Let’s get constructive in the debate about interpreting Issue 300
By Seth Richardson
The City Council has asked for more public input on how the City should interpret Issue 300 to make it work, so here’s my input. I decided rather than write more about principles, I’d write some policy instead. That way nobody can say I didn’t participate.
If you like this draft, or parts of it, contact the Council and express yourself. Send them a printout or a link to this article. If you have a better idea, then provide your own suggestions. This is a first draft that I put together today, and I’ll likely be fine-tuning it a bit, so please use the comments section to point out any egregious errors you might find or give me any suggestions of what I might add or change.
Pay particular attention to the actual ordinance, which begins after all the “whereas” clauses.
The first meeting between Douglas Bruce and the City will be Wednesday afternoon, so there’s no time to waste.
ORDINANCE NO. 10-_______
AN ORDINANCE ADDING A NEW ARTICLE 10 (INITIATED ORDINANCE PERTAINING TO ENTERPRISES) OF CHAPTER 14 (MUNICIPAL ENTERPRISES) OF THE CODE OF THE CITY OF COLORADO SPRINGS 2001, AS AMENDED, PERTAINING TO ENTERPRISES
WHEREAS, at the November 3, 2009 Coordinated Election the electorate of the City of Colorado Springs approved an initiated ordinance, “Issue 300″; and
WHEREAS, Issue 300 pertains to enterprises that operate as municipal-owned businesses; and
WHEREAS, City Council has received information concerning Issue 300 from its author and sponsors and from members of the public through presentations at City Council meetings, telephone calls, e-mails, letters, and media coverage; and
WHEREAS, this information gave insight into these individuals’ beliefs concerning the meaning and effect of Issue 300; and
WHEREAS, there was no unanimous public agreement on the meaning and effect of Issue 300; and
WHEREAS, it was not the stated or evident intent of the proponents of Issue 300 to prevent or prohibit the creation or operation of city-owned enterprises pursuant to Article X, Section 20 of the Colorado Constitution; and
WHEREAS, City Council concludes that the voters intended for enterprises to function in substantially the same manner as for-profit businesses and did not intend for the City to subsidize the enterprises in any manner; and
WHEREAS, the evident intent of the citizens of Colorado Springs in making Issue 300 law is to prevent the City of Colorado Springs from using its enterprise powers to generate a net increase in general government revenues through the imposition of fees charged by an enterprise, rather than collecting such fees solely to defray the costs of providing the goods and services for which the enterprise was created; and
WHEREAS: The Colorado Supreme Court has ruled that a fee is not designed to raise revenues to defray the general expenses of government, but rather is a charge imposed upon persons or property for the purpose of defraying the cost of a particular governmental service; and
WHEREAS: The Colorado Supreme Court has ruled that the collection and transfer to general revenue purposes by government of revenues collected as fees for the purposes of defraying the costs of a specific good or service in excess of the actual costs of providing that good or service makes the revenue a tax, not a fee; and
WHEREAS, Article X, Section 20 of the Colorado Constitution, known as the Taxpayer Bill of Rights (TABOR) prohibits the imposition of any new tax without an affirmative vote of the people; and
WHEREAS, the Attorney General states in a formal legal opinion (AG Alpha No. HE CU AGAUN, December 22, 1995), “The term “business” as used in TABOR refers not solely to the identity of the customer, but also to the nature of the entity, the type of activity engaged in, and to whether the economic transactions involved of the sort clearly undertaken for the purpose of gain or profit within the private sector. Specifically, to meet the “business” requirement, such an enterprise must be an independent, self-supporting government-owned business that receives income, fees, and revenue in return for the provision of goods and services. The very concept of an enterprise under TABOR envisions an entity that is owned by the government institution, but is financially distinct from it. The financial affairs of the enterprise must be those of a self-supporting business-like activity that provides goods and services for a fee. Second, to be considered a “business” the enterprise must engage in the kind of activity that is commonly carried on for profit outside the government. In this respect, the activities engaged in between the enterprise and the [enterprise’s owner] must bear the indicia of arms-length, market exchanges and goods and services must be provided at a market-rate sufficient for the independent operation of the enterprise. [An] enterprise could provide its services … so long as the enterprise is operated as a self-supporting business activity and the transactions between the enterprise and [the enterprise’s owner] are market exchanges taking place in a competitive, arms-length manner. This requirement is necessary to eliminate the concern that such a transaction is merely a subterfuge designed to circumvent the debt limitation provisions of TABOR. Moreover, where an enterprise is also providing market driven services to the public, as here, there is a greater likelihood that the enterprise meets TABOR restrictions. This is both a legal and fact-based assessment”; and
