Colorado Supreme Court Upholds School Finance Act

Sherman & Howard L.L.C. Attorneys Successfully Argue that Mill Levy "Freeze" Does Not Violate the Taxpayers Bill of Rights

On March 16, 2009, the Colorado Supreme Court issued its opinion in Mesa County Board of County Commissioners v. State of Colorado, which declared that revisions to the School Finance Act in 2007 that increased local funding for schools did not violate Article X, Section 20 of the Colorado Constitution, also known as The Taxpayers Bill of Rights or "TABOR." Sherman & Howard represented the Colorado Department of Education, which, together with the State of Colorado and Governor Ritter, defended the law before the court.

Prior to the 2007 revisions, the School Finance Act required that each school district set its mill levy in accordance with the property tax revenue limit from TABOR. This limit applied even if the voters within the school district had approved a "debrucing" ballot issue authorizing the district to retain and spend revenues beyond TABOR limits. As of the date of the School Finance Act revisions, voters in 174 of the state's 178 school districts had approved a "debrucing" issue. The pre-2007 law resulted in a steady decrease in school district mill levies and a steady increase in the amount of funding the state was required to provide for primary and secondary education. In 2007, the General Assembly revised the law so that school districts whose voters had "debruced" were no longer required to decrease their mill levies as if the TABOR limit applied. Instead, the mill levy would be determined using a new formula, which resulted in most school district mill levy calculations remaining the same as the prior year. For this reason, the revisions became commonly known as the mill levy "freeze."

Several plaintiffs filed a suit challenging this law, stating that the 2007 revisions were invalid under TABOR without first being approved at an election. By a vote of six to one, the Colorado Supreme Court disagreed with the plaintiffs. The court addressed each potential TABOR violation as follows:

"Tax Policy Change." Section 4(a) of TABOR generally requires that "districts must have voter approval in advance for . . . a tax policy change directly causing a net tax revenue gain to any district." For TABOR purposes, a "district" includes the state and most local government entities. The plaintiffs argued that the School Finance Act revisions were a tax policy change that resulted in additional property tax revenues flowing to the school districts, and, therefore, the revisions required voter approval under TABOR. The court recognized that the "tax policy change" language in TABOR had not been previously interpreted, so set out to provide some "workable parameters" for its application. The court held that this language only applies to tax policy changes that will have a significant impact on government revenues, not actions with only a minimal or "de minimis" effect. To provide workable parameters for governments, the court held that a government act will only constitute a "tax policy change" requiring an election under TABOR if that act will cause the government to receive revenues above its revenue limit governed by Section 7 of TABOR. A tax policy change that will increase government revenues, but will not cause the government to exceed its TABOR revenue limit, does not require an election under TABOR.

In the case of the School Finance Act revisions, the court stated that, although the school districts would be receiving revenue in excess of their TABOR limits, the original "debrucing" election was sufficient to authorize the change. Thus, a second local election was not required. Likewise, the court held that the relevant governmental unit for TABOR analysis was the local government, not the state government. Therefore, no "tax policy change" occurred at the state level that would require a statewide vote. The court specifically rejected the argument that the phrase "tax policy change directly causing a net tax revenue gain to any district" (emphasis added) means that state law changes that increase local tax revenues require voter approval at the state level.
Property Tax Revenue Limit. Section 7(c) of TABOR generally states that a government's annual property tax revenue may not increase at a rate greater than the population growth and inflation within the government without voter approval. The plaintiffs argued that the School Finance Act revisions violated this provision by authorizing school districts to receive revenue beyond that limit by "freezing" their mill levies. The court disagreed and held that the previous "debrucing" elections were sufficient to approve the modifications to the school district mill levies resulting from the 2007 law. The court explained that a "debrucing" election question is not required to specifically mention property taxes to waive the limitation from Section 7(c) of TABOR. The school district "debrucing" measures allowed each district to retain "all revenue" or its "full revenue" from "any source" without regard to TABOR limitations. The court held that this was sufficient to waive the school district's property tax limit under TABOR. In addition, the court stated that the broadly-worded waiver of TABOR's revenue limits authorized the school districts to set their mill levies in accordance with the School Finance Act revisions even though certain of the ballot materials that accompanied the "debrucing" election questions suggested that property taxes would not be affected. The court held that materials other than the text of the ballot question were not relevant to interpreting the meaning of the question if the language was clear, and, in the case of the "debrucing" questions, the voters clearly authorized the school districts to retain and spend all revenues from all sources. Finally, the court held that the delay between the "debrucing" elections and the actual collection of additional revenues pursuant to the revisions to the School Finance Act did not prevent the school districts from fully implementing their "debrucing" elections at the later date.
"Other Limits" on Revenue, Spending and Debt. Section (1) of TABOR states that "[o]ther limits on district revenue, spending, and debt may be weakened only by future voter approval." The plaintiffs argued that the revisions to the School Finance Act weakened such a limit when it removed the requirement that school districts lower their mill levies as if their TABOR revenue limits were applicable. The court held that this statutory requirement was not an "other limit," but instead was simply a "reference" to the TABOR limit itself. Treating the reference to the TABOR limit as a separate "other limit" would have created an "unnecessary redundancy." The court stated that this would be contrary to the common and ordinary meaning of the TABOR reference, and, therefore, held that there was no "other limit" applicable to the case.

