COLORADO COURT OF APPEALS 2 East 14th Avenue Denver, Colorado 80203

District Court of Denver County Judge Michael Martinez Case No. 2012CV3113

Appellant: TABOR FOUNDATION, a Colorado non-profit corporation, v. Appellees: COLORADO BRIDGE ENTERPRISE; COLORADO TRANSPORTATION COMMISSION; TREY ROGERS, GARY M. REIFF, HEATHER BARRY, KATHY GILLILAND, KATHY CONNELL, DOUGLAS ADEN, STEVE PARKER, LES GRUEN, GILBERT ORTIZ, EDWARD J. PETERSON, all in their official capacities as members of the Colorado Transportation Commission.

COURT USE ONLY

James M. Manley (Atty. Reg. No. 40327) Steven J. Lechner (Atty. Reg. No. 19853) MOUNTAIN STATES LEGAL FOUNDATION 2596 S. Lewis Way Lakewood, Colorado 80227 (303) 292-2021 (303) 292-1980 (facsimile) jmanley@mountainstateslegal.com lechner@mountainstateslegal.com

Case No.: 13CA1621

REPLY BRIEF

DATE FILED: April 2, 2014 4:57 PM FILING ID: F72CFFDFD8EC2 CASE NUMBER: 2013CA1621

CERTIFICATE OF COMPLIANCE

I hereby certify that this brief complies with all requirements of C.A.R. 28

and C.A.R. 32, including all formatting requirements set forth in these rules.

Specifically, the undersigned certifies that:

The brief complies with C.A.R. 28(g). It contains 5,678 words, as reported

by the word processing system used to prepare the brief.

/s/ James M. Manley James M. Manley

i

TABLE OF CONTENTS Page

TABLE OF AUTHORITIES .................................................................. iii SUMMARY OF THE ARGUMENT ..................................................... 1 ARGUMENT .......................................................................................... 2 I. THE BRIDGE SURCHARGE IS A TAX REQUIRING

VOTER APPROVAL BECAUSE IT DOES NOT FINANCE A PARTICULAR SERVICE UTILIZED BY THOSE WHO MUST PAY THE CHARGE ............................... 2

A. Taxes Collected For A Specific Purpose Are Still

Taxes Subject To Voter Approval Under TABOR ............ 4 B. A Fee Payer Must Utilize The Service Financed—

Hypothetical Benefits Cannot Transform A Tax Into A Fee .................................................................................. 6

II. THE CBE DOES NOT OPERATE AS A TABOR

ENTERPRISE BECAUSE IT HAS THE POWER TO TAX AND HAS RECEIVED EXCESSIVE GRANTS FROM THE STATE ................................................................................. 11

A. TABOR Enterprises Cannot Have The Power To Tax ...... 12 B. TABOR Enterprises Cannot Receive More Than Ten

Percent Of Annual Revenue From The State ..................... 15

1. By its own terms, C.R.S. § 24-77-102 does not control the meaning of TABOR’s grant limitation .................................................................. 16

2. The Colorado Supreme Court has determined

the meaning of TABOR’s grant limitation .............. 17

ii

C. The CBE Lost Enterprise Status Because It Received More Than Ten Percent Of Annual Revenue In Grants From The State ................................................................... 18

1. “Budgetary authority” is a grant .............................. 18

2. The 56 bridges the CBE received from CDOT were a grant .............................................................. 20

i. TABOR requires grants to be valued

accurately ....................................................... 20

ii. The bridge valuation expert’s uncontested opinion was correct—the CBE undervalued the bridges ........................ 23

CONCLUSION ....................................................................................... 24

iii

TABLE OF AUTHORITIES

CASES Page Anema v. Transit Const. Authority, 788 P.2d 1261 (Colo. 1990) ............................................................... 8 Arapahoe Partnership v. Bd. of County Com’rs, 813 P.2d 766 (Colo. Ct. App. 1990) .................................................. 23 Barber v. Ritter, 196 P.3d 238 (Colo. 2008) ................................................................. passim Bloom v. Fort Collins, 784 P.2d 304 (Colo. 1989) ................................................................. 7 Board of County Com’rs v. Vail Associates, Inc., 19 P.3d 1263 (Colo. 2001) ................................................................. 17 Bruce v. City of Colorado Springs, 131 P.3d 1187 (Colo. Ct. App. 2005) ................................................ 9–10 Bruce v. Pikes Peak Library Dist., 155 P.3d 630 (Colo. Ct. App. 2007) .................................................. 14 City and County of Denver v. State, 788 P.2d 764 (Colo. 1990) ................................................................. 17 Delta Sales Yard v. Patten, 892 P.2d 297 (Colo. 1995) ................................................................. 16 Frazier v. People, 90 P.3d 807 (Colo. 2004) ................................................................... 18 H.L. Johnson v. Bd. of County Comm’rs of Morgan County, 336 P.2d 300 (Colo. 1959) ................................................................. 23

