The survival of Colorado’s paid family and medical leave program, which nearly 58% of voters supported two years ago at the ballot box, may come down to a single sentence in the most controversial part of the state’s constitution: the Taxpayer Bill of Rights.
On Tuesday, the Colorado Supreme Court considered the arguments of a Grand Junction-based construction company, which is challenging the constitutionality of Proposition 118, also known as the Colorado Paid Family and Medical Leave Insurance (FAMLI) Act. The ballot initiative created a right of up to 12 weeks of paid leave for most workers beginning in 2024 and job protections for those who choose to take it. Starting next year, premiums on employers’ payrolls will take effect to fund the benefits.
In the view of Chronos Builders, LLC, those premiums run afoul of Section 8(a) of TABOR, a 1992 state constitutional amendment, which requires that incomes be taxed at a flat rate “with no added tax or surcharge.”
“This fee is trying to get around the flat tax,” Daniel E. Burrows of the conservative advocacy group Advance Colorado argued on behalf of Chronos Builders.
The attorney general’s office maintained that the premium on wages, which varies based on the size and nature of the employer, is neither a tax nor a surcharge, but a fee. In exchange for paying the fee, there is a specific service provided: 12 weeks of annual leave.
Moreover, said Assistant Solicitor General Noah C. Patterson, Section 8(a) of TABOR applies solely when there is an “income tax law change.”
“The premium here is not an income tax law change. We think that is all the court needs to decide to resolve this case,” he explained.
The case before the Supreme Court implicated the complexities of TABOR, which has been the subject of numerous legislative and legal efforts to repeal or work around its constraints. Among its most well-known provisions, TABOR caps state spending according to a formula and requires a popular vote to raise taxes or implement new taxes — but not fees.
TABOR also took the state’s flat income tax, which the legislature created in 1986 after a half-century of progressive taxation, and enshrined it in the constitution.
Multiple organizations and individuals weighed in to the Supreme Court asking the justices to uphold the FAMLI Act, arguing that paid leave will benefit new parents, sexual assault survivors and military families experiencing deployments, among other groups.
“Prior to passage of Proposition 118, Coloradans lacked the legal right to any paid leave when welcoming a new child or facing a personal or family member’s serious illness. The only law covering such absences was the federal Family and Medical Leave Act of 1993 which provides up to 12 weeks of unpaid leave and only covers a portion of the workforce,” wrote a collection of progressive organizations including the AFL-CIO and the Bell Policy Center.
Another supporting brief from Good Business Colorado, the Small Business Majority and eight individual business owners argued that the FAMLI Act is critical for workers suffering from “long COVID” or other chronic conditions who could relapse on the job.
Chronos Builders originally filed suit in Denver District Court seeking to block the new government-run enterprise overseeing the $1.2 billion paid leave program from collecting payroll premiums in 2023. In December, Chief Judge Michael A. Martinez dismissed the lawsuit, finding that the premiums were not an income tax law change and, therefore, did not fall under TABOR’s restrictions.
Both sides agreed to ask the Supreme Court to take up the appeal directly, and the justices granted the request.
During oral arguments, members of the court repeatedly returned to Section 8(a)’s application to any “income tax law change,” and pointed out that Chronos Builders had already acknowledged that the premium was not a tax, but a fee.
“This applies to income tax laws, and the law we’re talking about here isn’t an income tax law,” said Justice Melissa Hart.
“What is the tax law change to which this surcharge is appended?” asked Justice Richard L. Gabriel.
Burrows responded that the premium on wages “operates on top of the existing tax. That’s what makes it a surcharge on income.”
The arguments also turned to the distinction TABOR makes between taxes for general government operations and fees that fund enterprises, or government-run businesses that provide a specific services. Chief Justice Brian D. Boatright wondered whether the government could increasingly choose to fund itself through fees and enterprises as a way of working around TABOR’s constraints on taxation.
“Hypothetically, with your model, would the government be able to say that we’re gonna add a 5% surcharge on any income over $1 million and we’re gonna fund the department of homelessness or unhoused? And because it’s going to a specific purpose, does that get around” TABOR, he asked the government.
No, responded Patterson, because the fees a person pays have to relate to the services they receive.
“The reason why this free is calculated based on income is because the service that’s being provided is wage replacement, which is an income-related service,” Patterson said of the FAMLI Act’s wage premiums.
The attorney general’s office warned that if Chronos Builders prevailed and the premium were deemed unconstitutional, that would call into question the existence of the state’s unemployment insurance program, which also operates through premiums on employee wages.
Burrows attempted to distance paid family and medical leave from unemployment insurance, saying the fate of the two programs was not tied together. He said that the unemployment insurance system existed before TABOR’s enactment, and even though the General Assembly converted the program to an enterprise in 2009, the change was “solely an accounting maneuver.”
In contrast, Patterson insisted to the justices that Chronos Builders’ argument that any income-based fees violate TABOR could ensnare the unemployment insurance program. The plaintiff’s interpretation of Section 8(a) “would foreclose an entire category of government services, and that is income-related services,” he said of paid leave.
Patterson conceded, however, that the unemployment insurance and FAMLI Act programs were likely the only services the court’s ruling would affect. Burrows seized on that concession as an indication that the government’s rhetoric was overblown.
“I think it’s interesting that they say this would cripple government services and yet we have almost no examples of government services it would cripple, except this one program that hasn’t existed for 146 years and is only available in eight states at this point,” he said.
Oral arguments did not touch on other issues raised by the parties and their outside supporters, including the standard for striking down the FAMLI Act’s premiums. The government believed the Supreme Court needed to decide whether the premiums were unconstitutional beyond a reasonable doubt, the lens courts use in Colorado when examining legislation.
Chronos Builders did not believe that standard applies to citizen-initiated changes in the law. The libertarian Independence Institute, while not writing in support of either party, agreed that beyond a reasonable doubt was not the correct principle because TABOR uniquely directs courts to interpret its provisions in the way that “shall reasonably restrain most the growth of government.”
If, as the district court found, TABOR does not apply to the case, there will be no need to use that interpretation. (Jon Caldara, president of the Independence Institute, is an opinion contributor to Colorado Politics.)
The case is Chronos Builders, LLC v. Department of Labor and Employment, Division of Family and Medical Leave Insurance.