WHEREAS, Issue 300 requires the phase out of payments from an enterprise to the City over a period not to exceed eight (8) years, and effectively prohibits payments from an enterprise to the City after the phase out period; and
WHEREAS, Issue 300 requires that the savings realized from the phase out of payments from an enterprise to the City be passed on to customers as reductions on each customer bill; and
WHEREAS, Issue 300 expressly prohibits enterprises and the City from providing loans, gifts, and subsidies to each other; and
WHEREAS, when strictly construed according to the plain language, the prohibition on gifts, loans or subsidies prohibits an enterprise from providing essential utilities and services to the city, or to another enterprise free of charge; and
WHEREAS, the exchange of consideration to avoid a subsidy or gift could be construed as a payment according to a strict interpretation of the plain language of Issue 300; and
WHEREAS, savings from the phase out of enterprise payments to the City may not necessarily result in a reduction in customer bills because other financial factors may require fees, rates, and charges to be increased more than the savings realized from the phase out of payments to the City; and
WHEREAS, the constraints of Issue 300 place impossible conditions upon the City and its enterprises and causes an absurd result that the city-owned public utilities enterprise cannot make use of city-owned infrastructure, services or assets without paying for such use, while at the same time the enterprise is forbidden to pay for such use under a strict interpretation of the plain language of Issue 300; and
WHEREAS, city-owned enterprises are a fiscally-sound and efficient way to provide certain services and amenities to the citizens of Colorado Springs at low cost and without general tax implications, which is a benefit to the citizens; and
WHEREAS, transfer of city-owned assets, real estate, and infrastructure to an enterprise comprises a gift, which is prohibited by Issue 300; and
WHEREAS, without the benefit of defined terms in the text of Issue 300, the prohibition of payments mandated in the first sentence of Issue 300 conflicts with the prohibition against the provision of gifts and subsidies between an enterprise and the City mandated in the second sentence of Issue 300; and
WHEREAS this conflict between the two sentences of Issue 300 can be resolved by defining the terms used in the text of Issue 300; and
WHEREAS, Issue 300 contains words and phrases that conflict with the City Charter, including but not limited to §§ 3-10(d), 6-40(b), 7-30(c), 7-90,13-80, and 13-90; and
WHEREAS, the Colorado Court of Appeals in Vail Associates v. Bd. Of Assessment Appeals, 765 P.2d 593 (Colo. App. 1988) and the Colorado Supreme Court in Flanders v. City of Pueblo, 114 Colo. 1, 160 P.2d 9~0 (1945) upheld a city council’s obligation to ensure that ordinances conform to its city charter and upheld a city’s authority to harmonize conflicting provisions; and
WHEREAS, because Issue 300 is subject to multiple interpretations and conflicts with the City Charter, it is necessary to define terms to implement the intent of the voters, to give meaning to Issue 300 as a whole, and to construe Issue 300 to harmonize its provisions with the City Charter; and
WHEREAS: it is the intent of the City Council to honor to the fullest extent possible the purpose and intent of Issue 300 and TABOR, and at the same time adhere to its fiduciary duty and obligation to the citizens of Colorado Springs to provide government services and amenities at a reasonable cost and protect the title to and value of city-owned assets.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF COLORADO SPRINGS:
Section 1. That a new Article 10 (Initiated Ordinance Pertaining to Enterprises) of Chapter 14 (Municipal Enterprises) of the Code of the City of Colorado Springs 2001, as amended, is hereby created to read as follows:
14.10.101: Legislative Declaration
14.10.102: Initiated Ordinance
14.10.101: LEGISLATIVE DECLARATION:
At the November 3, 2009, Coordinated Election, the voters of Colorado Springs approved an initiated ordinance, “Issue 300.” The initiated ordinance presented to the voters did not define terms or give guidance for its implementation. The wording of Issue 300 is susceptible to more than one meaning. City Council has considered evidence pertaining to the effect and meaning of Issue 300 from it author, its proponents, and members of the public. However, in accord with Colo. Const. Art. XX, § 6, Charter §§ 1-30(a) and 3-130, City Code § 1.1.104 and well-settled case law, it falls to the City Council to enact legislation to implement and further the purposes of Issue 300 absent defined words and phrases in the initiated ordinance presented to the voters. To that end, the City Council hereby implements the intent of the voters by giving meaning to Issue 300 as a whole and construing Issue 300 to harmonize its provisions with the City Charter and to provide certain rules and principles for the operation of City enterprises.
