I did not know the Colorado Lottery was an enterprise until last month, but it makes sense. It’s been primarily funded by all the Lotto tickets I bought, certain that winning would mean I’d never have to work again. Photo by Jeffrey Beall, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=19687899

In Brief: Proposition 117 would require voter approval for any new state “enterprise” expected to collect more than $100 million in fee revenue over the course of five years. An enterprise is basically a state business that receives less than 10% of its funding from the state. Enterprises are reviewed annually to determine if they should maintain enterprise status, and an enterprise that loses enterprise status may need to go before voters under Prop 117 if it regains enterprise status. Ballot titles would need to begin with a statement of how much revenue the enterprise anticipates generating, very much like a tax increase measure under the Taxpayer’s Bill of Rights (TABOR). Prop 117 is statutory, not Constitutional.

Why or Why Not?: Enterprises are fully Constitutional under TABOR, but establishing them often generates controversy or even legal challenges because they create new programs and revenue streams without needing to go before voters. The state General Assembly can create enterprises with approval from the Governor, and while all legislators and the Governor face the voters at election time, the enterprise and its revenue source do not.

One area of controversy is whether an enterprise’s revenue should be considered a “fee” or a “tax,” and this matters since tax increases must go to voters under TABOR while fee increases don’t. However, legal challenges trying to prove that a fee is actually a “tax” have not had a great record of success. There are technical definitions of both, and in short taxes are meant to fund general government services, while fees are meant to fund specific services or programs. For example, increasing the cost of a hunting license to fund Parks and Wildlife enterprise needs does not increase expenses for a person who doesn’t hunt, so it’s clearly not a tax. However, there can be perceived grey areas around what constitutes a fee or a tax, and these grey areas have kept attorneys busy.

Also, enterprises are exempt from revenue limits under TABOR, and an enterprise’s fee collections don’t cause the state budget to grow beyond the point at which the state must issue refunds to taxpayers under the TABOR formula.

Existing enterprises that generate more than $100 million over 5 years. Source: Colorado Blue Book

For one illustration of enterprise status that might be relevant for Boulder voters, state support for higher education in Colorado fell to very low levels in the early part of this century due in part to a 2001-03 recession and other fiscal factors, including TABOR’s “ratchet effect” and Amendment 23, which mandates spending for K-12 education but does not protect higher ed. In 2004, colleges and universities including the University of Colorado sought and obtained enterprise status, and today’s students and parents are fully aware that fees and tuition now pay the lion’s share of higher ed expenses. The chart at right shows current enterprises that would have needed to face voters under something like Prop 117, along with the funding sources.

In 2020, the COVID-19 pandemic led to some level of economic catastrophe, and the state was forced to cut about $3 billion from its budget. Creating enterprises may be one way for the state to operate important programs or services without trying to increase taxes or making sacrifices elsewhere in the state budget. But passing Prop 117 would mean new proposed enterprises might gain legislative approval but be denied at the ballot box, and Prop 117 does not establish any other mechanism or funding stream for providing these services or programs.

Prop 117 Pro:

  • Enterprises of $100 million or more are significant operations affecting some percentage of the people of Colorado, and voters deserve the right to weigh in.
  • Some of the fees that fund enterprises may look or function like taxes to certain people, and since TABOR says tax increase proposals should go to the ballot, some believe fees funding large enterprises should also go to the voters.
  • Voters might not favor establishment of a given enterprise at all, based on the services provided or if it should be an enterprise or its cost, and again deserve the right to weigh in.
  • The legislature can establish an enterprise with simple majority votes and the Governor’s approval, and while members of the public can weigh in or testify, they don’t get a binding vote on a matter than might impact them or their communities. Prop 117 would give them that vote.

Prop 117 Con:
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  • Current established Colorado enterprises provide valuable services in areas including higher education, health care, and unemployment insurance. Voter disapproval of future enterprises could deny Coloradans of the services the enterprise would provide, or some portion of the services, until other means of establishing them can be identified.
  • Enterprises are by definition for specific purposes, and fees are paid by specific users and not the general public (example, people who aren’t university students don’t pay university fees). A general statewide vote might not be appropriate to determine whether fee-based enterprises with specific purposes move forward.
  • Under Prop 117, the ballot title would have to begin with a large dollar amount. Since some voters don’t read any more than a ballot title, this might cause them to vote against the enterprise without considering the benefits.
  • Certain segments of Coloradans are prone to use a messaging strategy of calling fees “taxes disguised as fees.” But in court, this argument has normally not been successful because there are definitions and precedent cases that differentiate taxes and fees. Holding elections over enterprises with funding mechanisms that few Coloradans consider taxes, like hunting licenses or park entrance fees, could even require political campaigns, which can get costly and include questionable advertising-driven messaging.

Richard’s Take: Vote NO. State enterprises are fully Constitutional under TABOR language, and they’ve given Coloradans valuable services or levels of service without increasing general taxes. The part of Prop 117 requiring the first sentence to include the full dollar amount is a big reason for my opposition, since it presents a big scary number to voters who might not do any further research, and today’s ballot titles typically don’t present great information about the benefits of a tax measure. Debatably, some people consider Colorado a cash-strapped state, and the pandemic has exacerbated this problem, so if voters shoot down an enterprise there is no guarantee the state would be able to find another way to fund or implement these potentially valuable services.

And I certainly don’t have sympathetic feelings for any notion that fees and enterprises go against the spirit of TABOR, which passed by only a narrow margin 28 years ago, after losing several times before it finally narrowly passed. TABOR’s narrow victory 28 years ago is hardly a mandate or rationale to put additional clamps on Colorado with a measure like Prop 117. Since 1992, TABOR has had plenty of power over state fiscal affairs, especially since it gives voters the opportunity to vote against paying for things from which they might actually benefit. Statewide tax measures since TABOR have almost always gone down to defeat, and arguments could be made that this is why we have substandard funding for core services including education and transportation.

If TABOR’s Douglas Bruce had really intended to clamp down on all potential growth of the public sector, he could have drafted a stronger TABOR without including the enterprise option, and perhaps including a limit or mandatory voter approval on fees. But he didn’t, and it’s possible that a stricter TABOR might have led to stronger opposition back in 1992. TABOR’s passage spurred TABOR-reaction ballot measures such as the single-subject requirement and the K-12 education measure Amendment 23, while the “Bad Three” TABOR-strengthening measures Amendments 60 and 61 plus Proposition 101 went down to resounding defeats in 2010. In my opinion, the TABOR paradigm is strong enough and does not warrant expansion, and for those reasons (Shark Tank reference) I urge a NO vote on Prop 117.