iv

Krupp v. Breckenridge Sanitation Dist., 19 P.3d 687 (Colo. 2001) ................................................................... 6–7 Loup-Miller Const. Co. v. City and County of Denver, 676 P.2d 1170 (Colo. 1984) ............................................................... 8–9 Magin v. Division of Employment, 899 P.2d 369 (Colo. Ct. App. 1995) .................................................. 13 Nicholl v. E-470 Public Highway Authority, 896 P.2d 859 (Colo. 1995) ................................................................. passim Students for Concealed Carry on Campus v. Regents of University

of Colorado, 280 P.3d 18 (Colo. Ct. App. 2010) .............................. 10 Submission of Interrogatories on Senate Bill 93-74, 852 P.2d 1 (Colo. 1993) ..................................................................... 2 Yeager v. Quinn, 767 P.2d 766 (Colo. Ct. App. 1988) .................................................. 16 CONSTITUTIONAL PROVISIONS Colo. Const. art. X, § 20(2)(b) ................................................................ 11 Colo. Const. art. X, § 20(2)(d) ................................................................ 15 Colo. Const. art. X, § 20(4)(b) ................................................................ 11 Colo. Const. art. X, § 20(7) .................................................................... 16 STATUTES C.R.S. § 24-77-101 ................................................................................. 16, 17, 23 C.R.S. § 24-77-101(2)(a) ........................................................................ 16 C.R.S. § 24-77-101(2)(d) ........................................................................ 22

v

C.R.S. § 24-77-101(2)(e) ........................................................................ 22 C.R.S. § 24-77-101(2)(f) ........................................................................ 21 C.R.S. § 24-77-102 ................................................................................. 15–20 C.R.S. § 24-77-102(7)(a) ........................................................................ 20, 22 C.R.S. § 24-77-102(7)(b)(III) ................................................................. 19 C.R.S. § 39-10-107(1)(a) ........................................................................ 14 C.R.S. § 43-1-210 ................................................................................... 22 C.R.S. § 43-1-210(5)(a) .......................................................................... 21–22 C.R.S. § 43-1-210(5)(a)(II) ..................................................................... 21 C.R.S. § 43-4-805(2)(a)(I) ...................................................................... 10 OTHER AUTHORITIES City of Colorado Springs Streetlights FAQ, available at https://www.springsgov.com/units/communications/Streetlights_FAQ_Final.pdf ............................................................................................. 10 Gregory J. Hobbs, Jr., Water Activity Enterprises, 22 Colo. Law. 2555 (Dec. 1993) .................................................................................... 20 Op. Att’y Gen. No. 95-07 (Dec. 22, 1995) ............................................. 12, 14 Op. Att’y Gen. No. 05-03 (Jul. 29, 2005) ............................................... 19 Paul C. Rufien, Taming TABOR by Working From Within, 32 Colo. Law. 101 (July 2003) .................................................................... 18, 20

1

SUMMARY OF THE ARGUMENT

The bridge surcharge levied by the Colorado Bridge Enterprise (“CBE”)

against every vehicle in Colorado is a tax requiring voter approval under the

Taxpayer’s Bill of Rights (“TABOR”). The bridge surcharge cannot qualify as a

TABOR-exempt fee because it is not assessed in direct relation to services

provided to vehicles utilizing the CBE’s bridges.

The CBE’s argument that the bridge surcharge is not a tax ignores the

relevant law. Revenue collected for a particular purpose is still tax revenue, unless

it finances a particular service utilized by those assessed. Hypothetical services

that might be utilized by taxpayers are not enough to transform a tax into a

TABOR-exempt fee. The bridge surcharge is therefore a tax requiring voter

approval.

The CBE also requires voter approval before it can issue bonds, because it

does not operate as a TABOR business enterprise. TABOR enterprises cannot

have the power to tax, which the CBE does. TABOR enterprises cannot receive

grants from the State totaling more than ten percent of annual revenue, which the

CBE did. Finally, non-cash grants to TABOR enterprises must be accurately

valued; the grants at issue here were radically undervalued. The CBE’s reliance on

2

inapposite statutory provisions to undermine the purpose of TABOR’s enterprise

definition is unavailing. The CBE does not qualify as a TABOR enterprise.

It may be that Colorado needs more funding to repair bridges. That issue is

not part of this appeal. The only issue in this case is whether the CBE violated

TABOR when it raised revenue to fund bridge repairs without first obtaining voter

approval. TABOR “was designed to protect citizens from unwarranted tax

increases,” by requiring a simple procedural check: new taxes and debt require

voter approval. Submission of Interrogatories on Senate Bill 93-74, 852 P.2d 1, 4

(Colo. 1993). All the CBE had to do was ask voters. If the condition of

Colorado’s transportation infrastructure is truly dire, the CBE should have an easy

time convincing voters to approve new taxes and debt—in compliance with the

Colorado Constitution.

ARGUMENT I. THE BRIDGE SURCHARGE IS A TAX REQUIRING VOTER

APPROVAL BECAUSE IT DOES NOT FINANCE A PARTICULAR SERVICE UTILIZED BY THOSE WHO MUST PAY THE CHARGE.

