Colorado AG: hospital provider fee OK as an enterprise fund; change could help with road funding

Colorado Attorney General Cynthia Coffman issued a formal legal opinion today that says the Legislature can convert the state’s hospital provider fee into an enterprise fund as a way to boost available tax money for road improvements and education.

In an unusual move, Coffman’s opinion backs Democrat Gov. John Hickenlooper’s position rather than her Republican legislative leaders on the controversial issue.

The question posed was whether the General Assembly could establish an enterprise fund with the hospital provider fee revenues and have it be exempt from revenue limitations of the Taxpayers’ Bill of Rights (TABOR).

Coffman wrote in an opinion released today that there are three considerations that determine an entity’s status as a government-owned business, which is one of the requirements for establishing enterprise funds under statute. An enterprise fund has to:

  • Lack the power to tax;
  • Provide government services in exchange for involuntary fees levied on service recipients; and
  • Be financially distinct from its parent agency.

“Today’s formal opinion concerning Colorado’s Hospital Provider Fee is a thoroughly researched legal analysis based on the language of the constitution and informed by Colorado court interpretations of TABOR,” Coffman said in a statement. “It answers a narrow legal question and outlines the minimum requirements under current law to create a ‘government-owned business’ under TABOR.”

Coffman, who was traveling Monday, continued in the statement:

“While some may attempt to politicize this legal conclusion, my opinion is based solely on the law and its application to the facts. The debate over whether to create a Hospital Provider Fee enterprise can now shift back to the General Assembly,” Coffman said.

Democrats and business leaders have ramped up a campaign over the past month to persuade Republicans to pull the seven-year-old hospital provider fee out from under the state’s Taxpayer Bill of Rights revenue caps. That would create more room in the general fund for lawmakers to appropriate money for roads and education, both top priorities of most business organizations.

Otherwise, lawmakers will have to ask taxpayers to approve an increase in the gasoline tax or other tax to generate funds for highways. Some groups have advocated that the state do both: Create the enterprise fund from the hospital fee and OK new taxes or bonding authority for roads.

Coffman’s opinion now means there are dueling legal opinions on the subject. Colorado’s Office of Legislative Legal Services told Senate President Bill Cadman in January that the Legislature could not convert the hospital provider fee into an enterprise fund for the road improvements.

“There is no ‘maybe’ in this opinion. Our attorneys say it shall not stand,” Cadman said at a news conference in January. “And we’re going to honor it just like we honor the Constitution.”

The hospital provider fee was enacted in 2009 as part of the Colorado Health Care Act, which was intended to expand the federal-state Medicaid program to help hospitals pay for the rising costs of providing uncompensated emergency department care and other medical services to low-income and uninsured populations.

The Act created a hospital provider fee cash fund, but at the time, lawmakers didn’t make it exempt from the TABOR revenue caps. When revenues exceed the caps, lawmakers are forced to pay tax refunds.

Restricting the revenues collected by the hospital provider fees under an enterprise fund solves the problem, proponents argue, and gives lawmakers more flexibility to set aside general fund dollars for roads, bridges and education.

Republicans don’t deny problems with road funding. GOP leaders have said the Legislature should refer a measure to voters to specifically raise taxes for highways or create a bonding authority to fund road construction and repair.

Monica Mendoza covers banking and financial services, legal services, the economy and economic development, and sports business and contributes to the “Finance & Law” blog. Phone: 303-803-9230.

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