TABOR Foundation v. Colorado Dep't of Health Care Policy & Financing

Cause of Action Institute has moved for summary judgment asking the Colorado state district court to rule that, as a matter of law, Colorado violated the Taxpayer’s Bill of Rights (TABOR) and other constitutional provisions when it levied $4.5 billion in hospital taxes without a vote of the people.

TABOR requires that the state legislature obtain Coloradans’ consent before it raises taxes. This constitutional amendment was approved by the voters in 1992 and it continues to be a leading issue in election races statewide.  It was designed not only to restrain the growth of government, but also to give Coloradans a voice when lawmakers attempt to reach into their pockets. Yet since its passage, legislators and governors of both parties have consistently refused to ask voters for more money. Instead, they use convoluted tactics to avoid using the ballot to raise taxes. Some of these tactics include mortgaging state buildings, eliminating tax breaks, and trying to disguise tax increases as fees administered by “enterprises,” state-run entities whose revenues do not count towards TABOR’s revenue cap.

This practice might make it easier for legislators to spend, but it runs contrary to the will of the voters, of whom only 26% disapprove of TABOR. And there is little reason to believe that voters will never approve a tax increase; a ballot measure in 2015 allowing the state to keep $67 million it had over-collected won with wide voter support.

In 2009, as the Affordable Care Act neared passage, the legislature enacted a hospital provider tax, which exploits the federal Medicaid fund-matching scheme to draw down more money to the state. Normally, when a state reimburses a health care provider who gives medical services to a patient who can’t afford healthcare, the federal government matches some percentage of those costs. But with the hospital provider tax in place, the hospital’s costs are artificially increased. When reporting that cost to the federal government, the state then receives matching funds for the inflated price of healthcare, rather than the actual cost to the hospital.

This scheme doesn’t just amount to quasi-money laundering – it also creates perverse incentives for hospitals, who might not choose the most cost-effective care, and legislators, who use Medicaid expansion to fill state coffers.

The scam worked well for the better part of a decade, but in 2016, the state was facing a budget crunch; the newest round of taxes was expected to take Colorado’s revenue collection past the TABOR cap, and it seemed likely that the governor would have to cut funds to higher education or transportation, an essential budget item in a snow-heavy state like Colorado. The governor could have instead cut the fee on the hospitals, but that would have decreased the federal matching funds.

Rather than send a revenue increase to voters for permission, as TABOR requires, the legislature and the governor instead passed SB 17-267, subtitled “Concerning the sustainability of rural Colorado.” The bill, among other things, set up the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE). As with many of Colorado’s enterprises, CHASE was an attempt by the state legislature to avoid its duties under TABOR. To exempt the hospital provider tax from the TABOR revenue cap, the legislature threw an ill-fitting “enterprise” label onto the administration of the tax and the federal matching funds.

In response to this attempt to dodge accountability to the public, the TABOR Foundation, a non-profit educational organization whose mission is to protect TABOR, sued CHASE and the Colorado Department of Health Care Policy and Financing in 2015. According to Penn Pfiffner, President of the TABOR Foundation:

“The Hospital Provider program was built on a lie, then made much worse. The people should get a final vote on tax increases and new government debt, but that was taken from them in a dishonest power grab by elected officials.”

The Foundation argues that the Hospital Provider Charge was a tax that had been levied without the requisite TABOR vote, and that CHASE is an illegal enterprise because its fees are not charged to hospitals based on services provided.

Recently, Cause of Action Institute took on the representation of the TABOR Foundation and the other plaintiffs in the case and will request summary judgment from the Colorado district court. Hopefully, this suit at minimum will indicate to lawmakers that the state might find tax policy to be less onerous (and litigious) if, next time, they simply follow their state constitution and ask voters for permission.

Yesterday’s motion for summary judgment can be viewed here.

Jake Carmin is a law clerk at Cause of Action Institute.