The central question in this appeal is whether the bridge surcharge is a tax

subject to voter approval under TABOR, or rather a TABOR-exempt fee. The

bridge surcharge is not a TABOR-exempt fee because it does not “finance a

particular service utilized by those who must pay the charge.” Barber v. Ritter,

3

196 P.3d 238, 249 (Colo. 2008); Nicholl v. E-470 Public Highway Authority, 896

P.2d 859, 869 (Colo. 1995) (a fee is assessed in “direct relation to services

provided . . . .”). No vehicle assessed the bridge surcharge is entitled to a specific

service, apart from the communal benefit that new bridges provide to the general

public. Least of all vehicles that only operate in counties where the CBE does not.

The CBE does not dispute this, instead asserting that: (1) as long as revenue

is collected for a particular purpose, it cannot be tax revenue; and (2) a

hypothetical service that might be utilized by taxpayers transforms a tax into a

TABOR-exempt fee. Neither argument comports with Colorado law. The CBE

never applies the full test of a TABOR-exempt fee. Instead, it cuts off the part of

the test that does not fit the facts here: that the service financed is “utilized by

those who must pay the charge.” Barber, 196 P.3d at 249; Nicholl, 896 P.2d at

869; Answer Br. at 14.

The facts of this case illustrate one example of the mismatch between the

bridge surcharge and the CBE’s services. The TABOR Foundation members who

testified in this case live hundreds of miles from any CBE bridge and have paid the

bridge surcharge for vehicles that have never crossed a CBE bridge. Tr. vol. I. at

27, 29, 54–55, 64. Indeed, it would be unsafe for these vehicles to travel far

enough to encounter a CBE bridge because of the vehicles’ ages. Tr. vol. I. at 27,

4

29, 79–80 (“It’s going to start to redline as I approach that speed [60 miles per

hour].”). Although the CBE goes to great lengths arguing that it is possible for

these vehicles to use a CBE bridge, there is no evidence that they have, or that it is

even likely that they will. Id. at 28, 34–35, 54–55, 66–67, 77. Vehicles that never

come within miles of a CBE bridge cannot be said to utilize the CBE’s services;

the bridge surcharge is therefore a tax, not a TABOR-exempt fee.1

A. Taxes Collected For A Specific Purpose Are Still Taxes Subject To Voter Approval Under TABOR.

The CBE argues that the distinction between a TABOR-exempt fee and a tax

is whether “the legislative body’s primary purpose was to finance a particular

service or general governmental spending.” Answer Br. at 14. This is wrong

because it drops a critical component of the test: “If the language discloses that the

primary purpose for the charge is to finance a particular service utilized by those

who must pay the charge, then the charge is a ‘fee.’” Barber, 196 P.3d at 249

(emphasis added); Nicholl, 896 P.2d at 869. The CBE quotes the complete test

1 The CBE faults the TABOR Foundation for not putting on witnesses to refute the CBE’s theory that these vehicles might travel across a CBE bridge. Answer Br. at 22 n.3. But the CBE had equal opportunity to call those witnesses and did not. The only record evidence is that the individuals who testified have not used, have no plans to use, have no reason to believe that they have been used, and would not allow these vehicles to be used to cross any bridges programmed by the CBE. Tr. vol. I. at 28, 34–35, 54–55, 66–67, 77.

5

immediately before making its misstatement, but its error pervades its analysis.

See Answer Br. at 13. Instead of applying the Barber test as written, the CBE

applies its incorrect version. Id. at 11–15. As a consequence, all the CBE argues

is that the bridge surcharge is collected to fund bridges and is deposited in a special

account. Answer Br. at 12–14. But that is undisputed and insufficient to make the

bridge surcharge a TABOR-exempt fee. Inconvenient as it may be, the CBE

cannot change the requirement that fees must “finance a particular service utilized

by those who must pay the charge” by altering the case law to suit the facts of this

case.

Barber and Nicholl also make clear that whether the bridge surcharge is

deposited into the General Fund has no bearing on its character as a fee or a tax.

Contra Answer Br. at 12–13. Nicholl is most directly on point, since the court

concluded that revenue collected solely to fund E-470 operations was nevertheless

tax revenue for purposes of TABOR. 896 P.2d at 868–69. In Barber, the court

held that transferring fee revenue into the General Fund did not transform those

fees into taxes, because they were still collected to “defray the cost of services

provided to those assessed.” Barber, 196 P.3d at 250. As the CBE silently

concedes, there are numerous taxes that are deposited into special funds and used

for particular purposes. Opening Br. at 21 (collecting examples). These are

6

nevertheless taxes, because, like the bridge surcharge, they are assessed “with no

direct relation to services provided . . . .” Nicholl, 896 P.2d at 869.

B. A Fee Payer Must Utilize The Service Financed—Hypothetical Benefits Cannot Transform A Tax Into A Fee.

Rather than attempt to justify the bridge surcharge under Barber and

Nicholl, the CBE relies on a handful of older, inapposite cases for the proposition

that hypothetical benefits can justify a TABOR-exempt fee. Answer Br. at 16–21.

However, in every case upon which the CBE relies a fee was levied on property

utilizing the services funded. Moreover, only one of those cases actually deals

with TABOR and it is not binding on this Court. These cases offer no support for

the proposition that hypothetical benefits can justify a TABOR-exempt fee.