14.10.102: ISSUE 300:
“Excluding sales and use taxes forwarded from enterprise customers, all enterprise payments to the city shall phase out in eight or fewer equal yearly steps starting in January, 2010, with all yearly savings passed on as reductions to each customer bill in dollar amounts as equal as possible. Hereafter, all loans, gifts, and subsidies between an enterprise and the city or another enterprise are prohibited.”
The following definitions apply to this Article:
“ALL YEARLY SAVINGS PASSED ON AS REDUCTIONS TO EACH CUSTOMER BILL IN DOLLAR AMOUNTS AS EQUAL AS POSSIBLE” means enterprise fees, rates, and charges as established in the regular course of business, including any savings resulting from the phase out of enterprise payments to the City.
ASSET means a tangible or intangible asset regardless of whether the asset provides direct or measurable benefits to the City or the enterprise. “Asset” includes, but is not limited to: (i) cash and other funds; (ii) services, including studies and reports, provided by consultants, (iii) police and fire services consumed or made available, (iv) street and traffic services consumed or made available, (v) all other City services used, consumed or made available, (vi) memberships in organizations that provide technical advice and services, (vii) real estate, and (viii) any other asset that confers value or is intended to confer value.
CITY means the municipal government of the City of Colorado Springs, Colorado. For purposes of this article only, “City” does not include enterprises of the City.
CONSIDERATION means anything of value, and includes any direct or indirect service, benefit, cash, or other tangible or intangible asset, regardless of whether or how the service, benefit, or other tangible or intangible asset can be measured.
ENTERPRISE means a business function that (i) qualifies as an “enterprise” under Colo. Const. art. X, § 20(2)(d), (ii) qualifies under Charter § 7-90(b)(5), and (iii) is classified as an enterprise by the City. Enterprise includes the municipal enterprises, Colorado Springs Utilities, and the Memorial Health System.
GIFT means a benefit or a transfer of an asset without consideration. “Gift” includes the transfer of funds made solely because an enterprise is exempt from the obligation to pay taxes. “Gift” does not include a transfer of funds if the funds are held in a fiduciary capacity. “Gift” does not include the transfer of funds to the general revenues of the City of the remaining surplus of the net earnings of Colorado Springs Utilities if the transfer is authorized in the annual budget and appropriation ordinance adopted by City Council, as provided in Charter § 6-40(b), provided that such surplus net earnings are not substantial in amount and are accrued in the normal course of business as unanticipated and unintentional surpluses caused by conditions or events beyond the control of the enterprise. “Gift” does not include a transfer of funds to satisfy an obligation existing as of the date Issue 300 became effective, or a transfer of funds required by law. “Gift” does not include a transfer of funds for the purpose of making an investment, or a transfer of funds that represents a return on an investment.
LOAN means the undertaking of a financial obligation of the City by an enterprise, or the undertaking of a financial obligation of an enterprise by the City.
Except as otherwise stated herein, PAYMENT means any money transferred from an enterprise to the city, including money transferred to the city as reimbursement for any goods or services provided by the city that creates an increase in the net annual revenues of the city, or which is in excess of the fair-market value of the goods or services or the amount charged to private customers of the same class and kind for publicly-available goods or services offered by the City and received by the enterprise. “Payment” also means any money transferred from an enterprise to the city which is ultimately used to defray the general expenses of government other than small amounts of incidental, unintentional, inadvertent surplus revenues collected in the ordinary course of business as the result of unforeseen circumstances by the Colorado Springs Utilities Enterprise. “Payment” does not mean money transferred between an enterprise and the city, or between enterprises, or between an enterprise and a private vendor that is the result of a market-based, fair-market-value arms-length commercial transaction that provides value for value in the exchange of money for services or goods in accordance with the provisions of this section.
SUBSIDY means the transfer of money from the city to an enterprise, or between enterprises, for the purpose of enabling an enterprise to sell one or more of their products or services at a price below their costs of production. “Subsidy” does not mean the use by an enterprise of common public services and facilities including but not limited to streets, sewers, gas lines, storm sewers, electrical grid infrastructure, police and fire protection, public streets or other services, assets or facilities that are also available to the general public without the payment of a special fee. “Subsidy” does not mean the use by an enterprise of city-owned equipment where such use is deemed to be the most economical and cost-effective way of providing services to the general public. Subject to the other provisions of this section, “Subsidy” does not mean the transfer of money from the city to an enterprise that in annual aggregate does not exceed 10 percent of the enterprise’s annual revenues.
A. This Article 10 applies to the City, all municipal enterprises, Colorado Springs Utilities, and Memorial Health System.
