COLORADO COURT OF APPEALS 2 East 14th Avenue Denver, Colorado 80203 District Court of Denver County Judge Michael

Martinez Case No. 2013CV3113 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. 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 OPENING BRIEF

DATE FILED: January 21, 2014 5:54 PM FILING ID: 7CE3F9CD4F1AC CASE NUMBER: 2013CA1621

COURT USE ONLY Case No.: 13CA1621

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 9,498 words, as reported by the word processing system used to prepare the brief. The brief complies with C.A.R. 28(k). It contains under a separate heading: (1) a concise statement of the applicable standard of appellate review with citation to authority; and (2) a citation to the precise location in the record (CD page ___), not to an entire document, where each issue was raised and ruled on.

/s/ James M. Manley James M. Manley

TABLE OF CONTENTS Page TABLE OF AUTHORITIES .................................................................. STATEMENT OF THE ISSUES PRESENTED FOR REVIEW .......... STATEMENT OF THE CASE .............................................................. STATEMENT OF THE FACTS ............................................................ SUMMARY OF THE ARGUMENT ..................................................... ARGUMENT .......................................................................................... I. II. STANDARD OF REVIEW .......................................................... THE DISTRICT COURT ERRED IN DENYING THE FIRST CLAIM FOR RELIEF BECAUSE THE BRIDGE SURCHARGE IS A TAX REQUIRING VOTER APPROVAL ................................................................................. A. B. III. The District Court Ignored The Case Law Defining TABOR-Exempt Fees ........................................................ Taxes Collected For A Particular Purpose Are Still Taxes Subject To Voter Approval Under TABOR ............ iii 1 2 4 11 12 12

13 14 20

THE DISTRICT COURT ERRED IN DENYING THE SECOND CLAIM FOR RELIEF BECAUSE THE CBE DOES NOT OPERATE AS A TABOR-EXEMPT BUSINESS ENTERPRISE; THEREFORE IT MUST HAVE VOTER APPROVAL TO ISSUE DEBT ......................... A. The Power To Tax Is Inconsistent With The Characteristics Of A TABOR Enterprise ...........................

23 24

B.

The CBE Lost Enterprise Status Because It Received More Than Ten Percent Of Annual Revenue In Grants From The State ................................................................... 1. The CBE lost enterprise status as a result of a $14.4 million grant the CBE received from CDOT in fiscal year 2011 ........................................ The CBE lost enterprise status as a result of 56 bridges the CBE received from CDOT in fiscal year 2011 .................................................................. i. The purpose of TABORs ten percent limit is served by classifying the 56 bridges as a grant for TABOR purposes ........ The purpose of TABORs ten percent limit is served by requiring use of fair market value .................................................. The district court erred in excluding the testimony of the TABOR Foundations bridge valuation expert ..................................

27

28

2.

33

35

ii.

37

iii.

38 40 41

CONCLUSION....................................................................................... REQUEST FOR ATTORNEY FEES ..................................................... ADDENDUM Colo. Const. art. X, 20 C.R.S. 43-4-801 et seq. C.R.S. 42-3-101 et seq. C.R.S. 24-77-101 et seq.

ii

TABLE OF AUTHORITIES CASES Americans United for Separation of Church and State Fund, Inc. v. State, 648 P.2d 1072 (Colo. 1982)..................................................... Anema v. Transit Const. Authority, 788 P.2d 1261 (Colo. 1990)............................................................... Ard v. People, 182 P. 892 (Colo. 1919)..................................................................... Barber v. Ritter, 196 P.3d 238 (Colo. 2008)................................................................. Bickel v. City of Boulder, 885 P.2d 215 (Colo. 1994)................................................................. Bloom v. City of Fort Collins, 784 P.2d 304 (Colo. 1989)................................................................. Board of Cnty. Commrs v. Fixed Base Operators, Inc., 939 P.2d 464 (Colo. Ct. App. 1997) .................................................. Bruce v. City of Colorado Springs, 131 P.3d 1187 (Colo. Ct. App. 2005) ................................................ Bruce v. City of Colorado Springs, 129 P.3d 988 (Colo. 2006)................................................................. Campbell v. Orchard Mesa Irr. Dist., 972 P.2d 1037 (Colo. 1998)............................................................... Cherry Hills Farms, Inc. v. City of Cherry Hills Village, 670 P.2d 779 (Colo. 1983)................................................................. Page 29, 30, 31 16 17, 19 passim 12 15, 21, 22 16 13, 20 12 15 13

iii

City of Aurora v. Acosta, 892 P.2d 264 (Colo. 1995)................................................................. Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223 (Colo. 2001)................................................................... Colorado Common Cause v. Meyer, 758 P.2d 153 (Colo. 1988)................................................................. E-470 Public Highway Authority v. 455 Co., 3 P.3d 18 (Colo. 2000)....................................................................... Federal Power Commn v. New England Power Co., 415 U.S. 345 (1974) .......................................................................... Frazier v. People, 90 P.3d 807 (Colo. 2004)................................................................... H.L. Johnson v. Bd. of County Commrs of Morgan County, 336 P.2d 300 (Colo. 1959)................................................................. Huber v. Colorado Mining Assn, 264 P.3d 884 (Colo. 2011)................................................................. Huntoon v. TCI Cablevision of Colorado, 969 P.2d 681 (Colo. 1998)................................................................. In re Interrogatory Propounded by Governor Roy Romer on House Bill 91S-1005, 814 P.2d 875 (Colo. 1991) ........................................ Kirk v. Denver Pub. Co., 818 P.2d 262 (Colo. 1991)................................................................. Lindner Packing & Provision Co. v. Industrial Commn, 99 Colo. 143 (1936) ........................................................................... LoupMiller Construction Co. v. City and County of Denver, 676 P.2d 1170 (Colo. 1984)...............................................................
iv

4 6 26 12 16, 20 36 38 20 12 29, 30 15 24 16, 22

National Cable Television Assn v. United States, 415 U.S. 336 (1974) .......................................................................... Nicholl v. E-470 Public Highway Authority, 896 P.2d 859 (Colo. 1995)................................................................. People v. Ramirez, 155 P.3d 371 (Colo. 2007)................................................................. Submission of Interrogatories on Senate Bill 93-74, 852 P.2d 1 (Colo. 1993)..................................................................... Taxpayers for Public Education v. Douglas County School District, 2013 WL 791140 (Colo. Ct. App. 2013) ............................. Western Heights Land Corp. v. City of Fort Collins, 362 P.2d 155 (Colo. 1961)................................................................. Westrac, Inc. v. Walker Field, 812 P.2d 714 (Colo. Ct. App. 1991) .................................................. Zelinger v. City and County of Denver, 724 P.2d 1356 (Colo. 1986)............................................................... Zelman v. Simmons-Harris, 536 U.S. 639 (2002) .......................................................................... Zobrest v. Catalina Foothills School Dist., 509 U.S. 1 (1993) .............................................................................. CONSTITUTIONAL PROVISIONS Colo. Const. art. X, 20 ......................................................................... Colo. Const. art. X, 20(1) .................................................................... Colo. Const. art. X, 20(2)(b) ................................................................
v