The CBE’s argument goes off track straightaway with a discussion of Krupp

v. Breckenridge Sanitation Dist., 19 P.3d 687, 690–91 (Colo. 2001), and its

approval of sanitation district fee rates. The instant case has nothing to do with the

bridge surcharge rates, but rather what property can be assessed the surcharge

without voter approval, i.e., all vehicles regardless of their utilization of CBE

bridges. Accordingly, the CBE’s discussion of Krupp is misplaced. Krupp deals

with legislative discretion in “setting of rates,” it has nothing to do with the tax/fee

distinction at the heart of this case. 19 P.3d at 694. Indeed, if Krupp has any

relevance it illustrates that a fee is proper if it is “a charge that was primarily of

7

benefit to the [property owners] and directly related to their project development.”

Id. at 692; see also id. at 690–91 (“The ability to develop land in the Upper Blue

River drainage is directly and inexorably tied to the District’s service function. . . .

[T]he users of the District’s services are together answerable for the cost of

bearing the present and growing load they generate.”) (emphasis added). The use

of a vehicle that never comes within sight of a CBE bridge is in no way “directly

and inexorably tied” to the CBE’s services.

The CBE also places significant weight on Bloom v. Fort Collins, 784 P.2d

304 (Colo. 1989), claiming that the street maintenance fee at issue there had

nothing to do with street usage. Answer Br. at 18. In Bloom, the only properties

assessed were those that actually benefited, because they were developed lots

adjacent to the city streets that were to be repaired by the revenue collected:

The owners and occupants of developed lots subject to the fee receive the benefit of a program of city maintenance calculated to provide effective access to and from residences, buildings, and other areas within the city.

Bloom, 784 P.2d at 310. Moreover, the fee in Bloom was based on usage, because

it “varies with the amount of the lot’s street frontage and the ‘traffic generation

factor’ (or estimated street usage) applicable to the lot.” Id. at 309. It would have

been impossible for the properties charged in Bloom to avoid benefiting from the

fee, because they were physically adjacent to the roads that were being maintained.

8

Many of the vehicles assessed the bridge surcharge never come within miles of a

CBE bridge.

The CBE fares no better under Anema v. Transit Const. Authority, 788 P.2d

1261, 1267 (Colo. 1990), because the CBE ignores who paid the fee in Anema.

The only fee payers were owners of “commercial property within the service area”

and “employers within the service area.” Id. at 1262–63. The CBE acknowledges

that the fee payers received a direct and immediate benefit—not hypothetical or

probabilistic—from the fees they paid in the form of a study that “determin[ed] . . .

the feasibility, contours, and cost of rapid rail transit” in the service area. Anema,

788 P.2d at 1267. Indeed, the only benefit the fee payers could possibly receive

was the plan itself, since the entity collecting the charge lacked the authority to

actually build the system envisioned. Id. at 1263. Anema requires a direct

connection between the fees paid and a benefit that actually accrues to the property

assessed the charge.

Like Anema, the CBE cites Loup-Miller Const. Co. v. City and County of

Denver, 676 P.2d 1170 (Colo. 1984), for a proposition it does not support, because

the CBE again ignores who paid the fee at issue. Answer Br. at 24–25. The fee in

Loup-Miller Const. was charged only to new customers—who had requested that

9

their properties be physically connected to Denver’s sewer system—in order to

defray the cost of accommodating those customers’ use of the sewer:

Ordinance 583 established a “facilities development fee,” a one-time sewer charge to be paid by new customers when they were connected to the city’s sanitary sewer system. According to testimony at trial, this fee was to defray the cost of expanding the system’s treatment capacity for potential increased use by new customers.

Id. That case had nothing to do with the possibility of use, as the CBE suggests,

but rather the certainty that a dwelling connected to a sewer system would use that

sewer in the normal course of human events. Id. at 1174–75. Likewise, the

minimum service fees charged to existing customers were for the actual provision

of sewer services to those charged. Id. at 1175. The CBE gains nothing from

Loup-Miller Const. when its conclusions are placed in context because the fee was

charged to properties physically connected to Denver’s sewer system; that those

properties would utilize the sewer should not need further explication.

The only TABOR case on which the CBE relies is Bruce v. City of Colorado

Springs, 131 P.3d 1187 (Colo. Ct. App. 2005). Answer Br. at 20–21.

Significantly, Bruce was decided before Barber, and so does not take into account

the requirement made explicit in that case that fees must “finance a particular

service utilized by those who must pay the charge.” Barber, 196 P.3d at 249.

Moreover, Bruce did not take note of Nicholl, perhaps because Bruce did not

10

address the enterprise status of any entity. But similar to Barber, Nicholl makes

clear that a TABOR-exempt fee must be assessed in “direct relation to services

provided . . . .” Nicholl, 896 P.2d at 869. To the extent Bruce holds that a

TABOR-exempt fee can be assessed without regard to actual services provided, it

conflicts with Barber and Nicholl and should not be followed. See Students for

Concealed Carry on Campus v. Regents of University of Colorado, 280 P.3d 18, 26

(Colo. Ct. App. 2010), aff’d, 271 P.3d 496 (Colo. 2012) (“one division of the court

of appeals is not bound by the decision of another division”).

