that the country is full of radicalism, revolution and strange doctrine.” The article notes that in the most recent election, “radical parties were almost wiped off the slate” and argues that the real threat to “the structure of Americanism” is “the introduction of too much of the Prussian system of state worship…” (Leadville Herald Democrat, “The Oath of a Teacher” June 4, 1921.)

    That fall, the American Legion held its national convention in Kansas City from October 31 to November 2. The Routt County Sentinel reported the convention highlights, including a list of items included in the Legion’s platform. Among other issues, the American Legion included these planks:

    Education in citizenship is the keynote of Americanism.

    That American history and civil government be taught more thoroughly in our public schools.

    Favoring state laws requiring every teacher to take an oath of allegiance to uphold the constitution and the conciliation of certificates of those teachers found disloyal to the American government.

     (Routt County Sentinel, “High Lights on Legion’s National Convention” Nov. 25, 1921.)

    Based on the newspaper coverage, we can deduce that the teacher loyalty oath statute arose out of the support for “Americanism” that was engendered by World War I and the threat, real or perceived, of anti-American, anarchist, and possibly Communist elements in society. So starting in the fall of 1921 and each year thereafter, all new teachers and professors were required to solemnly swear or affirm:

    [T]hat I will support the constitution of the State of Colorado and of the United States of America and the laws of the State of Colorado and of the United States, and will teach, by precept and example, respect for the flags of the United States and of the State of Colorado, reverence for law and order and undivided allegiance to the government of one country, the United States of America.

    Until 1969, that is. That year, the General Assembly amended the oath to its current form:

    I solemnly (swear) (affirm) that I will uphold the constitution of the United States and the constitution of the state of Colorado, and I will faithfully perform the duties of the position upon which I am about to enter.

    Why the change? And why then?

    We’ll talk about that next week. Hint: The answers lie with the judicial branch.

  • 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.

  • When Private Commerce Meets the Public Good: Impairing the Obligations of Contracts

    by Jery Payne

    Code of HammurabiIn about 1789, a group of people in Georgia and South Carolina formed a secret society called the Combined Society. They wanted to make money in land speculation. In the mid-1790s, they approached the governor of Georgia and many state legislators with cash and promises in hand. Georgia began as a penal colony, and they apparently hadn’t gotten it out of their system yet. The bribes worked.

    The Georgia legislature passed the Yazoo Land Act of 1795, which authorized the governor to sell 35 million acres of land. The governor ended up selling most of what is now Mississippi to land speculators for $500,000. That comes out to about 1.5 cents per acre.

    The voters of Georgia were not pleased, so they voted the scoundrels out of office. And the new legislature set about cleaning up the mess. They repealed the bill that allowed the sale. They also passed a bill voiding the original sale. They wanted the land back.

    This made subsequent buyers a bit grumpy. One buyer, Robert Fletcher, sued the speculator, John Peck, from whom he had bought the property. The case worked its way up to the United States Supreme Court.

    In Fletcher v. Peck, the Supreme Court held that the state law voiding the sale was unconstitutional. It was the first time the Court had ruled a state statute unconstitutional. The ruling was based on the obligation of contracts clause: “No State shall…pass any…Law impairing the Obligation of Contracts….” Article 1, Section 10 of the United States Constitution.

    The court ruled that this provision forbids a state from rescinding a sale that was legal—no matter how unscrupulous—when it was made.

    In another case, Ogden v. Saunders, the court found that the constitutional drafters included the provision because:

    The power of changing the relative situation of debtor and creditor, of interfering with contracts … had been used to such an excess by the state legislatures as to break in upon the ordinary intercourse of society, and destroy all confidence between man and man. The mischief had become so great, so alarming, as not only to impair commercial intercourse, and threaten the existence of credit, but to sap the morals of the people and destroy the sanctity of private faith.

     

    Although it makes sense to say that politicians shouldn’t try to get votes by promising to let us out of paying our debts, it eventually became clear that this provision can’t be taken at face value. It can’t apply to every contract because anything could be the subject of a contract. People have contracted for another person to commit murder. Taken literally, no legislative power is beyond its grasp.

    I can guess what some of you are thinking: “No, it only stops legislatures from interfering with existing contracts. A contract that is made after a law is passed is still subject to the law.” Fair enough. This line of reasoning makes sense. It was the first distinction the courts found significant. To this day, the courts are more likely to overturn a law that affects existing contracts.

    And yet, the words of the contracts clause don’t actually draw that distinction. Even with the courts confining this provision to retrospective effect, they realized that this reading was still too broad. What if a new pollutant has some serious side effect like turning everyone’s hair green? And what if a company had contracted to dispose of the pollutant in Colorado waters? Must the state stand aside and let all our hair turn green?

    Here’s an actual case from 1987: Keystone Bituminous Coal Ass’n v. DeBenedictis. A coal company had the rights to mine coal under a town. The state passed a statute saying coal mining operations had to leave enough coal to keep the towns above from falling down into a black pit. The coal company didn’t like the fact that this meant their investment would probably lose money. So they sued.

    The coal company wasn’t heartless; they didn’t intend to actually destroy the town. They asked that the state be made to reimburse them. But what if the coal company had been heartless? Did the state have no power to prevent its towns from falling down black holes?

    No. The court held in Keystone that “[I]t is well settled that the prohibition against impairing the obligation of contracts is not to be read literally.” The law was not held to be an impairment of contracts that ran afoul of the obligation of contracts provision, so the state did not have to reimburse the company.

    Another 1980s case, Energy Reserves Group, Inc. v. Kansas City Power & Light Co., sets forth a test to harmonize the obligations-of-contracts clause with a state’s legislative power. To prevail, the person seeking relief must first show that there has been a substantial impairment of a contractual relationship. If the law constitutes a substantial impairment, then the state may justify the law by showing that the impairment serves a significant and legitimate public purpose. If such a purpose exists, then a court should analyze whether the legislation is reasonably and appropriately related to the purpose. If the court gets to the last test, they are going to be very deferential. If a reasonable person could think that the law affects the public purpose, they won’t second guess the law. So if the law isn’t goofy, the court will uphold it.

    But, as in the case that began this post, the courts are going to be extra strict if a state seeks to get out of its own obligations.