20 passim 38, 39 4, 20 32 22 16 22 29, 30, 31 29

4 14, 41 23

Colo. Const. art. X, 20(2)(d) ................................................................ Colo. Const. art. X, 20(4) .................................................................... Colo. Const. art. X, 20(4)(a) ................................................................ Colo. Const. art. X, 20(4)(b) ................................................................ Colo. Const. art. X, 20(7) .................................................................... Colo. Const. art. XI, 2 .......................................................................... STATUTES C.R.S. 23-5-101.7 ................................................................................ C.R.S. 23-18-101 et seq. ...................................................................... C.R.S. 24-77-101 et seq. ...................................................................... C.R.S. 24-77-101(2)(a) ........................................................................ C.R.S. 24-77-101(2)(e) ........................................................................ C.R.S. 24-77-101(2)(f) ........................................................................ C.R.S. 24-77-102 ................................................................................. C.R.S. 24-77-102(7)(a) ........................................................................ C.R.S. 24-77-102(7)(b)(III) ................................................................. C.R.S. 32-9-119(i) ............................................................................... C.R.S. 32-9-119.7 ................................................................................ C.R.S. 39-10-107(1)(a) ........................................................................
vi

23, 27, 28 2 4, 13 4, 10, 23 34 30

26 31 34 34 34 34 34 34 28 21 21 21

C.R.S. 39-27-112(2)(b) ........................................................................ C.R.S. 39-28.5-108(1) ......................................................................... C.R.S. 39-28-110(1) ............................................................................ C.R.S. 42-3-103(1)(a) .......................................................................... C.R.S. 42-3-106(1) .............................................................................. C.R.S. 43-1-106 ................................................................................... C.R.S. 43-1-210(5)(a)(II) ..................................................................... C.R.S. 43-4-801 et seq ......................................................................... C.R.S. 43-4-805(1)(b)(II) .................................................................... C.R.S. 43-4-805(2) .............................................................................. C.R.S. 43-4-805(2)(a)(I) ...................................................................... C.R.S. 43-4-805(2)(b) .......................................................................... C.R.S. 43-4-805(2)(c) .......................................................................... C.R.S. 43-4-805(3)(a) .......................................................................... C.R.S. 43-4-805(5)(g)(I) ...................................................................... OTHER AUTHORITIES Op. Atty Gen. No. 95-07 (Dec. 22, 1995) ............................................. Op. Atty Gen. No. 05-03 (Jul. 29, 2005) ...............................................

21 21 21 17 17 4 34 1213 5 3 4 4, 20 4, 13, 18 20 17, 18

26 29, 3133

vii

STATEMENT OF THE ISSUES PRESENTED FOR REVIEW 1. Whether the district court erred in ruling that the bridge surcharge is

not a tax, but rather a fee exempt from the voting requirement of the Taxpayers Bill of Rights (TABOR). 2. Whether the district court erred in ruling that the Colorado Bridge

Enterprise (CBE) operates as a TABOR-exempt business enterprise. 3. Whether the district court erred in ruling that the CBE did not receive

grants from the State totaling more than ten percent of the CBEs annual revenue in fiscal year 2011. 4. Whether the district court erred in excluding the testimony of the

TABOR Foundations bridge valuation expert. 5. Whether the district court erred in denying the TABOR Foundations

claims for relief.

STATEMENT OF THE CASE On May 21, 2012, the TABOR Foundation sued the CBE, the Colorado Transportation Commission, and the members of the Transportation Commission, who oversee both the CBE and the Commission. Compl., CD page 3. The TABOR Foundation alleged two claims for relief: (1) that the CBE levied a bridge tax, without seeking the voter approval required by TABOR; and (2) that the CBE issued $300 million in bonds, again without a TABOR-required vote of the people. Id., CD pages 911. By taking these actions without voter approval, the CBE violated the rights of the TABOR Foundations members to vote on new taxes and debt, as guaranteed by TABOR. Colo. Const. art. X, 20(4). On August 15, 2012, the CBE filed an Answer denying that it is subject to TABOR because it is purportedly a TABOR-exempt enterprise. CBE Answer, CD page 63. The Transportation Commission and its members separately answered, likewise denying that the CBE is subject to TABOR. Commission Answer, CD page 54. On February 11, 2013, the TABOR Foundation moved for summary judgment. M. for Summ. J., CD page 93. The district court denied the TABOR Foundations motion for summary judgment and, after a two-day trial, denied both claims. Order, CD page 652; Findings of Fact and Conclusions of Law

(Findings), CD page 821. The district court ruled that the bridge surcharge is not a tax, but rather a TABOR-exempt fee. Findings, CD pages 82830. The district court also ruled that the CBE operates as a TABOR-exempt enterprise because it does not have the power to levy a tax and did not receive more than ten percent of its funding from state grants. Id., CD pages 83032. Accordingly, the district court ruled that CBE was an enterprise, as that term is defined in the applicable TABOR provisions, C.R.S. 43-4-805(2), when it properly assessed the bridge surcharge safety fee and issued revenue bonds in fiscal year 2010-2011, and did not violate TABOR by the issuance of such bonds without submitting the matter to voters in a statewide election. Id., CD pages 83132. The TABOR Foundation appeals these rulings and the district courts denial of its claims.

STATEMENT OF THE FACTS In 1992, voters adopted TABOR, limiting the power of the State or any part thereof to levy taxes or create debt without voter approval. Colo. Const. art. X, 20; City of Aurora v. Acosta, 892 P.2d 264, 268 (Colo. 1995). TABOR was designed to protect citizens from unwarranted tax increases. Submission of Interrogatories on Senate Bill 93-74, 852 P.2d 1, 4 (Colo. 1993). Accordingly, TABOR requires voter approval for any new tax. Colo. Const. art. X, 20(4)(a). TABOR also requires that the State or any part thereof seek voter approval before issuing debt. Colo. Const. art. X, 20(4)(b). The CBE was created in 2009 and placed under the control of the Transportation Commission, the same body that oversees the Colorado Department of Transportation (CDOT). See C.R.S. 43-4-805(2)(a)(I); C.R.S. 43-1-106. The CBE was created to finance, repair, reconstruct, and replace any designated bridge without being subject to any provisions of [TABOR]. C.R.S. 43-4805(2)(b), (c). The CBEs ability to operate outside the requirements of TABOR depends on how it receives its revenue. C.R.S. 43-4-805(2)(c). The CBE has several sources of revenue; each has implications for its need to comply with TABOR: (1) the bridge surcharge; (2) cash and asset transfers from CDOT; and (3) bonds that the CBE issued in fiscal year 2011. TMO, CD pages 68788. The

CBEs total revenue for fiscal year 2011 was $78.5 million. Exhibit 16 at 11; Tr. vol. I at 137 (CBE/CDOT CFO Ben Stein); Findings, CD page 82425. Each source of revenue is discussed in detail below. Bridge Surcharge The CBE has discretion to impose a bridge safety surcharge at rates reasonably calculated to defray the costs of completing designated bridge projects and distribute the burden of defraying the costs in a manner based on the benefits received by persons paying the fees and using designated bridges. C.R.S. 43-4805(1)(b)(II). In 2009, the CBE levied a bridge surcharge against all vehicles registered in Colorado, without regard to whether a vehicle uses a CBE designated bridge or any benefits received from the CBE. Tr. vol. I at 9091 (Stein); Findings, CD page 823. The CBE did not seek voter approval for the bridge surcharge. Tr. vol. I at 142 (Stein), 164 (CBE/CDOT Executive Director Don Hunt). Approximately five percent of bridges on the Colorado highway system are CBE eligible bridges. Findings, CD page 824. A CBE eligible bridge will not receive CBE funding unless it is programmed, i.e., budgeted. Tr. vol. I at 160 61 (Hunt); Tr. vol. II at 74 (CBE Program Manager Ken Szeliga). As of September 19, 2012, the CBE has programmed bridges in only 37 Colorado counties. Exhibit 9 at App. A, B, C; Exhibit L; Tr. vol. I at 15862 (Hunt); Tr. vol.