Even if Bruce were not enfeebled by its oversight of Nicholl—or the

Colorado Supreme Court’s subsequent decision in Barber—Bruce is nonetheless

distinguishable. The properties charged in Bruce were located in the City of

Colorado Springs and thereby directly benefited from the presence of street lights

in that City. Bruce, 131 P.3d at 1190. Additionally, because the fee payers were

property owners, they had recourse to the ballot box.2 Here, the bridge surcharge

is imposed by the Transportation Commission, an unelected, unaccountable board.

C.R.S. § 43-4-805(2)(a)(I). Accordingly, the voter control purposes of TABOR

are completely thwarted by the CBE’s failure to comply with TABOR while

2 Indeed, the City Council ended the streetlight fee days after the litigation concluded. See City of Colorado Springs Streetlights FAQ, available at https://www.springsgov.com/units/communications/Streetlights_FAQ_Final.pdf

11

imposing a mandatory charge on all Colorado vehicles. If Colorado Springs could

charge every property owner in El Paso County for city streetlights, on the

assumption that they might visit Colorado Springs and thereby benefit, that would

be a closer analogy to what the CBE has imposed through the bridge surcharge,

which funds work in only 37 of Colorado’s 64 counties but is collected statewide.

Exhibit 9 at App. A, B, C; Exhibit L; Tr. vol. I at 158–62; Tr. vol. II at 167.

Despite mentioning Barber and Nicholl in passing, the CBE never

recognizes that its simplistic definition of fees is at odds with the court’s analysis

of TABOR in those cases—and the CBE fails to fully consider the older cases

upon which it relies. The bridge surcharge fails to meet the definition of a

TABOR-exempt fee because it does not finance a service “utilized by those who

must pay the charge.” Barber, 196 P.3d at 249; Nicholl, 896 P.2d at 869. The

bridge surcharge is therefore a tax requiring voter approval.

II. THE CBE DOES NOT OPERATE AS A TABOR ENTERPRISE BECAUSE IT HAS THE POWER TO TAX AND HAS RECEIVED EXCESSIVE GRANTS FROM THE STATE.

The CBE needed voter approval for the bonds it issued in fiscal year 2011,

because it does not operate as a business enterprise exempt from TABOR. Colo.

Const. art. X, § 20(4)(b); (2)(b); Nicholl, 896 P.2d at 868. There are three

independently sufficient reasons that the CBE does not qualify as a TABOR

12

enterprise: (1) the CBE levies a tax, and therefore does not operate as a business;

(2) the CBE received a $14.4 million grant from the Transportation Commission;

and (3) the CBE received a grant from the Transportation Commission in the form

of 56 bridges. Opening Br. at 24. The CBE responds to the substance of the first

reason, but not the substance of the second or third. Answer Br. at 26–32. Rather,

the CBE relies on statutory provisions—inapplicable by their express terms—to

obscure the plain meaning of TABOR’s enterprise definition.

A. TABOR Enterprises Cannot Have The Power To Tax.

There is agreement that the CBE cannot be an enterprise and have the power

to tax. Opening Br. at 24; Answer Br. at 26; see also Nicholl, 896 P.2d at 868.

Although the CBE ignores Nicholl throughout its discussion of the fee/tax

distinction, its enterprise analysis recognizes the controlling case law. The CBE

does not, however, address the Attorney General’s Opinion applying Nicholl and

concluding that TABOR enterprises must be engaged in “market exchanges taking

place in a competitive, arms-length manner.” Op. Att’y Gen. No. 95-07 (Dec. 22,

1995). The CBE’s tacit concession that it does not operate like a business “given

the ordinary meaning and understanding” of that term completely undermines its

reliance on Nicholl. 896 P.2d at 868.

13

The CBE’s argument from Nicholl depends on a flawed analogy between the

CBE and the E-470 Highway Authority. Answer Br. at 27. Its analogy is flawed

because the bridge surcharge is nothing like the tolls collected by the Highway

Authority. In Nicholl, the court ruled that the Highway Authority “fits the

definition of a ‘business’” when it “generates revenue by collecting tolls directly

from E–470 highway users.” 896 P.2d at 868. Here, the facts demonstrate that the

CBE does not collect the bridge surcharge directly from CBE bridge users.

Instead, every vehicle is assessed the surcharge, regardless of use.

The CBE implicitly acknowledges this flaw in its analogy by arguing that

the possibility that a vehicle might use a CBE bridge makes every vehicle a user of

the CBE’s bridges. Answer Br. at 27. The CBE calls its theory “on call capacity.”

Id. The CBE relies on Magin v. Division of Employment, 899 P.2d 369, 369 (Colo.

Ct. App. 1995), a case about the definition of “wages” reportable against

unemployment benefits. Magin has nothing to do with government services;

indeed, if Magin had sent an invoice to every business in Colorado that might

benefit from his services, he likely would not have received any wages that would

affect his unemployment benefits. But the CBE is in a different position; it has

authority unlike any business: to charge every vehicle in the state for its services

regardless of willingness to pay or actual use. Magin is an exceptionally thin reed

14

upon which the CBE rests the crux of its argument: that hypothetical “on call”

benefits can justify the imposition of a mandatory charge without voter approval.