The Colorado Supreme Court ordered the lower court to enter judgment in favor of the state, the Governor, and the Department of Education. As a result, Colorado school districts may retain the $117 million in additional revenue that has already been collected based upon the 2007 revisions, as well as the estimated $1.7 billion expected to be collected over 11 years.

Press Release

If you have any questions regarding this decision or its possible impact on your activities and operations, please contact your Sherman & Howard attorney or one of the attorneys in our Public Finance Group.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2009 Sherman & Howard L.L.C. March 17, 2009

	Contact Us Services Attorneys News and Events Publications About the Firm Inclusiveness Careers Blog In the Media Events and Registration Press Releases Speaking Engagements Articles Client Advisories Subscriptions History Offices Pro Bono Interlaw Contact Us Culture Legal Opportunities Support Staff Publications Client Advisories Home > Publications > Client Advisories > View Colorado Supreme Court Upholds School Finance Act Sherman & Howard L.L.C. Attorneys Successfully Argue that Mill Levy "Freeze" Does Not Violate the Taxpayers Bill of Rights On March 16, 2009, the Colorado Supreme Court issued its opinion in Mesa County Board of County Commissioners v. State of Colorado, which declared that revisions to the School Finance Act in 2007 that increased local funding for schools did not violate Article X, Section 20 of the Colorado Constitution, also known as The Taxpayers Bill of Rights or "TABOR." Sherman & Howard represented the Colorado Department of Education, which, together with the State of Colorado and Governor Ritter, defended the law before the court. Prior to the 2007 revisions, the School Finance Act required that each school district set its mill levy in accordance with the property tax revenue limit from TABOR. This limit applied even if the voters within the school district had approved a "debrucing" ballot issue authorizing the district to retain and spend revenues beyond TABOR limits. As of the date of the School Finance Act revisions, voters in 174 of the state's 178 school districts had approved a "debrucing" issue. The pre-2007 law resulted in a steady decrease in school district mill levies and a steady increase in the amount of funding the state was required to provide for primary and secondary education. In 2007, the General Assembly revised the law so that school districts whose voters had "debruced" were no longer required to decrease their mill levies as if the TABOR limit applied. Instead, the mill levy would be determined using a new formula, which resulted in most school district mill levy calculations remaining the same as the prior year. For this reason, the revisions became commonly known as the mill levy "freeze." Several plaintiffs filed a suit challenging this law, stating that the 2007 revisions were invalid under TABOR without first being approved at an election. By a vote of six to one, the Colorado Supreme Court disagreed with the plaintiffs. The court addressed each potential TABOR violation as follows: "Tax Policy Change." Section 4(a) of TABOR generally requires that "districts must have voter approval in advance for . . . a tax policy change directly causing a net tax revenue gain to any district." For TABOR purposes, a "district" includes the state and most local government entities. The plaintiffs argued that the School Finance Act revisions were a tax policy change that resulted in additional property tax revenues flowing to the school districts, and, therefore, the revisions required voter approval under TABOR. The court recognized that the "tax policy change" language in TABOR had not been previously interpreted, so set out to provide some "workable parameters" for its application. The court held that this language only applies to tax policy changes that will have a significant impact on government revenues, not actions with only a minimal or "de minimis" effect. To provide workable parameters for governments, the court held that a government act will only constitute a "tax policy change" requiring an election under TABOR if that act will cause the government to receive revenues above its revenue limit governed by Section 7 of TABOR. A tax policy change that will increase government revenues, but will not cause the government to exceed