II at 167 (CDOT bridge engineer/Former CBE Deputy Program Manager Joshua Laipply). As of September 19, 2012, the CBE has programmed no bridges in 27 counties, including Grand County. Tr. vol. II at 116, 169 (Laipply). The CBE has no plans to program any bridges in Grand County. Id. TABOR Foundation member Chris Sammons is a rancher in Grand County. Tr. vol. I at 20. Her family has worked their ranch in Grand County for over 100 years. Id. Her livelihood depends on the development of livestock and crops. Id. at 21. Her ranch relies on several vehicles licensed and registered in Grand County, including four trucks that never leave the County because they are used exclusively on or near her ranch. Id. at 27, 29, 5455. The use of these four vehicles is limited because they are not maintained to be safe for high-speed, longdistance travel. Id. at 27, 29. She has not used, has no plans to use, and would not allow these four vehicles to be used to cross any bridges programmed by the CBE. Id. at 28, 3435, 5455. She has no reason to believe that any of these vehicles will ever be driven outside Grand County.1 Id. She has derived no benefit from the bridge surcharges she has paid for these four vehicles. Id. at 2829. These
1

To the extent the district court made a contrary finding, Findings, CD page 827, it was based on the erroneous proposition that it is possible to prove a negative. See Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223, 23132 (Colo. 2001). Moreover, even if one of these vehicles crossed a CBE bridge in the future, there is no evidence that they have done so to date and therefore the bridge surcharge has been assessed against these vehicles for a service they did not use.
6

vehicles have not utilized a particular service provided by the CBE. Id. She owns two other vehicles, which are maintained for highway travel, that she uses when she leaves Grand County. Id. at 29; see also TMO, CD pages 68586. Numerous other ranchers face the same problem as Ms. Sammons; i.e., they own ranch vehicles that are assessed the bridge surcharge, but are used exclusively on or near a ranch and therefore never use a CBE bridge. Tr. vol. I at 3032. Similarly, TABOR Foundation member William Wharton lives in Grand County. Tr. vol. I at 62. He owns a 1971 Toyota Landcruiser FJ-40 that he uses to clear snow from his driveway, haul trash to his neighborhood dumpster, and pick up his mail in Grand Lake. Id. at 6263. He also removes snow from an elderly neighbors driveway. Id. at 69. This vehicle is licensed and registered in Grand County. Id. His homeowners association requires him to register this vehicle in order to park it on his property. Id. at 78. Since he purchased this vehicle in 2005, it has never left Grand County because it is used exclusively on or near his property. Id. at 64. Since 2007, this vehicle has not crossed any bridges. Id. at 65. Mr. Wharton has not used and has no plans to use this vehicle to cross any CBE bridges.2 Id. at 6667, 77. The use of this vehicle is limited because its age makes it unsafe and unreliable when traveling more than a few miles or at more than 50
2

See supra note 1.

7

miles per hour. Id. at 27, 29, 7980. He has derived no benefit from the bridge surcharges he has paid for this vehicle. Id. at 67. This vehicle has not utilized a particular service provided by the CBE. Id. He owns two other vehicles licensed and registered in Grand County, which he drives when he leaves Grand County. Id.; see also TMO, CD pages 68687. Transfers from CDOT In November 2010, the Transportation Commission passed Resolution TC1925 authorizing itself to allocat[e] and transfer[] from CDOT to the Colorado Bridge Enterprise fifteen million dollars ($15,000,000) of eligible federal funds. Exhibit 15; Exhibit 8 at 19. CDOTs fiscal year 2011 bridge budget was $49.8 million. Tr. vol. I at 12627 (Stein). Of that total, $21.4 million was provided by the State of Colorado and $27.4 million was provided by the Federal Highway Administration (FHWA). Exhibit 8 at 17. In fiscal year 2011, FHWA allocated $14.4 million of CDOTs $49.8 million bridge budget to the CBE, pursuant to the Transportation Commissions direction in TC-1925. Exhibit 16 at 7; Tr. vol. I at 127, 131 (Stein). In fiscal year 2012, the CBE received an additional $15 million of CDOTs bridge budget pursuant to TC-1925. Tr. vol. I at 131 (Stein). In fiscal year 2011, CDOT also transferred 56 bridges and associated design work to the CBE. Exhibit 8 at 1214; Exhibit 11; TMO, CD page 688. The design

work associated with the bridges was worth $1,085,837. Exhibit 8 at 6, 37; Tr. vol. I at 94, 96 (Stein). CDOT last appraised the 56 transferred bridges in 2007 for accounting purposes, using a depreciation method, and concluded that the total depreciated value of all 56 bridges was $5.25 million. Exhibit 8 at 3, 814. CDOT concluded that bridges F-11-AC and F-11-AB were together worth $1.367 million, and must be treated and accounted for under TABOR as having such value for purposes of transfer from CDOT to the Bridge Enterprise. Exhibit 13; Tr. vol. I at 105 (Stein); Tr. vol. II at 70 (Szeliga). However, CDOT concluded that each of the other 54 bridges had a depreciated value under $500,000. Exhibit 8 at 23, 811; Tr. vol. I at 105 (Stein). For purposes of CDOTs accounting practices, these 54 bridges were not capitalized, i.e., their value was recorded as zero, even though CDOT calculated a depreciated value for each bridge. Id. All of the transferred bridges were functioning at the time of transfer. Exhibit 12; TMO, CD page 688. The CBE reported the value of 54 of the 56 bridges as zero for TABOR purposes. Exhibit 8 at 3; Exhibit 11; Exhibit 13; Tr. vol. I at 105 (Stein). An asset with zero value for accounting purposes can still have economic value. Tr. vol. I at 11516 (Stein). At the very least, the possibility of selling [demolished bridges] for scrap exits. Tr. vol. I at 114 (Stein). The CBE allows the contractors who demolish its bridges to capture the market value of a

demolished bridge, in exchange for a discount on the demolition. Tr. vol. I at 145 46 (Stein). The CBE did not attempt to determine the market value for the 56 bridges, either as scrap or otherwise, for purposes of TABORs ten percent limit on state grants to enterprises. Tr. vol. I at 9899, 11316 (Stein); Exhibit 11; Exhibit 13. Bonds In 2011, the CBE issued $300 million in bonds. Findings, CD page 825. The CBE does not have adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years to pay for the bonds it has issued. Colo. Const. art. X, 20(4)(b); TMO, CD page 688. The CBE listed the proceeds from the sale of the 56 transferred bridges as a source of repayment for the $300 million bonds it issued. Exhibit 17 at 4, 15; Tr. vol. I at 11314 (Stein). No public vote was held authorizing the CBE to issue these bonds. Tr. vol. I at 142 (Stein), 163 (Hunt).

10

SUMMARY OF THE ARGUMENT The CBEs decision to levy a tax and issue debt without voter approval violated the Colorado Constitution. The bridge surcharge is a tax because it is collected without regard to any services utilized by the vehicles charged. Because the CBE only operates in 37 of Colorados 64 counties, numerous vehicles never come within sight of a CBE bridge, yet they are assessed the same bridge surcharge rates as every other vehicle in the state. No one who pays the bridge surcharge is provided a particular service, and actual benefits received, if any, have no bearing on the surcharge rates paid. The bridge surcharge fails to meet the definition of a TABOR-exempt fee established by the Colorado Supreme Court. The bridge surcharge is therefore a tax requiring voter approval in advance. The CBE also requires voter approval in advance before it can issue bonds, because it does not operate as a TABOR-exempt business enterprise. There are three independently-sufficient reasons that the CBE does not qualify as a TABOR enterprise: (1) the CBE levies a tax, and therefore does not operate as a business; (2) the CBE received a $14.4 million cash grant from the Transportation Commission; and (3) the CBE received a grant from the Transportation Commission in the form of 56 bridges.

