Taming Tabor by Working from Within

• Publication year: 2003
• Pages: 101

32 Colo.Law. 101 Colorado Lawyer 2003.

2003, July, Pg. 101. Taming TABOR by Working From Within

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101

Vol. 32, No. 7, Pg. 101

The Colorado Lawyer
July 2003
Vol. 32, No. 7 [Page 101]

Specialty Law Columns
Government and Administrative Law News
Taming TABOR by Working From Within
by Paul C. Rufien

This column provides information to attorneys dealing with various state and federal administrative agencies, as well as attorneys representing public or private clients in the areas of municipal, county, and school or special district law

Column Editors

Carolynne C. White of the Colorado Municipal League - (303) 831-6411; Brad Bailey, Assistant City Attorney, City of Littleton - (303) 795-3725; Tiffanie Bleau, Denver, an attorney with Light, Harrington & Dawes, P.C. - (303) 298-1601, tbleau@lhdlaw.com

About The Author

This month's article was written by Paul C. Rufien, Denver, who represents special districts, other local government entities, and nonprofit corporations in Colorado. He practices under the firm name of Paul C. Rufien, P.C. and also serves as special counsel to the firm of Duncan, Ostrander & Dingess, P.C. - (303) 779-0200, paulrufien@aol.com.

Fears regarding TABOR have largely gone unrealized at the local level. Local governments' use of enterprises and voter-authorized exceptions allow continuing efficient fiscal management.

Few developments have caused greater trepidation or set in motion such prolonged scrutiny and analysis within Colorado governmental entities than the passage in 1992 of the "Taxpayer's Bill of Rights" ("TABOR").1 TABOR added Article X, § 20, to the Colorado Constitution. The express intention of TABOR is to "reasonably restrain most the growth of government."2 In addition to certain procedural requirements, such as election provisions, TABOR imposes spending and revenue limitations on local governments in Colorado.3

TABOR was the subject of exhaustive analysis and interpretation before its passage and has been the subject of legal commentary since becoming law.4 Inordinate amounts of time, expense, and energy have been devoted by government lawyers, accountants, and administrators in an attempt to determine the meaning of various TABOR provisions. Concern over what were perceived to be dire and potentially crippling financial consequences have led local government officials and consultants to search for ways to continue effective fiscal management under TABOR. However, that search need not have led beyond the pages of TABOR itself.

The state of Colorado itself is constrained by the size of its budget; the litany of economic forces affecting various components of that budget; and the unwieldy nature of any potentially beneficial ballot issue, which would have to be passed via a statewide vote. Unlike the state, local governments are better able to avail themselves of mechanisms within TABOR to ease the potential impacts of its revenue and spending limitations.

Since 1993, the Colorado appellate courts have reviewed a steady stream of cases involving TABOR. Two issues have received particular attention from the courts: (1) "enterprises" under TABOR;5 and (2) voter-authorized exemptions from TABOR.6 Through evolution via judicial analyses, the treatment of these two issues has provided local governments with a means to function effectively within the confines of TABOR.

This article does not rehash previous analyses; the article is intended to be part of the continuing discussion of local government operations under TABOR. It examines TABOR "enterprises" and voter-authorized exemptions. Through these two issues, the blueprint for avoiding unnecessary financial limitations for local governments is unfolded.

Definition of "Enterprise" Under TABOR

"Enterprises" are expressly excluded from the election requirements and other limitations of TABOR, which apply to "districts." TABOR defines districts as "the state or any local government, excluding enterprises."7 (Emphasis added.) Further, the TABOR definition of an enterprise is:

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.8

Under TABOR, an enterprise is not a separate legal entity. It is a function of accounting and a component of the government entity as a whole. In every respect, the enterprise remains a part of the government within which it operates. The board, council, or commissioners of the government entity remain the governing body of the enterprise. Governmental immunity as to operations of the enterprise, public records, and open meetings laws are applicable, and auditing of and budgeting for the enterprise occurs through the statutory mandates applicable to the government.

Resolution or Ordinance to Create an Enterprise

A government entity does not have to take any specific action to create an enterprise. Enterprise status, and the accompanying exclusion from the provisions of TABOR, is a de facto determination. Ultimately, the determination of enterprise status will be made by an examination of the facts applied over a one-year period.

Nonetheless, both legally and practically, it can be useful and is advisable for the governing body to adopt a resolution or ordinance creating an enterprise or multiple enterprises. Such a formal expression of the governing body's intent can be a persuasive underlying resource in the event of any challenge as to an enterprise's validity. Other benefits of such a resolution or ordinance are identified in the following discussion of the four-part test for defining an "enterprise."

Four-Part Enterprise
Criteria Test

The TABOR definition of an enterprise9 sets forth three separate criteria that must be satisfied. Under TABOR, an enterprise must be: (1) a government-owned business; (2) authorized to issue its own revenue bonds; and (3) receiving less than 10 percent of annual revenue in grants from all Colorado state and local governments combined.10

The Colorado Supreme Court further delineated whether an enterprise is a government-owned business in Nicholl v. E-470 Public Highway Authority.11 According to Nicholl, it must be determined whether the enterprise is both "government-owned" and a "business," given the ordinary meaning and understanding of those terms.12 Thus, TABOR itself and Nicholl combine to establish a four-part test to determine the validity of an enterprise:

1. Is the enterprise government owned?

2. Is the enterprise a business?

3. Does the enterprise have the authority to issue its own revenue bonds?

4. Does the enterprise receive less than 10 percent of its annual revenue in grants from all Colorado state and local governments combined?13

No appellate case law has devoted significant analysis to the four-part test regarding enterprises since Nicholl. However, a district court case in Archuleta County encompassed every aspect of the enterprise analysis. That case, Alpine Cascade Corp. et al. v. Pagosa Area Water and Sanitation District,14 settled prior to trial, but after summary judgment was granted regarding three of the four parts of the enterprise test.15 Although partial summary judgment at the district court level does not rise to the level of precedent in the state, the district court's treatment is a significant indicator as to how other courts may treat the same issues.

Part 1: Government-Owned

The first criterion of the four-part test is the requirement that the enterprise be government-owned.16 When ownership and control of an enterprise's assets and operations are with the government, the enterprise is considered "government-owned."17 By contrast, for an enterprise not to be government-owned, the forming entity would have to divest itself of either ownership or control of the enterprise's assets or operations. To do so would unnecessarily complicate the structure of the enterprise more significant, it would be fatal to the validity...