its TABOR revenue limit, does not require an election under TABOR. In the case of the School Finance Act revisions, the court stated that, although the school districts would be receiving revenue in excess of their TABOR limits, the original "debrucing" election was sufficient to authorize the change. Thus, a second local election was not required. Likewise, the court held that the relevant governmental unit for TABOR analysis was the local government, not the state government. Therefore, no "tax policy change" occurred at the state level that would require a statewide vote. The court specifically rejected the argument that the phrase "tax policy change directly causing a net tax revenue gain to any district" (emphasis added) means that state law changes that increase local tax revenues require voter approval at the state level. Property Tax Revenue Limit. Section 7(c) of TABOR generally states that a government's annual property tax revenue may not increase at a rate greater than the population growth and inflation within the government without voter approval. The plaintiffs argued that the School Finance Act revisions violated this provision by authorizing school districts to receive revenue beyond that limit by "freezing" their mill levies. The court disagreed and held that the previous "debrucing" elections were sufficient to approve the modifications to the school district mill levies resulting from the 2007 law. The court explained that a "debrucing" election question is not required to specifically mention property taxes to waive the limitation from Section 7(c) of TABOR. The school district "debrucing" measures allowed each district to retain "all revenue" or its "full revenue" from "any source" without regard to TABOR limitations. The court held that this was sufficient to waive the school district's property tax limit under TABOR. In addition, the court stated that the broadly-worded waiver of TABOR's revenue limits authorized the school districts to set their mill levies in accordance with the School Finance Act revisions even though certain of the ballot materials that accompanied the "debrucing" election questions suggested that property taxes would not be affected. The court held that materials other than the text of the ballot question were not relevant to interpreting the meaning of the question if the language was clear, and, in the case of the "debrucing" questions, the voters clearly authorized the school districts to retain and spend all revenues from all sources. Finally, the court held that the delay between the "debrucing" elections and the actual collection of additional revenues pursuant to the revisions to the School Finance Act did not prevent the school districts from fully implementing their "debrucing" elections at the later date. "Other Limits" on Revenue, Spending and Debt. Section (1) of TABOR states that "[o]ther limits on district revenue, spending, and debt may be weakened only by future voter approval." The plaintiffs argued that the revisions to the School Finance Act weakened such a limit when it removed the requirement that school districts lower their mill levies as if their TABOR revenue limits were applicable. The court held that this statutory requirement was not an "other limit," but instead was simply a "reference" to the TABOR limit itself. Treating the reference to the TABOR limit as a separate "other limit" would have created an "unnecessary redundancy." The court stated that this would be contrary to the common and ordinary meaning of the TABOR reference, and, therefore, held that there was no "other limit" applicable to the case. The Colorado Supreme Court ordered the lower court to enter judgment in favor of the state, the Governor, and the Department of Education. As a result, Colorado school districts may retain the $117 million in additional revenue that has already been collected based upon the 2007 revisions, as well as the estimated $1.7 billion expected to be collected over 11 years. Press Release If you have any questions regarding this decision or its possible impact on your activities and operations, please contact your Sherman & Howard attorney or one of the attorneys in our Public Finance Group. Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation. © 2009 Sherman & Howard L.L.C. March 17, 2009 Copyright 2000-2013 Sherman & Howard L.L.C. All rights reserved. Privacy Policy \| Terms of Use