11

ARGUMENT I. STANDARD OF REVIEW. The district courts interpretation of constitutional provisions and other legal conclusions are reviewed de novo. Bruce v. City of Colorado Springs, 129 P.3d 988, 992 (Colo. 2006). The district courts decision to exclude expert testimony and its findings of fact are generally reviewed under a clear error or abuse of discretion standard . . . . E-470 Public Highway Authority v. 455 Co., 3 P.3d 18, 22 (Colo. 2000); Huntoon v. TCI Cablevision of Colorado, 969 P.2d 681, 690 (Colo. 1998); Findings, CD page 831. This case involves interpretation and application of the Colorado Constitution to the CBEs levying of the bridge surcharge and issuance of debt without voter approval. [W]here multiple interpretations of [TABOR] are equally supported by the text . . . a court should choose that interpretation which it concludes would create the greatest restraint on the growth of government. Bickel v. City of Boulder, 885 P.2d 215, 229 (Colo. 1994). As demonstrated herein, the only reasonable interpretation of TABOR renders the CBEs actions unconstitutional. This case does not involve the constitutionality of any statute. Contra Findings, CD page 829. The TABOR Foundation never alleged that C.R.S. 43-

12

4-801 et seq., the statute creating the CBE, is unconstitutional. Rather, the TABOR Foundations claims focus on the CBEs decision to levy a tax and issue debt without voter approval. See Compl., CD page 1314. Nothing in C.R.S. 43-4-801 et seq., prevents the CBE from complying with the voter approval provisions of TABOR. If the CBE had asked for voter approval prior to levying the bridge surcharge or issuing bonds, the Complaint in this matter would never have been filed. But the CBE chose not to follow the requirements of TABOR. II. THE DISTRICT COURT ERRED IN DENYING THE FIRST CLAIM FOR RELIEF BECAUSE THE BRIDGE SURCHARGE IS A TAX REQUIRING VOTER APPROVAL. TABOR requires voters to approve any new tax. Colo. Const. art. X, 20(4)(a). TABORs voting requirements apply to taxes, but not fees. Barber v. Ritter, 196 P.3d 238, 249 (Colo. 2008). The bridge surcharge is labeled a fee in an attempt to avoid the voter approval requirements of TABOR. C.R.S. 43-4805(2)(c). However, the distinction between a tax and a fee is not a matter of legislative declaration. See Bruce v. City of Colorado Springs, 131 P.3d 1187, 1190 (Colo. Ct. App. 2005) (The distinction between a fee and a tax depends on the nature and function of the charge, not on its label.); Cherry Hills Farms, Inc. v. City of Cherry Hills Village, 670 P.2d 779, 782 (Colo. 1983) (The [Service Expansion Fee], regardless of its label, is a tax.).

13

In its first claim for relief, the TABOR Foundation alleged that the bridge surcharge is a tax, levied without voter approval in violation of TABOR. Compl., CD pages 1112. Therefore, the TABOR Foundation sought an order holding unconstitutional and setting aside the bridge surcharge and a refund of the surcharges collected, pursuant to Colo. Const. art. X, 20(1). Compl., CD page 12. The district court made two fundamental errors in ruling that the bridge surcharge is a TABOR-exempt fee: (1) the district court failed to apply the definition of TABOR-exempt fees developed by this Court and the Colorado Supreme Court; and (2) the district court instead focused on whether the bridge surcharge revenue is used only for the CBEs purposes. Findings, CD page 829 30. The district courts failure to consider the relevant test for TABOR-exempt fees is reversible error. A. The District Court Ignored The Case Law Defining TABORExempt Fees.

The district court asserted without support that a nexus between an individuals use and the permissibility of a user fee is not required in Colorado. Id., CD page 830. The Colorado Supreme Court and this Court have ruled just the opposite. Barber, 196 P.3d at 249. The essential distinction between a TABOR-

14

exempt fee and a tax is whether there is a direct connection between a charge and a government service provided to those who pay: If the [statute] 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. On the other hand, if the [statute] states that a primary purpose for the charge is to raise revenues for general governmental spending, then it is a tax. Id. (emphasis added). The Supreme Courts decision in Barberand numerous other casesshows that in order to qualify as a TABOR-exempt fee, a charge must be assessed in direct relation to services provided . . . . Nicholl v. E-470 Public Highway Authority, 896 P.2d 859, 869 (Colo. 1995). While [m]athematical exactitude . . . is not required, Bloom v. City of Fort Collins, 784 P.2d 304, 308 (Colo. 1989), there must be a connection between the charge and a service provided to those assessed. Barber, 196 P.3d at 250; see also Campbell v. Orchard Mesa Irr. Dist., 972 P.2d 1037, 1040 (Colo. 1998) (While general taxes exact revenue from the public at large for general governmental purposes, an irrigation districts special assessment benefits specific landowners whose land the district supplies with water.); Kirk v. Denver Pub. Co., 818 P.2d 262, 271 (Colo.

15

1991) (A user fee is in the nature of a special fee designed to defray the cost of a governmental service and is imposed on the users of that service.).3 Colorado case law is clear that the services financed by a TABOR-exempt fee must be real, not theoretical or obscure, and provided to those assessed. Barber, 196 P.3d at 250 (In the present case, the primary purpose of the enactments that created the special cash funds was solely to defray the cost of services provided to those assessed.); Board of Cnty. Commrs v. Fixed Base Operators, Inc., 939 P.2d 464, 469 (Colo. Ct. App. 1997) (The [passenger facility charges] are akin to user fees assessed and collected from users of airport facilities.); Westrac, Inc. v. Walker Field, 812 P.2d 714, 716 (Colo. Ct. App. 1991) (Rates charged for use of a public facility . . . are not considered taxes because . . . they are imposed only upon those using the service provided.); see also Anema v. Transit Const. Authority, 788 P.2d 1261, 1267 (Colo. 1990) (At the time of the assessments challenged here, the service performed was the determination of the feasibility, contours, and cost of rapid rail transit.). The
3

The United States Supreme Court applies a similar test: A fee . . . bestows a benefit on the applicant, not shared by other members of society. National Cable Television Assn v. United States, 415 U.S. 336, 34041 (1974); see also Federal Power Commn v. New England Power Co., 415 U.S. 345, 350 (1974) (a charge will most often be a tax when the identification of the ultimate beneficiary is obscure and the service can be primarily considered as benefiting broadly the general public.).
16

district court failed to even consider the relevant test for TABOR-exempt fees, even though the TABOR Foundation and the CBE made the district court aware of the relevant case law. M. for Summ. J., CD pages 10910; Defs. Resp., CD page 569. The bridge surcharge is a tax because it is collected without regard to any services utilized by the vehicles charged. Tr. vol. I at 9091 (Stein); Findings, CD page 823. The bridge surcharge is not collected directly from [CBE bridge] users. Nicholl, 896 P.2d at 868. The CBE extracts its revenue from the public at large by assessing a general levy on vehicles registered in Colorado, without any regard to a vehicles use of CBE bridges. C.R.S. 43-4-805(5)(g)(I); Tr. vol. I at 9091 (Stein); Findings, CD page 823. Essentially every vehicle in Colorado primarily designed to be operated or drawn upon any highway must be registered, whether or not it is operated on the highways. C.R.S. 42-3-103(1)(a). The owner of each [vehicle] shall pay an annual specific ownership tax . . . . C.R.S. 42-3-106(1). The bridge surcharge is an additional tax on vehicle ownership assessed by the CBE. See Ard v. People, 182 P. 892, 893 (Colo. 1919) (The [vehicle] registration or license fees required by the act of 1913 are a taxation imposed upon privileges, . . . . Such registration fees are a tax upon the privilege of using the motor vehicle upon the public