Besides its conflict with Nicholl and the other case law discussed above, the

CBE’s argument proves too much. For example, the public school system

provides “on call capacity” to accept new students, but this does not transform

property taxes collected for the sole purpose of financing schools into school fees.

See C.R.S. § 39-10-107(1)(a). Virtually all government services—schools, police,

firefighting, libraries, etc.—provide “on call capacity,” but these are still tax-

funded government activities, not businesses “given the ordinary meaning and

understanding” of that term. Nicholl, 896 P.2d at 868; see Bruce v. Pikes Peak

Library Dist., 155 P.3d 630, 632 (Colo. Ct. App. 2007). That is why the Colorado

Supreme Court has required enterprises to generate their revenue in “direct relation

to services provided,” not from the public at large as the CBE has done here.

Nicholl, 896 P.2d at 869.

This is also why the Attorney General concluded that Nicholl requires

enterprise revenues to come from “market exchanges taking place in a competitive,

arms-length manner.” Op. Att’y Gen. No. 95-07. The Attorney General

apparently takes a different position in this litigation, but fails to explain how

Opinion No. 95-07 is distinguishable. Answer Br. at 28. It is indeed this Court’s

15

duty to independently “consider the legal merits of the question,” id., especially in

light of the Attorney General’s shifting position.

B. TABOR Enterprises Cannot Receive More Than Ten Percent Of Annual Revenue From The State.

Even if the bridge surcharge were not a tax, the CBE lost enterprise status in

fiscal year 2011 because it received more than “10% of annual revenue in grants

from all Colorado state and local governments combined.” Colo. Const. art. X, §

20(2)(d). In fiscal year 2011, the limit on state grants to the CBE was $7.85

million. Opening Br. at 27; Answer Br. at 6. The CBE lost enterprise status in

fiscal year 2011 because it received $14.4 million from CDOT’s bridge budget.

Separately, the CBE also lost enterprise status because it received 56 CDOT

bridges worth at least $8.5 million.

The CBE argues that neither the $14.4 million nor the 56 bridges were

“grants” under TABOR by relying on the definition of “grant” found in C.R.S. §

24-77-102. Answer Br. at 28–29, 30–32. The CBE’s reliance on C.R.S. § 24-77-

102 conflicts with the express limitations of the statute and the proper role of the

judiciary in interpreting the Colorado Constitution.

16

1. By its own terms, C.R.S. § 24-77-102 does not control the meaning of TABOR’s grant limitation.

Like the district court, the CBE relies on C.R.S. § 24-77-102 for its

definition of “grant.” Answer Br. at 28–29, 30–32. Unlike the district court, the

CBE acknowledges that this statute was “enacted to facilitate compliance with the

state fiscal year spending limit” contained in Colo. Const. art. X, § 20(7). C.R.S. §

24-77-101(2)(a); Answer Br. at 30–31. The CBE responds that this clear limit on

the applicability of the statute is simply irrelevant because C.R.S. § 24-77-101 also

makes broad statements about TABOR. Answer Br. at 31–32. This ignores the

“well-accepted principle of statutory construction” that a more specific statutory

provision controls over a more general one. Delta Sales Yard v. Patten, 892 P.2d

297, 298 (Colo. 1995).

It also ignores that every substantive provision of C.R.S. § 24-77-101 et seq.

applies to state fiscal year spending limits; it says nothing about how to apply

TABOR’s ten percent limit on state support to enterprises. Read in context, C.R.S.

§ 24-77-101 et seq. unmistakably applies only to state fiscal year spending limits,

not the status of enterprises. Yeager v. Quinn, 767 P.2d 766, 768 (Colo. Ct. App.

1988) (“The statute must be read and construed in context, and the meaning of any

one section must be gathered from a consideration of the entire legislative

scheme.”). There is no evidence that the CBE relied on C.R.S. § 24-77-101 in

17

conducting its operations. Indeed, at the time of transferring the bridges, the CBE

conceded that TABOR applied. Exhibit 13. Here, the CBE’s own witnesses

conceded that C.R.S. § 24-77-101 et seq. has nothing to do with how TABOR

defines enterprises or grants. Tr. vol . I at 123–24 (CBE/CDOT CFO Ben Stein)

(“Whether an enterprise is an enterprise has no relationship to state fiscal year

spending.”); see also Tr. vol. II at 206–07, 217. There is no basis to conclude that

C.R.S. § 24-77-102 applies here.

