Recreation Advisory Board Agenda and Packet 2019 06 24

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Louisville City Council Finance Committee June 11, 2018 Page 3 of 4 • Colorado Revised Statutes (C.R.S.) Section 39-1-111.5 expressly authorizes a temporary mill levy reduction or temporary property tax credit in order to effect a TABOR refund. This section also includes a legislative declaration that the procedures set forth therein "shall be deemed to be a reasonable method for effecting refunds in accordance with [TABOR]." If desired, the refund method authorized by this statute can be used to refund excess revenue attributable to sales and use tax. • While there is no reported appellate case specifically holding that excess sales and use tax revenue may be refunded through utility bill credits, this method has been used at the state and local level without challenge. Further, we do not think a utility bill credit would face any different proportionality issue than use of a temporary property tax credit or mill levy reduction. If a utility bill credit is used, the legislative declaration in C.R.S. §39-1-111.5 would not apply but, as noted above, TABOR itself authorizes any reasonable refund method, and states refunds need not be proportional when prior payments are impractical to identify or return, which is the case for many retail sales tax transactions. • Interest is not required to be paid on the excess revenue collected unless such revenue is not refunded in the next fiscal year and suit is brought to force a refund, in which case the excess revenue will be ordered refunded with 10% annual simple interest from the "initial conduct" (i.e., December 31, 2019). See TABOR §§ 1 and 3(c). Rate Reduction. As noted above, TABOR Section 3(c) also states that if a tax increase exceeds an estimate in the ballot issue notice for the same fiscal year, "the tax increase is thereafter reduced up to 100% in proportion to the combined dollar excess...". Thus, absent "later voter approval," this language appears to require the City reduce the rate of the tax on a going forward basis if revenues exceed estimates for the first full year of collection. TABOR is not clear when the rate reduction must be applied. In a legal memo addressing the State's obligations with respect to excess marijuana taxes, the Office of Legislative Legal Services interpreted TABOR to require the rate reduction to begin with the next fiscal year—i.e. beginning January 1, 2019 as applied to the City's recreation tax. TABOR is also unclear on how to reduce the rate "in proportion to the combined dollar excess." This language could mean that the amount of combined dollar excess is compared to the amounts actually brought in, or, alternatively, compared to the estimated tax increase, to determine the percentage by which the rate would then be reduced. Finally, it is not clear how "de-Brucing" language in a ballot issue may affect the rate reduction requirement. The Colorado appellate courts have not issued an opinion on these issues, though there is currently pending litigation in this area (discussed below). This dearth of case law is due in part to the limited instances of revenues exceeding estimates and that where this has occurred, jurisdictions have obtained later voter approval to retain revenues generated by the previously approved tax. However, we understand several jurisdictions are currently facing this issue because of strong revenue growth. Later Voter Approval. As noted above, TABOR Section 3(c) requires a rate reduction and refund, "except by later voter approval." Thus, the City could refer a ballot issue to the voters requesting approval to retain excess revenue and/or maintain the previously approved tax rate. While it may be