17

highway.) (quotation omitted). The notion that the bridge surcharge provides a specific service to the persons upon whom the fee is imposed and at rates reasonably calculated based on the benefits received by such persons is, in practice, false. C.R.S. 43-4805(2)(c). No one who pays the bridge surcharge is provided a particular service, Barber, 196 P.3d at 249, and actual benefits received, if any, have no bearing on the surcharge rates paid. If a vehicle is registered in Colorado, the bridge surcharge is collected based on that vehicles weight; no consideration is given to any services or benefits provided by the CBE. Tr. vol. I at 9091 (Stein); Findings, CD page 823; C.R.S. 43-4-805(5)(g)(I). The situation of those Coloradans in the 27 counties where the CBE does not operate is all the more striking. Almost half of Colorados counties receive no services or direct benefits from the CBE. Tr. vol. II at 116, 169 (Laipply). Yet vehicles registered in those counties are forced to pay the same bridge surcharge as vehicles in those counties actually served by the CBE. Tr. vol. I at 9091 (Stein); Findings, CD page 823. Even vehicles that never leave those 27 counties, and thus never utilize a particular service provided by the CBE, must pay the same surcharge rates as every other vehicle registered in Colorado. Tr. vol. I at 9091 (Stein).

18

For example, some TABOR Foundation members live hundreds of miles from any CBE-designated bridge and have paid the bridge surcharge for vehicles that have never crossed a CBE bridge. Two of these members reside in Grand County and own vehicles that never leave the County; no CBE bridge is located in Grand County, nor does the CBE have any plans to operate in Grand County. Tr. vol. II at 116, 169 (Laipply). Both these members own other vehicles better suited to travel far from home, including travel outside Grand County. Tr. vol. I at 29, 67. They have been assessed and have paid bridge surcharges for those vehicles, too. Id. They have not been provided a specific service, nor do the surcharge rates they pay bear any relationship to benefits received. Id.; Tr. vol. II at 169 (Laipply). These members situation is typical of others who have vehicles that do not come within sight of CBE bridges, but nonetheless are required to fund the CBE through compulsory payment of the bridge surcharge. Tr. vol. I at 3032. The bridge surcharge cannot qualify as a TABOR-exempt fee because it is not imposed in direct relation to services provided . . . . Nicholl, 896 P.2d at 869. Nor does it finance a particular service utilized by those who must pay the charge . . . . Barber, 196 P.3d at 249. Accordingly, the bridge surcharge is a tax that must be approved in advance by a vote of the people. See Ard, 182 P. at 893. The district courts ruling to the contrary is unsupported by law and must be

19

reversed.4 B. Taxes Collected For A Particular Purpose Are Still Taxes Subject To Voter Approval Under TABOR.

Like many taxes, the bridge surcharge is collected for a particular purpose, in this case to finance, repair, reconstruct, and replace any designated bridge, and deposited in a special account. C.R.S. 43-4-805(2)(b), (3)(a). The district court considered this dispositive of the question whether the bridge surcharge is a TABOR-exempt fee. Findings, CD page 829 ([T]he monies raised via the bridge surcharge are kept in a separate treasury account, to be used only for the CBEs

The district court acknowledged that the bridge surcharge is not voluntary and ruled that TABOR-exempt fees need not be voluntary. Findings, CD page 829. That inquiry is not central to the issues in this case, but the fact that the bridge surcharge is a compulsory charge is an additional factor weighing in favor of characterizing the surcharge as a tax subject to TABOR. See National Cable Television Assn, 415 U.S. at 34041; New England Power Co., 415 U.S. at 350. The purpose of TABOR is best served by requiring fees to be voluntary, especially when the purported fee is assessed by an unelected statewide body such as the CBE. See Submission of Interrogatories on Senate Bill 93-74, 852 P.2d 1, 4 (Colo. 1993) (the principal purpose of TABOR . . . is to require that the voters decide for themselves the necessity for the imposition of new tax burdens . . . .); Huber v. Colorado Mining Assn, 264 P.3d 884, 891 (Colo. 2011) (TABOR altered who ultimately must approve imposition of new taxes, tax rate increases, and tax policy changes . . . .). Moreover, the bridge surcharge is imposed by the CBE Board of Directors, an unelected, unaccountable board. Contra Bruce, 131 P.3d at 1190 (municipal fee, levied against property owners who had recourse to the ballot box). Accordingly, the voter control purposes of TABOR are completely stymied by the CBEs failure to comply with TABOR.

20

authorized purpose.). Under the district courts test, any time a charge is legislatively dedicated to a particular purpose, the charge would become a TABOR-exempt fee. This would transform school property taxes into school fees (C.R.S. 39-10-107(1)(a)), cigarette and tobacco taxes into old age pension fees (C.R.S. 39-28.5-108(1), 39-28-110(1)), gasoline taxes into highway and aviation fees (C.R.S. 39-27-112(2)(b)), and so on. The fact, for example, that RTD collects taxes only to fund public transportation does not transform its taxes into transportation fees.5 C.R.S. 32-9-119(i). The Colorado Supreme Court has avoided this absurd result by making clear that a TABOR-exempt fee may only be collected against persons or property utilizing services financed by the fee. Nicholl, 896 P.2d at 868; Barber, 196 P.3d at 24950. As explained above, the district court ignored Nicholl and Barber, and thus its analysis is fundamentally flawed. The district court cited Bloom, 784 P.2d at 31011, for the proposition that money deposited into a special fund is by definition a fee. Findings, CD page 829. Bloom does not address TABOR-exempt fees directly, because it was decided three years before TABOR was enacted; but, in approving a road maintenance fee,
5

By comparison, when RTD sets bus ticket rates, it does so without the need for voter approval, because a bus ticket is a fee for service, collected in direct relation to services provided . . . . Nicholl, 896 P.2d at 869; C.R.S. 32-9-119.7.
21

the court observed that developed lots subject to the fee receive the benefit of a program of city maintenance. Id. at 310. The court in Bloom also observed that the fees would be held in an account separate from the Citys general fund. Id. at 311. Here, the district court focused on the fact that the fee in Bloom was deposited in a separate fund, Findings, CD pages 82930, but the district court ignored that the fee assessed in Bloom was levied only on developed properties actually fronting the roads that were to be repaired by the revenue collected: The transportation utility fee [is] imposed upon owners or occupants of developed property fronting city streets and the revenues generated thereby are used for the purpose of defraying the expenses connected with the operation and maintenance of city streets. 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 lots street frontage and the traffic generation factor (or estimated street usage) applicable to the lot.6 Id. at 309.
6

A direct benefit is also present in the cases upon which Bloom relied. 784 P.2d at 30809 (citing LoupMiller Construction Co. v. City and County of Denver, 676 P.2d 1170, 117475 (Colo. 1984) (approving fee for new customers who requested that their properties be physically connected to sewer system); Zelinger v. City and County of Denver, 724 P.2d 1356, 1359 (Colo. 1986) (same for storm drainage fee); Western Heights Land Corp. v. City of Fort Collins, 362 P.2d 155, 158 (Colo. 1961) (approving sewer and water fee because the principal object is to defray the expense of operating a utility directed against those desiring to use the service . . . .)).
22