2. The Colorado Supreme Court has determined the meaning of TABOR’s grant limitation.

Even assuming C.R.S. § 24-77-101 et seq. was intended to apply here, “the

legislature’s construction of a statutory or constitutional provision is advisory, not

binding.” Board of County Com’rs v. Vail Associates, Inc., 19 P.3d 1263, 1273

(Colo. 2001); see also City and County of Denver v. State, 788 P.2d 764, 768 n.6

(Colo. 1990) (same). This is particularly true when the legislative construction

would conflict with the purposes of the constitution. Id. The courts have the final

authority to interpret TABOR, and have done so with respect to the enterprise

grant limitation. See id. The purpose of TABOR’s ten percent limit is “to

distinguish a purported enterprise from a governmental unit.” Nicholl, 896 P.2d at

869. The CBE’s reading of C.R.S. § 24-77-102 as excluding the $14.4 million and

the 56 bridges from the definition of TABOR grants would allow the State to give

18

away unlimited money and public assets to enterprises. The purpose of TABOR’s

ten percent limit would not be served by allowing such extensive contributions to

enterprises. See Paul C. Rufien, Taming TABOR by Working From Within, 32

Colo. Law. 101 (July 2003) (“Contributions of equipment, provision of services

(such as administration), and similar in-kind contributions all should be regarded

as ‘grants’ if given by a state or local government.”). C.R.S. § 24-77-102 should

not be read in a way that allows the State to eviscerate TABOR’s ten percent limit.

See Frazier v. People, 90 P.3d 807, 811 (Colo. 2004) (“A statutory interpretation

leading to an illogical or absurd result will not be followed.”). The $14.4 million

grant and the 56 bridges the CBE received from CDOT in fiscal year 2011 were

grants for purposes of TABOR’s ten percent limit.

C. The CBE Lost Enterprise Status Because It Received More Than Ten Percent Of Annual Revenue In Grants From The State.

1. “Budgetary authority” is a grant.

The CBE describes the Transportation Commission’s decision to “allocat[e]

and transfer[]” $15 million from CDOT to the CBE as “access to CDOT’s

budgetary authority.” Answer Br. at 30. This is nothing more than a convoluted

euphemism for a monetary grant. What is “access to budgetary authority” but

access to money? But for the Transportation Commission’s decision to grant its

19

“budgetary authority” to the CBE, the CBE would not have received the funds. Tr.

vol. I at 129 (Stein).

That the Transportation Commission did not transfer cash directly to the

CBE is immaterial. The Transportation Commission indisputably determined

whether the CBE could access the money; the State’s control over the money

defined its character as a state grant for TABOR purposes. Opening Br. at 28.

Thus, even assuming C.R.S. § 24-77-102 could be read to apply here, the

Transportation Commission’s grant of budgetary authority was not “federal funds”

for purposes of C.R.S. § 24-77-102(7)(b)(III). Contra Answer Br. at 29. The CBE

does not respond to the substance of this argument, calling this conclusion “not

relevant.” Answer Br. at 30. But the Attorney General disagreed—at least prior to

this litigation—finding the “unrelated case law” highly relevant to the analysis of

whether funds were a state grant for TABOR purposes. Op. Att’y Gen. No. 05-03

(Jul. 29, 2005). Applying the Attorney General’s pre-litigation analysis here, the

$14.4 million grant the CBE received in fiscal year 2011 was a grant from the

Transportation Commission, well in excess of the TABOR limits. The CBE does

not dispute this conclusion, except to dismiss it out of hand.

20

2. The 56 bridges the CBE received from CDOT were a grant.

The CBE argues that C.R.S. § 24-77-102(7)(a) requires the bridges—and all

non-cash grants—to be excluded from the definition of a TABOR grant. Answer

Br. at 30. As explained above, C.R.S. § 24-77-102 cannot be applied in a way that

conflicts with the supreme court’s conclusion that the purpose of TABOR’s ten

percent limit is “to distinguish a purported enterprise from a governmental unit.”

Nicholl, 896 P.2d at 869. Excluding the transfer of 56 bridges worth millions of

dollars would create such a conflict. Moreover, the CBE’s narrow reading of

C.R.S. § 24-77-102 as applying only to cash grants is hard to reconcile with other

statutes. The legislature has defined TABOR grants as “cash,” “money,” and

“other direct contribution”; although these definitions differ slightly, “the intent is

the same, and courts should treat the [] definitions equivalently.” See Gregory J.

Hobbs, Jr., Water Activity Enterprises, 22 Colo. Law. 2555, 2556 n.18 (Dec.

1993). The 56 bridges were a direct contribution from CDOT to the CBE. If

assets given to TABOR enterprises by the State were not grants, “there would be

no substance left to the ten percent grant criteria.” Rufien, 32 Colo. Law. at 101.

i. TABOR requires grants to be valued accurately.

The ten percent limit would be similarly hollow if the State could obscure

the value of assets it grants to TABOR enterprises. The CBE did precisely that

21

when it relied on the accounting value of the granted bridges, rather than their

actual value. Answer Br. at 32; Opening Br. at 37. The purpose of TABOR’s ten

percent limit, “to distinguish a purported enterprise from a governmental unit,” is

the primary reason fair market value should have been used to determine the value

of the 56 bridges. Nicholl, 896 P.2d at 869. To the extent state law requires a

different approach to valuing grants, there would be an “irreconcilable conflict”

between a statute that eschewed fair market value and the purpose of TABOR’s ten

percent limit. C.R.S. § 24-77-101(2)(f). Fortunately, state law contains no such

requirement to ignore fair market value.

State statute requires CDOT to determine “fair market value” before

disposing of property “no longer needed for transportation purposes.” C.R.S. § 43-

1-210(5)(a). Obviously, that requirement does not apply to bridges still being used

for transportation purposes, such as F-11-AC and F-11-AB.3 See Answer Br. at 33.