B. In valuing consideration, relevant factors shall include only the competitive, free-market fair-market value of such consideration.
C. Issue 300 shall not be read to conflict with Charter § 3-10(d) or to prohibit the payment of fair-market reimbursement to the City Attorney, City Clerk, City Treasurer, and City Auditor for specific and documented services provided to an enterprise, provided that the use of such services shall not be mandatory, and shall be restricted to services provided regarding the relationship between the enterprise and the City. Accounting, legal and audit services for internal operations and control within an enterprise shall be subject to the provisions of paragraph H below. Under no circumstances shall the expenses of the City incurred for oversight, supervision or external audit of any enterprise be charged to or paid for by the enterprise. External oversight, supervision, accounting, recording or other City Clerk services, and legal review and oversight of enterprises are general expenses of the City and the costs of all external oversight and supervision activities of an enterprise by the City shall not be deemed to be a reimbursable expense of an enterprise.
D. Issue 300 shall not be read to conflict with Charter § 6-40(b) or to prohibit the appropriation of any remaining surplus of the net earnings of Colorado Springs Utilities to the general revenues of the City by City Council in its annual budget and appropriation ordinance, provided that such surplus net earnings do not meet the definition of “payment.”
E. Issue 300 shall not be read to conflict with Charter § 7-30(c) or to prohibit City Council from apportioning its budget among the City’s general fund, Colorado Springs Utilities, and Memorial Health System based upon a reasonable allocation method as City Council may determine, provided that no aggregate apportionment or transfer of revenues from any city fund or account to any enterprise may exceed 10 percent of the enterprise’s annual revenues, in accordance with the definition of “enterprise” found in Article X, Section 10 of the Colorado Constitution.
F. Issue 300 shall not be read to conflict with Charter § 7-90 or to prohibit the City from creating or maintaining enterprise operations in accordance with law.
G. Issue 300 shall not be read to conflict with Charter §§ 13-80 and 13-9.0 or to prohibit the City Attorney and the City Attorney’s Assistants from serving as the legal advisor to the City and the enterprises in matters pertaining to legal advice or services regarding the relationship between the enterprise and the City, including but not limited to personnel, payroll, audits, Workman’s Compensation, health insurance, pensions and contracts requiring obligations of the City at no cost to the enterprise. An enterprise making use of the City Attorney or the City Attorney’s Assistants for the purposes of obtaining legal advice on any other matter shall reimburse the City for such legal counsel at its fair market value. Enterprises are encouraged to obtain legal advice on routine business matters from private vendors as stated in paragraph H below.
H. Issue 300 shall be read in all possible and reasonable cases to prudently create market-based competitive business incentives and authority for enterprises to select vendors for services and goods from whichever source, public or private, provides the best service for the lowest price. In considering vendors for services and goods, enterprises shall make decisions based on good business judgment and according to the enterprise’s fiduciary duty to serve the public in the most efficient and economical manner, and consistent with best management practices for private businesses of a similar nature. To this end, except as provided herein, no enterprise shall designate, nor shall the City require the use of any sole-source provider for any services or goods obtained by an enterprise, with the sole exception of services from publicly-available public utilities including but not limited to electricity, water, sewer and natural gas, that are publicly-owned and operated as monopolies in the area in which the enterprise operates. In all other areas, and wherever competitive commercial services are available, including but not limited to telecommunications services, they shall be obtained from among the various public and private vendors serving the particular need based on a decision by the enterprise, in its sole discretion, that comprises best management practices for private business and industry and best serves the public interest and the purposes of TABOR. Whenever it is reasonable and prudent to do so, enterprises shall engage in competitive bidding for services and goods in order to obtain the best goods and services at the lowest possible cost to fee-paying customers.
I. All enterprises shall operate only in the public interest, and all fees for services or goods provided shall at all times be the lowest possible fee that provides sufficient revenue so that the enterprise can offer excellent service to its customers consistent with the best management practices for similar private industry and business. In no case shall any fee or charge by an enterprise be more than is reasonably necessary to defray the actual costs of the services and goods provided, subject to best management practices for private industry and business and subject to the acquisition of reasonable cash reserves for the purposes of necessary maintenance, repair, and expansion of the enterprise’s operations and infrastructure and unanticipated emergency situations.
Section 2. This ordinance shall be in full force and effect from and after its passage and publication as provided by Charter.
Section 3. Council deems it appropriate that this ordinance be published by title and summary prepared by the City Clerk and that this ordinance shall be available for inspection and acquisition in the office of the City Clerk. Introduced, read, passed on first reading and ordered published this __ day of ____________, 2010.
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