If a person wants to build a single-family home within the Pagosa Springs town limits, he or she must pay $3,342 in Town “impact fees.” That money is purportedly earmarked for the “impacts” that the new residents — who will occupy this new house — will have on roads, recreation facilities, public buildings, parks, trails, emergency services and schools. (Assuming that the people who will occupy this new house haven’t already lived in Pagosa for maybe 25 years.)
The justification typically offered for such fees, is: “growth must pay for growth.”
We are working, here, under the assumption that there is a difference between a “tax” and a “fee.” The Colorado Constitution specifically requires voter approval for tax increases, and for the creation of a new tax — but no such voter approval is required for fee increases, or for the creation of a new fee.
Obviously, the difference is of some significance, here in Colorado.
A recent Colorado lawsuit can help us understand how one particular panel of judges defined the difference between a “tax” and a “fee.”
In 2009, during a particularly difficult period in the financial life of the Colorado state government, the state legislature created a new government agency called the Colorado Bridge Enterprise (CBE). The agency began charging a new “fee” as part of your vehicle registration fee; the money was (purportedly) to be used for repairing state-maintained bridges. The state did not seek voter approval for the new surcharge.
In 2012, the TABOR Foundation filed a lawsuit against the state, arguing that the “fee” was in fact a “tax” — and was thus prohibited by the state’s Taxpayer Bill of Rights (TABOR) unless approved by the state’s voters. During the deliberations, the Colorado Court of Appeals disagreed with one of the TABOR Foundation’s arguments: that the surcharge is a “tax” because it is collected without regard to any services used by the vehicles for which the charge is imposed.
The court laid out three factors that it weighed in determining whether a surcharge is a tax or a fee:
1. The primary purpose of the charge as discussed in the enabling statute;
2. The primary purpose for which the revenue is raised; and
3. Whether the primary purpose of the charge is to finance or defray the cost of services provided to those who must pay it.
Here we will pause for a moment, and consider a real world example.
You stop by the Town Building Department with your house plans, and you pay your building permit fee. The building permit fee is a “fee,” and not a tax, because the money collected is used exclusively to operate the Town Building Department; the money is never used for general government operations. Additionally, the “fee” is not a “tax” because the person paying the fee is getting a direct benefit from the services provided by the Building Department.
Once your house is built, you are assessed a property tax on the new structure. This charge is a “tax” because the tax you pay is used to fund a wide variety of government operations. You may, or may not, get any direct benefit, personally, from the money you pay in property tax. That’s a tax.
In the case of TABOR Foundation v. Colorado Bridge Enterprise, the Court of Appeals found that the CBE surcharge met the first two factors. The bridge safety surcharge is intended to finance, repair, reconstruct and replace any designated Colorado highway bridge, under the statute passed by the state legislature. Further, the money raised does not defray the costs of general state expenses — the funds collected can be used only for the purpose of financing, repair, reconstruction and replacement of designated bridges. (An audit of the program later uncovered some questions about how the funds were actually being used.)
But did the CBE “fee” actually provide a direct benefit to the person paying the surcharge? That was the third factor the court wanted to consider.
At the trial court level, two members of the TABOR Foundation had testified that they objected to paying the bridge safety surcharge on at least one of their vehicles, because they used those vehicles only within their home county, where there were no CBE-designated bridges. But the court did not agree with the TABOR Foundation’s position that there must be a ‘direct nexus’ or physical connection between an individual’s use and the permissibility of a ‘user fee.’ While the court did acknowledge that this argument was the “only factor that could indicate that the charge is actually a tax” — because persons registering their vehicles might never use a CBE bridge — it declined to hold that a specific nexus was required.
The TABOR Foundation appealed the case to the Colorado Supreme Court.
“The Colorado Supreme Court must decide what is a tax and what is a fee to ensure the will of the people is protected,” said William Perry Pendley of Mountain States Legal Foundation, the firm representing the TABOR Foundation in the case.
He did not get his wish. The Supreme Court refused to review the case.
But since we are talking about the Town of Pagosa Springs and its “impact fees,” we can raise some additional questions.
1. Are impact fees unfair? That is to say, should a person be required to pay $3,342 for municipal infrastructure “impacts” simply because he is building (much needed) new housing — while a person purchasing an existing house pays nothing?
2. Are impact fees a dumb idea, in a community struggling with a housing crisis?
3. Is “growth” a bad thing that should be penalized by additional fees?
4. Has the Town Council in fact had a history of subsidizing certain developers?
Back in 2015, the Town of Pagosa Springs had managed to stash away $449,632 in “road impact” fees, collected from people building new residential and commercial buildings within the town limits. (They had another $163,539 stashed in various other “impact fee” and “trust” accounts.)
The “road impact fees” were legally required to be used specifically for “roads” — not for “general government.” Granted, of course, that maintenance of roads is one of the primary functions of general government. But the Town’s impact fee regulations implied that the newcomers to town had caused — or would soon cause — somewhere in the neighborhood of $449,632 worth of “new impacts” to the Town-maintained roads.