There is no support for the district courts conclusion that a fee may be assessed without regard to actual services provided, so long as the proceeds are kept in a separate treasury account, to be used only for the CBEs authorized purpose. Findings, CD page 829. Accordingly, the district court erred in ruling that the bridge surcharge is not a tax. III. THE DISTRICT COURT ERRED IN DENYING THE SECOND CLAIM FOR RELIEF BECAUSE THE CBE DOES NOT OPERATE AS A TABOR-EXEMPT BUSINESS ENTERPRISE; THEREFORE IT MUST HAVE VOTER APPROVAL TO ISSUE DEBT. TABOR requires voter approval for the creation of any multiple-fiscal year direct or indirect district debt or other financial obligation . . . . Colo. Const. art. X, 20(4)(b). TABORs debt approval requirements do not apply to enterprises. Id. 20(2)(b). TABOR defines an enterprise as 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. Colo. Const. art. X, 20(2)(d). The Colorado Supreme Court has further clarified that a TABOR enterprise must function as a business given the ordinary meaning and understanding of that term. Nicholl, 896 P.2d at 868. In its second claim for relief, the TABOR Foundation alleged that the CBE does not function as a TABOR enterprise, therefore the CBE violated TABOR by issuing bonds without voter approval. Compl., CD pages 1213. The TABOR
23

Foundation sought an order enjoining the CBE from issuing bonds without voter approval. Compl., CD page 13. There are three independently-sufficient reasons that the CBE does not qualify as a TABOR enterprise: (1) the CBE levies a tax, and therefore does not operate as a business; (2) the CBE received a $14.4 million cash grant from the Transportation Commission; and (3) the CBE received a grant from the Transportation Commission in the form of 56 bridges. Findings, CD pages 830 32. For any one of these reasons, the CBE did not have enterprise status when it issued bonds without voter approval. The district court erred in ruling otherwise. A. The Power To Tax Is Inconsistent With The Characteristics Of A TABOR Enterprise.

The CBE is not a business enterprise exempt from TABOR becauseas demonstrated aboveit generates revenue by levying a bridge tax. The Colorado Supreme Court made clear in Nicholl that a TABOR enterprise must function as a business given the ordinary meaning and understanding of that term. 896 P.2d at 868. Thus, a TABOR enterprise must be engaged in an activity conducted in the pursuit of benefit, gain or livelihood. Id. (citing Lindner Packing & Provision Co. v. Industrial Commn, 99 Colo. 143, 147 (1936)). In Nicholl, the court ruled that the E-470 Highway Authority fits the definition of a business when it generates revenue by collecting tolls directly
24

from E470 highway users. Id. But the Highway Authority was ultimately held to not be a TABOR enterprise because it possessed the power to unilaterally impose taxes, with no direct relation to services provided, [which] is inconsistent with the characteristics of a business as the term is commonly used. Id. at 869. The central question is whether a purported TABOR enterprise functions as a business, or instead has authority atypical of an ordinary business: By providing access to a public roadway in exchange for the payment of tolls and user fees, the Authority is engaging in an activity conducted in the pursuit of benefit, gain or livelihood and, in these respects, fits the definition of a business. However, while the Authority is business-like in these respects, it has authority to finance its operations in a manner not typical of a business as the term is commonly used. Id. at 868. No ordinary business has the authority to charge customers to whom it does not provide a service, or finance its operations by collecting revenue from every person who might use its services. Tr. vol. I at 10304 (Stein). As explained above, the CBE assesses the bridge surcharge against every vehicle registered in Colorado, even if a vehicle does not use the CBEs services. If other TABOR enterprises adopted the CBEs practices, the University of Colorado could start charging an application fee to every high school senior in the State, because they

25

might apply to CU.7 Such a scheme would obviously eviscerate CUs enterprise statusjust as the CBEs collection of the bridge surcharge from every vehicle registered in Colorado eviscerates its enterprise status herebecause the charge would be levied with no direct relation to services provided, [which] is inconsistent with the characteristics of a business as the term is commonly used. Nicholl, 896 P.2d at 869. Consistent with Nicholl, the Attorney General has clarified that a TABOR enterprise must be: [O]perated as a self-supporting business activity and the transactions between the enterprise and [customers] are market exchanges taking place in a competitive, arms-length manner. This requirement is necessary to eliminate the concern that such a transaction is merely a subterfuge designed to circumvent the . . . provisions of TABOR. Op. Atty Gen. No. 95-07 (Dec. 22, 1995); see Colorado Common Cause v. Meyer, 758 P.2d 153, 159 (Colo. 1988) (Attorney Generals Opinion obviously entitled to respectful consideration . . . .). The CBEs revenue is not derived from market exchanges taking place in a competitive, arms-length manner, Op. Atty Gen. No. 95-07, but rather from the tax revenue generated by the bridge surcharge. Nor is the CBE engaged in an activity conducted in the pursuit of benefit, gain or livelihood, it is engaged in
7

See C.R.S. 23-5-101.7 (Enterprise status of institutions of higher education).

26

general taxation in pursuit of the construction of public infrastructure. Nicholl, 896 P.3d at 868. Accordingly, the CBE does not function as a TABOR enterprise and it must have voter approval to issue bonds. Id. at 869. B. The CBE Lost Enterprise Status Because It Received More Than Ten Percent Of Annual Revenue In Grants From The State.

Assuming arguendo that the bridge surcharge is not a tax, the CBE still does not qualify as an enterprise because it is funded in large measure by CDOT. A TABOR enterprise must receiv[e] under 10% of annual revenue in grants from all Colorado state and local governments combined. Colo. Const. art. X, 20(2)(d). The purpose of TABORs ten percent limit is to distinguish a purported enterprise from a governmental unit. Nicholl, 896 P.2d at 869. In fiscal year 2011when the CBE issued its bondsthe CBEs revenue was $78.5 million, making the ten percent maximum state grant $7.85 million. Exhibit 16 at 11; Tr. vol. I at 137 (Stein); Findings, CD page 82425. Grants from CDOT to the CBE in fiscal year 2011 came in two primary forms, either of which exceeded TABORs ten percent limit: (1) $14.4 million from CDOTs bridge budget; and (2) 56 bridges owned by CDOT (along with associated design work), worth at least $8.5 million. Tr. vol. I at 127, 131 (Stein); Exhibit 11. Thus, either of these grants from CDOT impermissibly exceeded the $7.85 million allowed under TABOR. Even if the bridge surcharge were not a tax, the CBE lost its
27

enterprise status in fiscal year 2011 due to either of these grants. 1. The CBE lost enterprise status as a result of a $14.4 million grant the CBE received from CDOT in fiscal year 2011.

