AGO 91-4.
Case Date | June 03, 1991 |
Court | Colorado |
Colorado Attorney General Opinions
1991.
AGO 91-4.
June 3, 1991Department of Law
Attorney General Opinion FORMAL OPINION
of GALE A. NORTON
Attorney General Opinion No. 91-4
AG Alpha No. LE SE AGASK
The Honorable Ted
Strickland
President of the Senate
State
Capitol Building
Denver, Colorado 80203 RE: Proposed Tax Incentive Legislation Concerning
Construction of a New United Airlines Aircraft Maintenance FacilityDear Senator Strickland:
By your letter of May 15, 1991, you have requested a formal
opinion concerning whether various requirements of the Colorado Constitution
would be violated by proposed legislation which would provide tax incentives
for United Airlines, Inc. ("United") to construct and operate a major aircraft
maintenance facility in Colorado. Recent estimates are that the proposal
submitted would grant United as much as $609 million in tax credits extending
over a period of 30 years. Furthermore, local economic impact estimates have
ranged from a projected net loss to the state of $117 million to a net positive
impact of $173 million. Although intriguing, these loss/gain forecasts have
played no part in my legal analysis. As Attorney General I have spent
considerable time scrutinizing the relevant constitutional provisions, and the
cases interpreting those sections. What follows is, therefore, my best analysis
of the legal issues presented and the approach Colorado courts will take in
construing such issues. Several significant issues are presented in your letter
and by the draft legislation.
QUESTIONS PRESENTED AND CONCLUSIONS
Under the proposed legislation, would the state make a donation
or grant to United contrary to the Anti-Donation Clause, art. XI, Section 2 of
the Colorado Constitution?
As this clause has been interpreted, no.
Does this legislative proposal make a private appropriation to
United in violation of the Private Appropriation Clause, art. V, Section 34 of
the Colorado Constitution?
As this clause has been interpreted, no.
Under the proposal, does the General Assembly relinquish its
power to tax corporations in violation of art. X, Sections 9 and 10 of the
Colorado Constitution?
No.
Does the proposed tax incentive legislation deny equal protection
of the laws, or amount to special legislation granting United a special or
exclusive privilege in violation of the Special Legislation Clause, art. V,
Section 25 of the Colorado Constitution?
Although the proposal raises serious constitutional concerns, it
is probable that a court would uphold it.
Does the proposed legislation create an irrevocable grant of
special privileges, franchises or immunities, in violation of art. II, Section
11 of the Colorado Constitution?
Yes, although the case law is not conclusive.
Does the delegation of power to the Governor to negotiate an
agreement that "may" provide for an income tax refund and to set the amount of
that refund, not to exceed $2,000, constitute an unlawful delegation?
Yes, although this deficiency can be remedied.
If United is entitled by this legislation to receive annual cash
payments for 30 years from future revenues otherwise available for general
purposes, would that obligation be an unconstitutional debt prohibited by art.
XI, Section 3?
Yes.
ANALYSIS
INTRODUCTION
The Colorado General Assembly will meet in special session
beginning June 4, 1991, to consider the Governor's call for legislation to
provide incentives for United to construct and operate a massive aircraft
maintenance facility at the new Denver international airport. It is in the best
interests of the state, as well as of United, that the proposed legislation be
drawn in a fashion most likely to survive a constitutional challenge. The
possibility that a court may strike down this legislation as unconstitutional
would cloud the future of the proposed maintenance facility and endanger the
potential benefit to Colorado's economy.
Many of the constitutional provisions at issue in this matter
arose at a time when citizens were greatly concerned about the undue influence
of private corporations, most notably railroads, upon government. The Colorado
Constitution's framers attempted to halt the abuse of public debt to further
speculative business ventures. Accordingly, our state constitution contains
express language banning donations (art. XI, Section 2) and appropriations to
private corporations (art. V, Section 34). Undoubtedly, the original intent of
the drafters of the constitution was to preclude the state from using public
funds to become a partner in private business ventures.
However, the Colorado Supreme Court has not applied the
constitutional language literally for decades. Over the state's history, the
court has construed these constitutional provisions to allow the General
Assembly considerable flexibility to craft solutions for economic problems so
long as any indirect benefits to private business are outweighed by the
legislation's public purpose. The legislation must contain findings of a
significant public purpose that is served by the proposed tax incentives,
because the court will scrutinize that legislative determination and measure it
against the considerable benefits accruing to United. It is very unlikely that
a court would strike down the current proposal as either an unconstitutional
donation or a special appropriation.
The proposed legislation would not violate the constitutional
provisions relating to corporate taxation. However, serious constitutional
questions would arise if the legislation purported to be irrepealable, or
impaired the financial base of government.
The proposal would not deny equal protection nor be prohibited
special legislation merely because it provides special tax incentives for
United, so long as other corporations would also be eligible if they were to
undertake a project of similar magnitude and benefits. The General Assembly has
great latitude to set appropriate restrictions on the type of project or
business that will qualify, such as minimum size limits, minimum numbers of new
jobs created, and the nature of the industry eligible for these tax benefits.
Although the courts have sometimes ruled that narrowly drawn statutes are
unconstitutional special legislation, it appears that in this case the proposed
incentives will be neither special legislation nor a denial of the equal
protection of the laws, even if only United chooses to undertake a project to
which those incentives apply.
The proposed legislation does raise some significant concerns
with respect to the constitution's prohibition of irrevocable grants. Even if
the proposed legislation does not constitute special legislation, it is
constitutionally suspect to the extent it purports to grant irrevocable
benefits to United or any class of taxpayer.
The proposed legislation also would grant the Governor undefined
discretion to determine whether tax refunds will be granted to an otherwise
eligible taxpayer, and in what amount. An open-ended delegation of an income
tax power is unconstitutional, but it appears that this difficulty may be
remedied through careful legislative drafting.
The most troubling aspect of this proposal from a constitutional
perspective is the commitment by the General Assembly to make cash payments to
United for the next 30 years. Art. XI, Section 3 of the Colorado Constitution
forbids the state from incurring a general obligation debt. The Colorado
Supreme Court consistently has interpreted that provision to prohibit the
General Assembly from pledging the revenues of future years to pay for today's
legislative commitments, thereby tying the hands of future legislatures. Unlike
the constitutional provisions relating to private appropriations and donations,
the courts have never implied a public purpose exception to the prohibition
against general obligation debt.
In my opinion, a legislative promise to make cash payments to
United for a period of 30 years from any revenues available to the state is
precisely the type of future obligation prohibited by art. XI, Section 3. A
distinction must be made between the cash payments contemplated by this
legislative proposal and a credit against taxes which does not exceed the
taxpayer's liability. In the latter case, a tax credit is simply a reduction in
a tax liability that would otherwise be due the state and does not require a
future legislature to make payments from revenues otherwise available for
general purposes. To the extent that a tax credit does not exceed the tax
liability, it does not amount to a debt of the state. Ordinarily, a future
legislature cannot be barred from repealing such a tax credit. The proposal
under consideration is significantly more burdensome because it would entitle
United to a cash payment even if United has no tax liability. If the only
source of such payments is future revenues otherwise available for the state's
expenditures, then that proposal would violate the Colorado Constitution.
It may be possible to structure an arrangement where the payment
of incentives to United in the future would not be considered a general
obligation debt. For example, any obligation could be made subject to annual
legislative appropriation or restricted to payment from an earmarked special
fund. However, the key element of any such constitutional arrangement is that
the General Assembly must remain free to change its mind and repeal future
subsidies. So long as there is no legally enforceable commitment requiring
future legislatures...
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