But many of the bridges that CDOT granted to the CBE were demolished and sold

for scrap. Tr. vol. I at 114, 145–46 (Stein). It is equally obvious that demolished

bridges are no longer needed for transportation purposes and thus C.R.S. § 43-1-

3 Accordingly, these bridges would not be appraised pursuant to C.R.S. § 43-1-210(5)(a)(II)’s requirement that a “general appraiser” determine their value. Contra Answer Br. at 36.

22

210(5)(a) requires their fair market value to be determined prior to transfer.4 And

regardless of what C.R.S. § 43-1-210 requires, the purpose of TABOR’s ten

percent limit requires fair market value for evaluating all grants. See Nicholl, 896

P.2d at 869.

The CBE asserts that C.R.S. § 43-1-210(5)(a) does not apply to TABOR

grants and it therefore must rely on accounting value; but its only support for that

is circling back to C.R.S. § 24-77-101. Answer Br. at 33–34. Its reliance on

C.R.S. § 24-77-101(2)(e) is again inappropriate, because the CBE ignores that

C.R.S. § 24-77-101(2)(d) declares that the financial statements the CBE refers to

are prepared “to ensure compliance with the state fiscal year spending limit. . . .”

As already established—and confirmed by the CBE’s witnesses—“[w]hether an

enterprise is an enterprise has no relationship to state fiscal year spending.” Tr.

vol. I at 123–24 (Stein).

The CBE’s argument also suffers from internal inconsistency : It would

be peculiar if C.R.S. § 24-77-102(7)(a) was intended to exclude non-cash grants

from TABOR’s definition of grants, but at the same time C.R.S. § 24-77-101(2)(e)

was intended to require non-cash grants to be evaluated at accounting value when

4 Perhaps recognizing the TABOR compliance issues that arise with transferred bridges, CDOT no longer transfers bridges that will be demolished. Tr. vol. I at 108–109; Answer Br. at 3–4.

23

transferred. The inconsistency of the CBE’s argument is further evidence that it is

misreading C.R.S. § 24-77-101 et seq. The purpose of TABOR’s ten percent limit,

“to distinguish a purported enterprise from a governmental unit,” would be scuttled

by reading C.R.S. § 24-77-101 et seq. as allowing the State to give away public

property to enterprises at a fraction of its fair market value. Nicholl, 896 P.2d at

869.

ii. The bridge valuation expert’s uncontested opinion was correct—the CBE undervalued the bridges.

As a professional engineer with 39 years of experience determining the

value of infrastructure, Tr. vol. I at 184, the bridge expert was perfectly well-

qualified to opine on the value of the granted bridges. H.L. Johnson v. Bd. of

County Comm’rs of Morgan County, 336 P.2d 300, 301 (Colo. 1959) (engineer

qualified to testify as to bridge value); Tr. vol. I at 190–92 (infrastructure

ordinarily valued by an engineer, using methods employed here).

The district court’s decision to discount the expert’s methods was not

“supported by substantial evidence in the record” and is therefore not entitled to

deference on appeal. Arapahoe Partnership v. Board of County Com’rs, 813 P.2d

766, 768 (Colo. Ct. App. 1990); Opening Br. at 39. The CBE only piles on more

irrelevant, unsupported criticisms. Answer Br. at 36–37. The CBE points to

“fatigue cracking” as a reason that the district court rejected the expert’s

24

uncontested testimony, despite that the district court did not point to this reason in

its order. Answer Br. at 36; Findings, CD page 831. Critically, there was no

testimony about the effect fatigue cracking has on the value of a bridge, or these

bridges in particular. Moreover, both bridges that the expert evaluated are still

carrying traffic, with no reduction in load. Tr. vol. I at 210. This strongly suggests

that the CBE’s cherry-picked issue is irrelevant to the issue here: What is the

actual value of the infrastructure that CDOT granted to the CBE? The only answer

to that question was offered by the bridge valuation expert, based on his decades of

experience. Accordingly, there was no basis in the record for the district court to

disregard the expert’s conclusion that the CBE radically undervalued the bridges.

CONCLUSION

For the foregoing reasons, and those stated in the TABOR Foundation’s

Opening Brief, this Court should reverse the district court, remand for entry of

judgment in favor of the TABOR Foundation and determination of attorney fees,

and award any other further relief this Court deems just and appropriate.

DATED this 2nd day of April 2014.

Respectfully submitted,

/s/ James M. Manley James M. Manley (Atty. Reg. No. 40327) Steven J. Lechner (Atty. Reg. No. 19853)

25

MOUNTAIN STATES LEGAL FOUNDATION 2596 South Lewis Way Lakewood, Colorado 80227 (303) 292-2021 (303) 292-1980 (facsimile) jmanley@mountainstateslegal.com lechner@mountainstateslegal.com Attorneys for Appellant

CERTIFICATE OF SERVICE

I certify that on the 2nd day of April 2014, the foregoing document was filed

with the Court of Appeals and true and accurate copies of the same were served on

all other counsel of record via the Integrated Colorado Courts E-Filing System.

/s/ James M. Manley James M. Manley