When Is a Fee Not a Fee?

A month ago, I commented on Colorado Senate Bill 213, which would allow the state to give major cities housing targets that they would have to meet and require cities to rezone single-family neighborhoods to allow for more density. Some of the worst features of the bill have been deleted, but the bill is still bad.

A 736-square-foot apartment in this Denver mid-rise development costs more to rent than the mortgage on many 2,000-square-foot single-family homes in cities that don’t have urban-growth boundaries, yet the state wants to force cities to allow (and subsidize) more of these as “affordable housing.”

The reason why the rezoning requirement was dropped from the bill was that the cities themselves opposed it — not because they opposed density but because they said they were already imposing density on their residents and didn’t need to be told to do so by the state. Many cities in the Denver metro area are landlocked, so the only way for them to meet state housing targets would be to densify anyway.

The bill also includes more funding for “affordable housing.” Some of that funding is supposed to come from a “fee” on new housing, thus making that housing (and all housing that competes with it) more expensive. But how is this a fee and not a tax?

Under Colorado’s Taxpayer Bill of Rights (TABOR), a constitutional amendment, the state can’t increase taxes without voter approval. But it can increase fees, so the legislature is redefining many taxes as fees so they can raise them without having to go to the voters.

To me, the difference between a tax and a fee is very clear. When you pay a fee, you get what you pay for. When you pay a tax, someone else gets what you pay for. If you pay a grocer a fee, you can get a gallon of milk. If you pay a fuel station a fee, you can get a gallon of gasoline. If you pay a hardware store a fee, you can get a gallon of paint.

What would owners of new homes get for their affordable housing fee? Nothing. Someone else would get the benefit of that fee. The new homeowners would get their homes whether the fee was imposed or not.

Oregon has a similar law but it requires voter approval for any increase in taxes or fees. Some cities in Oregon own their own electric utilities, but they can’t raise rates (even if the electricity they buy becomes more expensive) without voter approval. I complained about that to the author of that ballot measure, and he said, “You know if we allow them to raise fees, they’ll just call everything a fee.” I didn’t believe it then, but given what is happening in Colorado, I believe it now.

Unfortunately, if the legislature passes this law, any court challenges will have a tough time. Thanks to the political genius of Tom Tancredo*, Colorado, which 20 years ago was a solid red state, is now a solid blue state. This means most of the judges now in office were appointed by Democratic governors, and they tend to support new taxes and oppose TABOR.

(*For those of you who don’t keep up on Colorado politics, Tom Tancredo was a Republican member of Congress who decided to make anti-immigration his major crusade in 2002. At the time, Colorado’s governor, most other state elected officials, and the majority of both Colorado’s Congressional delegation and legislature were Republicans. Tancredo so alienated Latinos, the state’s largest and fastest-growing ethnic group, from the Republican Party that it very quickly flipped into a Blue state. Republicans clearly didn’t learn this lesson in 2016 and 2020.)