It was supposed to be an easy fix. Instead, a two-day special session of the Colorado legislature ended in an angry standoff on Tuesday as Democrats advanced two bills to fix an unintended tax cut created by a bipartisan spending bill—both of which were promptly defeated by the Republicans. Until the issue is resolved, special districts that fund local transportation, housing assistance, hospitals, and cultural facilities, such as the Denver Art Museum (DAM), can no longer collect their share of sales taxes on recreational marijuana.
What Is A Special Session?
In addition to the regular 120-day legislative sessions of the Colorado General Assembly, the governor can call special sessions “on extraordinary occasions” to resolve specific issues. The governor makes a proclamation stating when the special session will be held and what subjects it will consider.
Special sessions are rare; the last one was held in 2012 to consider civil unions. In 2006, legislators voted on a sweeping package of immigration bills. And in 2002, the legislature met to address the death penalty. This time, Governor John Hickenlooper called lawmakers back to the Capitol to fix an unintended mistake in a bipartisan 2017 spending bill to fund rural hospitals and roads, which is preventing local districts from collecting marijuana taxes.
What Mistake Did Lawmakers Make?
The Sustainability of Rural Colorado bill (SB17-267) was arguably the biggest achievement of the 2017 legislative session. It prevented deep budget cuts to rural hospitals while funding $1.9 billion for transportation, and the bill was held up as a model for bipartisan cooperation.
One way the bill achieved its spending goals was to raise Colorado’s retail marijuana sales tax from 10 percent to 15 percent (the maximum allowed by voters). To keep marijuana sales taxes from going over that 15 percent limit, the bill exempted marijuana from Colorado’s regular sales tax of 2.9 percent.
But lawmakers—who put together the final bill in the session’s final days—forgot that special districts such as Denver’s Regional Transportation District (RTD) and Science and Cultural Facilities District (which, for example, funds DAM and the Denver Zoo) collect their piece of the marijuana tax pie through the state’s regular 2.9 percent sales tax. As of July 1, 2017, these special districts can no longer collect their share of marijuana taxes.
What Are Special Districts, Anyway?
Special districts are a form of local government first created to provide essential services such as fire protection and sewer services to residents in Colorado’s early mining camps, according to the Special District Association. The Colorado General Assembly formally recognized special districts in 1949 as a form of local government that helps cities and counties provide services such as ambulances, hospitals, libraries, parks, water, sanitation, transportation and the arts to their residents. Today, Colorado has more than 2,700 special districts.
A handful of special districts will lose $4.4 million in the current fiscal year and $8.6 million in the next fiscal year, according to a fiscal note from the special session, with RTD taking the biggest hit. The districts testified to lawmakers that they aren’t cutting services yet, but say all tax revenue is important and the loss will get bigger over time. If the legislature doesn’t fix the mistake when it reconvenes in January, lost tax revenue for the 2018-19 fiscal year will include:
- Regional Transportation District: $7,420,000
- Scientific and Cultural Facilities District: $742,000
- Gunnison Valley RTA: $79,000
- Roaring Fork RTA: $154,000
- San Miguel RTA: $12,000
- Summit Combined Housing Authority: $79,000
- Montezuma Hospital District: $40,000
What Happened During The Special Session?
Gov. Hickenlooper called the special session to immediately restore the taxing authority of special districts so no further revenue is lost. The bipartisan law makers who sponsored the bill agree that the tax change was an unintentional error and needs to be fixed. But that’s where the agreement ended.
Democrats, who control the House, say it’s the legislature’s responsibility to fix the error they caused. Republicans, who control the Senate, disagreed. They say the special session—which cost taxpayers $25,400 a day—was wasteful. Republicans also expressed irritation that they weren’t consulted on a fix before the special session was called.
Beyond their pique, Republicans also claimed that restoring the special districts’ tax authority might violate the Colorado’s Taxpayer’s Bill of Rights, which states that voters need to approve any tax increases. Republicans argue that while the legislature has the authority to cut taxes, it can’t raise them (even to correct a mistake) without an okay from voters.
Democrats point out that voters already approved the taxes once, and special districts shouldn’t have to pay for a second election just to approve the fix. They add that refusing to correct the legislative error ignores the will of the people. Democrats also say that Colorado courts allowed lawmakers to make small tax changes in the past without voter approval and case law is on their side.
How Did It End?
On Monday, the Senate Transportation Committee killed the senate’s bill to fix the tax error. In the meantime, the House approved its own bill to correct the mistake and sent it to the Senate for approval. On Tuesday, the Republican majority in the Senate Transportation Committee axed the House bill with a 3-2 vote, effectively ending the special session.
Democratic Gov. Hickenlooper blamed partisan politics for the failure to find a solution: “The special districts will continue to have unintended funding cuts—cuts that will have real implications for Coloradans,” he said in a statement.
Republican Senate President Kevin Grantham said time was the issue. Despite Republicans’ concerns over lawmakers’ authority to reinstate taxes, he said in a statement: “We agree that finding a solution to the bill-drafting mistake is possible.” Both sides now have until January to find a solution.
In the end, Republicans claimed that calling the special session in the first place was a waste of money, while Democrats said refusing to cooperate once the session was called was a waste of time. Considering that no solutions were found, both may be correct.