In November 2010, the Transportation Commission passed Resolution TC1925 authorizing itself to allocat[e] and transfer[] from CDOT to the Colorado Bridge Enterprise fifteen million dollars ($15,000,000) of eligible federal funds. Exhibit 15. In fiscal year 2011, FHWA allocated $14.4 million of CDOTs $49.8 million bridge budget to the CBE, pursuant to the Transportation Commissions direction in TC-1925. Tr. vol. I at 127, 131 (Stein). This was a state grant. TABORs ten percent limit applies only to grants from all Colorado state and local governments combined; grants from the federal government do not count against the limit. Colo. Const. art. X, 20(2)(d); see also C.R.S. 24-77102(7)(b)(III). The $14.4 million the CBE received from CDOTs bridge budget is not a federal grant. The CBE received that money only because of the genuinely independent choices of the Transportation Commission. See Exhibit 15 ([A]ny decision as to whether or not to allocate and transfer such funds to the [CBE] shall be made by the Transportation Commission, in its sole discretion, in the year in which the transfer is to occur.). But for the Transportation Commissions decision to grant the money to the CBE, the CBE would not have received the funds. Tr. vol. I at 129 (Stein). The Transportation Commissions control over
28

this money makes it a state grant for TABOR purposes. See Op. Atty Gen. No. 05-03 (Jul. 29, 2005). Both the U.S. Supreme Court and the Colorado Supreme Court have held that the entity that controls a grant determines its character. See Zelman v. Simmons-Harris, 536 U.S. 639, 649 (2002); Americans United for Separation of Church and State Fund, Inc. v. State, 648 P.2d 1072, 1083 (Colo. 1982); In re Interrogatory Propounded by Governor Roy Romer on House Bill 91S-1005, 814 P.2d 875, 878 (Colo. 1991). In addition, the Colorado Attorney General has concluded that this principle applies to grants received by TABOR enterprises. Op. Atty Gen. No. 05-03. These authorities were briefed in the district court, M. for Summ. J., CD pages 11516, but the court below ignored them, ruling that the $14.4 million grant the CBE received in fiscal year 2011 was a federal grant because the money originated with FHWA, despite the Transportation Commissions control over the money. Findings, CD pages 83031. The U.S. Supreme Court has held that neutral government programs that provide aid directly to a broad class of individuals, who, in turn, direct the aid to religious schools or institutions of their own choosing do not violate the Establishment Clause of the U.S. Constitution. Zelman, 536 U.S. at 649; see also, e.g., Zobrest v. Catalina Foothills School Dist., 509 U.S. 1, 8 (1993); accord

29

Americans United, 648 P.2d at 1083. This is because, although the school aid comes from the government, the individual recipients control over the money means that [a]ny aid . . . that ultimately flows to religious institutions does so only as a result of the genuinely independent and private choices of aid recipients, making it private money for Establishment Clause purposes. Zelman, 536 U.S. at 65051 (quotation omitted). Similarly, the CBE receives a portion of CDOTs bridge budget only because of the genuinely independent choices of the Transportation Commission, making it state money for TABOR purposes. The Colorado Supreme Court applied a similar rationale to the Gift Clause, Colo. Const. art. XI, 2. In re House Bill 91S-1005, 814 P.2d at 878. The Gift Clause prohibits the State from giving aid to private companies. Colo. Const. art. XI, 2. Nevertheless, the court held that the State could give tax revenues to local governments or the Colorado Housing and Finance Authority (CHFA), which would in turn give the money to private companies. Id. The court approved the grants at issue because the local governments or the CHFA would allocate the money, not the State. Id. at 883. Thus, the local governments or the CHFAs authority over the money removed the state character of that money for Gift Clause purposes. Id. Similarly, the Transportation Commissions authority over CDOTs

30

bridge budget removes the federal character of the money it grants to the CBE for TABOR purposes. Consistent with these decisions, the Attorney General has concluded that the entity that controls a grant determines its character for TABOR purposes. Op. Atty Gen. No. 05-03. The Attorney Generals opinion was rendered with regard to the 2004 College Opportunity Fund Act, C.R.S. 23-18-101 et seq., and its impact on the enterprise status of state institutions of higher education. The Attorney General concluded that stipends provided by the State of Colorado to college students to cover tuition at state universities lost their character as state grants for TABOR purposes because the students exercised discretion over distribution of the grants. Op. Atty Gen. No. 05-03 at 5 (Under the Zelman and Americans United analysis outlined above, it is not necessary that the financial assistance become the property of the student . . . indeed, this is not the situation in any of the cases cited above.). The 2004 College Opportunity Fund Act applies the principle developed with respect to school vouchersthat the entity that controls a grant defines its characterand extends it to TABOR enterprise grants. In the same way that a school board provides a voucher to a parent, who then directs the money to the school of her choice, FHWA provides bridge funding to the Transportation Commission, which then directed the money to the CBE. See

31

Taxpayers for Public Education v. Douglas County School District, 2013 WL 791140, *20 (Colo. Ct. App. 2013). In both cases, the entity that decides who receives the grantthe parent or the Transportation Commissionnever actually obtains the money. In other words, the parent or the Transportation Commission directs where the money should go and that authority defines the character of the grant. CBE only received the $14.4 million from FHWA because the Transportation Commission chose to allow it to receive it. In the same way, a private school only receives money from a school board because a parent chooses to allow it to receive it. The district court ignored these authorities and concluded that the $14.4 million was not a state grant from the Transportation Commission. Findings, CD page 830. That conclusion is inconsistent with the authorities discussed above, and necessarily contradicts the Attorney Generals opinion that the College Opportunity Fund Act did not impact the enterprise status of state institutions of higher education. See Op. Atty Gen. No. 05-03 at 4. Either the character of a grant is defined by the source of the funds (i.e., the state College Opportunity Fund and the FHWA), or by the entity with authority to allocate the money (i.e., college students and the Transportation Commission). If the $14.4 million grant to the CBE was not a state grant because the funds came from FHWA, then the College

32

Opportunity Fund stipends are state grants because those funds came from the State. In other words, either Attorney General Opinion No. 05-03 is right and the district court is wrong, or vice versa. Given that the Attorney Generals Opinion is consistent with state and federal case law, clearly the district court erred. As demonstrated above, the $14.4 million grant the CBE received in fiscal year 2011 was a grant from the Transportation Commission, well in excess of the $7.85 million allowed under TABOR. Therefore, the CBE lost its enterprise status in fiscal year 2011 due to this grant. The district courts ruling to the contrary was not in accordance with law and must be reversed. 2. The CBE lost enterprise status as a result of 56 bridges the CBE received from CDOT in fiscal year 2011.

Assuming the bridge surcharge is not a tax and assuming further that the cash grant the CBE received from CDOTs bridge budget is not a state grant, the CBE nonetheless lost enterprise status in fiscal year 2011 for another reason: the CBE received capital contributions from CDOT in the form of 56 bridges and associated design work. TMO, CD page 688. By CDOTs own reckoning, all these bridges have value. Exhibit 8 at 3, 814. Yet, the CBE took the position at the time of transfer that only two of the bridges counted against TABORs ten percent limit. Exhibit 13. Moreover, the CBE radically underestimated the true value of the 56 bridges because it conflated their accounting value with their
33

market value. Exhibit 8 at 3; Exhibit 11. The district court ruled that under the state statutes implementing TABOR, any bridges transferred to the CBE did not count toward the 10 percent limitation on state and local government grants because they were not cash subsidies or other direct contributions of money. Findings, CD page 832 (citing C.R.S. 24-77102(7)(a)). Moreover, it ruled that state law required use of accounting value for purposes of complying with TABORs ten percent limit. Id. at 11. Both of these rulings were in error. The district court relied on C.R.S. 24-77-102 for these two rulings, but this was in error because the provisions of C.R.S. 24-77-101 et seq., were 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). The provisions contained in C.R.S. 24-77-102 only apply [a]s used in this article, unless the context otherwise requires: . . . . Similarly, C.R.S. 24-77-101(2)(e) and (f) require use of generally accepted accounting principles when preparing reports 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) (emphasis added). The CBEs witnesses conceded that these provisions have nothing to do with how TABOR defines enterprises. Tr. vol . I at 12324 (Stein) (Whether an enterprise is an enterprise

34

has no relationship to state fiscal year spending.); see also Tr. vol. II at 20607 (Former Colorado State Controller David McDermott) (I'm trying to think of whether theres any specific provisions in there that address enterprises. Its not coming to my mind . . . .). The CBEs witnesses also conceded that generally accepted accounting practices have nothing to do with how TABOR defines enterprises or grants. Tr. vol. I at 123 (Stein); Tr. vol. II at 217 (McDermott). Indeed, the legislature has not developed comprehensive legislation explaining its view of TABORs enterprise exemption. The district court should have been guided by the text of TABOR and the Supreme Courts decision in Nicholl, which both demonstrate that TABORs ten percent limit is intended to distinguish a purported enterprise from a governmental unit. 896 P.2d at 869. i. The purpose of TABORs ten percent limit is served by classifying the 56 bridges as a grant for TABOR purposes.

