Republicans came into the Colorado General Assembly’s 2017 special session pretty irritated with the whole business, and a little after lunch time on Monday, GOP state senators had already killed one bill that would fix the mistake for which the special session was called.
The tax problem in question is expected to cost special taxing districts around the state a collective $4.3 million this fiscal year and $8.5 million in the next fiscal year, with most of the loss coming from the Regional Transportation District.
There’s still a live bill in the Democratic-controlled House and an opportunity for this to turn out differently, but it’s not a bet I would take.
Why are legislators meeting and why is this controversial?
Let’s go back to the beginning.
The problem for which Gov. John Hickenlooper called legislators back to Denver comes from Senate Bill 267, the most significant piece of legislation from the previous session. It reclassified the hospital provider fee into an enterprise fund and, along with a bunch of other budget changes that were still being rewritten in the final days of the session, got rid of the 2.9 percent regular state sales tax on marijuana to reduce the impact of increasing the special sales tax on marijuana to the full 15 percent approved by voters.
But there was a casualty of the bill’s language around that marijuana tax change. The sales taxes collected on marijuana by special taxing districts like the RTD, the Scientific and Cultural Facilities District and a host of transportation, housing and hospital districts in rural Colorado were also eliminated. This change wasn’t part of the debate on the bill or identified in the fiscal note, and people in both parties agree it was a mistake.
Democrats have a simple argument in favor of a fix: This was a mistake, and we should fix our mistakes.
“We have a simple fix at our fingertips,” Speaker of the House Crisanta Duran said. “We’re ready to make sure we fix this unintentional omission, that all of the bill’s sponsors, Republicans and Democrats, have recognized was an unintentional omission.”
Republicans have two objections, one that this issue isn’t urgent enough to merit a special session and could have waited until the legislature reconvened in January (Senate President Kevin Grantham called it a “so-called emergency”) and the other, perhaps more significant, that it would be unconstitutional for the legislature to reinstate the taxes.
The Taxpayer’s Bill of Rights requires that tax increases and changes in tax policy that result in increases in revenue must be approved by the voters. Under this view, RTD, SCFD and so on should all go to their voters and seek permission to tax marijuana — even though voters in these districts already approved these sales taxes. The legislature can lower taxes but not raise them.
“There was a decrease in net revenue for these districts,” Senate Majority Leader Chris Holbert said. “We have the constitutional authority to remove a tax, to decrease a tax rate, to reduce revenue. We have the constitutional authority in Colorado to do that. But the constitution says that we don’t have the constitutional authority to reverse those things.
“Could those districts put up a question on the ballot asking the voters in their districts for permission to assess their additional tax on recreational marijuana? … I think they could and we would not have to do anything. But the argument is can we fix the mistake? This was not intentional, but I don’t see anything in the constitution that says we get a free pass, a do-over, if it wasn’t intentional. I do see the constitution saying we don’t have the authority to fix the problem by increasing revenue to the districts — even though it was a mistake.”
Is TABOR this clear cut and this strict?
Democrats say Colorado courts have found that the legislature can make certain tweaks without going to the voters if the change doesn’t increase revenue above the TABOR cap. In a 2009 case, Mesa County Board of County Commissioners vs. State of Colorado, the Colorado Supreme Court found that changes to school financing at the state level that prevented local mill levies from going down were constitutional and did not have to go to the voters.
University of Colorado professor Richard Collins told legislators the bill fixing the mistake is constitutional. Inadvertent mistakes don’t trigger a requirement for a TABOR election.
House Majority Leader K.C. Becker said elections aren’t free to the districts, and it’s not fair to tell the districts to take that on when the legislature created the problem.
Before the House Finance Committee, she laid out what she called a “compelling” set of facts.
“We have voters who have approved these taxes multiple times, we have the legislature that overrode that intent by mistake, we have special districts coming to us asking us to fix it and we have case law on our side,” she said.
On Monday afternoon, the Senate Transportation Committee rejected the senate version of the bill that would fix the mistake on a party line vote. The House Transportation Committee approved their version of the bill, which then received initial approval from the full House.
The House will hold a recorded vote on Tuesday. Because Democrats control the House and because they’re committed to making this change, they’ll almost certainly send their bill over to the Senate. However, with Republicans in charge of the Senate, it’s not likely the bill will become law — unless leadership has a serious change of heart in the next two days.
What’s the impact of all this?
RTD is missing out on about $500,000 a month. The agency hasn’t made service cuts yet, and officials told legislators that would be their last resort. The amount of money at stake is the equivalent of service for 4,500 to 5,000 riders.
RTD’s annual operating budget is about $626 million, so this is not a huge amount of money for them. However — and this is true for all the districts — the loss is expected to get bigger over time as the district isn’t able to take advantage of increasing marijuana sales. According to a fiscal analysis by state economists, the loss would be $7.4 million in the 2018-19 fiscal year and $8 million in the year after that.
Officials with the SCFD said the $700,000 their district would lose next fiscal year would be felt most keenly by the small community arts organizations that make do on tight budgets already. Voters in the six counties that pay into the SCFD just approved an extension of that tax in 2016 — with the assumption that the tax would apply to marijuana along with other goods.
The loss of marijuana tax revenue is also worth tens of thousands of dollars to districts in rural parts of the state — $111,000 to the Summit Combined Housing Authority, $79,000 to the Montezuma Hospital District and $154,000 to the Aspen-based Roaring Fork Regional Transportation Authority.