At the time of transfer, the CBE conceded that bridges F-11-AC and F-11AB carry substantial value and must be treated and accounted for under TABOR as having such value for purposes of transfer from CDOT to the Bridge Enterprise. Exhibit 13. This was a sound conclusion, because excluding transfers of such assets from TABORs ten percent limit would render the limit a nullity. The natural result would be a form of money laundering, whereby the State transfers vehicles, property, buildingsor bridgesto enterprises, which in turn
35

either sell those assets to finance their operations oras the CBE did herepledge the assets as collateral to obtain debt financing. See Exhibit 17 at 4, 15. This is an absurd result that would be at odds with the purposes of TABOR. See Nicholl, 896 P.2d at 869; Frazier v. People, 90 P.3d 807, 811 (Colo. 2004) (A statutory interpretation leading to an illogical or absurd result will not be followed.). By CDOTs own reckoning, the 56 bridges were worth at least $5.25 million. Exhibit 8 at 3, 814. The bridges also have scrap value, which at present is given away to contractors who demolish the bridges in exchange for a discount on the demolition. Tr. vol. I at 114, 14546 (Stein). The CBE did not attempt to determine the market value of the 56 bridges, either as scrap or otherwise, for purposes of TABORs ten percent limit on state grants to enterprises. Tr. vol. I at 9899, 11316 (Stein); Exhibit 11; Exhibit 13. The purpose of TABORs ten percent limit cannot survive if the CBE is allowed to evade the limit by excluding millions of dollars of non-cash grants. Accordingly, the district court erred in concluding that the bridges transferred to the CBE did not count toward TABORs ten percent limit.

36

ii.

The purpose of TABORs ten percent limit is served by requiring use of fair market value.

The CBE has never assessed the actual value of the 56 bridges it was granted by CDOT. Despite that all 56 of the transferred bridges were functioning at the time of transfer, the CBE relied solely on CDOTs accounting value of the bridges, zeroing the value of 54 of the 56 bridges for TABOR purposes. Exhibit 11; Exhibit 13. Paradoxically, the CBE listed the proceeds from the sale of these mostly valueless bridges as a source of repayment for the $300 million bonds it issued. Exhibit 17 at 4, 15. Moreover, the depreciated value assigned to these 56 bridges by CDOT underestimates the fair market value of the bridges. CDOTs use of depreciated value may have been appropriate for accounting purposes; however, the accounting value of the bridges is not the same as their fair market value; the latter is the price the asset would command in an arms-length transaction. Tr. vol. I at 9899 (Stein). State law requires CDOT to determine fair market value before disposing of property no longer needed for transportation purposes. C.R.S. 43-1210(5)(a)(II). CDOT failed to comply with this requirement before transferring the 56 bridges to the CBE, despite the fact that even the depreciated values of almost all the structures exceeded $5,000 and the possibility of selling [demolished

37

bridges] for scrap exits. Tr. vol. I at 114 (Stein). Demolished bridges would obviously not be needed for transportation purposes. Additionally, even if state law did not dictate that CDOT use fair market value here, the purpose of TABORs ten percent limit, to distinguish a purported enterprise from a governmental unit, would not be served by allowing the State to give away state property to enterprises at a fraction of its fair market value. Nicholl, 896 P.2d at 869. For these reasons, the CBE was required by law to value the 56 bridges according to their fair market value at the time of transfer. iii. The district court erred in excluding the testimony of the TABOR Foundations bridge valuation expert.

[I]n determining reliability under CRE 702, the court should consider whether the scientific principles underlying the testimony are reasonably reliable, and whether the expert is qualified to opine on such matters, considering the totality of the circumstances. People v. Ramirez, 155 P.3d 371, 380 (Colo. 2007). Here, the experts methods were based on his 39 years of experience as a licensed professional engineer determining the value of infrastructure. Tr. vol. I at 184. Given his extensive knowledge, skill, experience, training, and education, he was qualified to offer an expert opinion as to the value of the transferred bridges. H.L. Johnson v. Bd. of County Commrs of Morgan County, 336 P.2d 300, 301 (Colo. 1959) (engineer qualified to testify as to bridge value). Moreover, the undisputed
38

evidence shows that infrastructure is ordinarily valued by an engineer, using the methods employed by the expert here. Tr. vol. I at 19092. The district court discounted the experts methods, although none of its reasons for doing so are supported by the record. Findings, CD page 831. The district court objected to the experts reliance on satellite imagery provided by Google Earth to conduct a preliminary examination of the bridgeswhile acknowledging that the expert also conducted a site inspection of the bridges that confirmed his earlier assessment. Id.; Tr. vol. I at 21011. The district court found it significant that the expert failed to take into consideration such obvious factors as heavier weekend vehicle traffic when making his overall evaluation, but the court ignored the fact that taking into account such traffic would have increased the experts valuation estimates, which would have only made the divergence between the CBEs valuation and fair market value more pronounced. Findings, CD page 831; Tr. vol. II at 2527. It was error for the district court to exclude the experts testimony as unreliable. See Ramirez, 155 P.3d at 380. The extent of the variance between CDOTs depreciated value and fair market value, even based on the experts conservative assessment, is significant. For example, bridges F-11-AC and F-11-AB were valued at $1.367 million using CDOTs deprecation methodology. Exhibit 13. The minimum fair market value

39

of structures F-11-AC and F-11-AB is approximately $7.5 million. Exhibit 14 at 9. The exact value of the bridges is immaterial to the question here: Are the bridges worth more than ten percent of the CBEs annual revenues? That question is easily answered by looking at the undisputed valuation range provided by the expert, because even the lowest value estimate for just two of the 56 bridges and associated design work exceeds TABORs ten percent limit by more than $700,000.8 The precise value of all the bridgesand the precise extent of the constitutional violationis immaterial. The CBE accordingly lost enterprise status as a result of the bridges that CDOT granted in fiscal year 2011. CONCLUSION For the foregoing reasons, this Court should reverse the district courts denial of the TABOR Foundations claims, 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.

Depreciated value of F-11-AC and F-11-AB based on current replacement cost ($7.5 million) + associated design work ($1.085 million) = $8.585 million, which is $735,000 more than the fiscal year 2011 ten percent TABOR maximum ($7.85 million).
40

REQUEST FOR ATTORNEY FEES The TABOR Foundation respectfully requests attorney fees in accordance with Colo. Const. art. X, 20(1). DATED this 21st day of January 2014. Respectfully submitted, /s/ James M. Manley James M. Manley (Atty. Reg. No. 40327) Steven J. Lechner (Atty. Reg. No. 19853) 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

41

CERTIFICATE OF SERVICE I certify that on the 21st day of January 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