Denver suburb faces sudden $42 million fiscal hole as it reckons with ruling finding a city tax violated TABOR

Lakewood is about to face a costly reckoning with the Taxpayer’s Bill of Rights — to the tune of more than $42 million.

That’s the amount the state’s fifth-largest city has calculated it owes to dozens of cellphone carriers and telecommunications companies it wrongfully taxed for years. The bill is now coming due after the Colorado Supreme Court ruled last year that the city had violated TABOR, a state constitutional amendment, by levying a business and occupation tax without first obtaining voter approval.

The $42,154,189 the city must return to 177 companies represents more than 13% of the city’s 2026 budget — an amount that has Lakewood Councilman Jacob LaBure clenching his fists in frustration.

“I’m angry — I think it’s a big setback for the city,” he said. “There’s a lot at stake with this.”

In order to come up with the money to rectify the illegal collection, Lakewood may have to take a proverbial ax to planned programs and projects in the Jefferson County city, said Holly Bjorklund, Lakewood’s chief financial officer.

“It might be a decision to reduce the scope of a project — or canceling a project altogether,” she said. “It’s a significant impact.”

The Lakewood City Council voted earlier this month to move a sizable supplemental budget request resulting from the matter to the Jan. 26 council meeting. Exactly what sacrifices the city will have to make in terms of nixed projects and rearranged priorities will be determined over the next few months, as city staff attempts to balance the budget in the face of Lakewood’s steep obligations.

The sources of that money will most likely be Lakewood’s reserve fund, which could be drawn down close to the required 10% threshold, and the city’s TABOR fund — which, ironically, holds excess tax revenues that voters in the last decade allowed the city to keep above TABOR spending limits.

The TABOR fund pays for public safety, infrastructure projects, and parks, recreation and open space programs.

For the 11 members on Lakewood’s council, it’s a particularly vexing situation given that the decisions that led to the present fiscal conundrum were made by city leaders as far back as three decades ago.

LaBure hopes there’s a learning opportunity amidst the pain of parting with such an enormous chunk of city revenues.

“We should be looking inward and backward to make sure we don’t repeat this,” he said.

Decision draws ‘sharp line in the sand’

The trouble for Lakewood began in 1996, when cellular phone technology was spreading rapidly throughout the country. The city imposed a business and occupation tax on new mobile carriers that wanted to do business in the city — an extension of its original tax on the legacy phone company Mountain Bell that dated back to the city’s 1969 founding.

Lakewood expanded its business and occupation tax again in 2015.

It all may have gone unnoticed had the city not audited MetroPCS, an affiliate of T-Mobile that has since been rebranded as Metro by T-Mobile. The audit determined the company owed Lakewood more than $1.6 million in unpaid business and occupation taxes.

MetroPCS, in turn, sued Lakewood in 2022, claiming that the levy was a new tax that voters hadn’t authorized.

On Sept. 8, after the case had wound its way through the state’s courts, the Colorado Supreme Court agreed with the company. Its justices ruled unanimously that both Lakewood’s 1996 and 2015 business and occupation tax ordinances “imposed new taxes within the meaning of TABOR.”

“Accordingly, TABOR required Lakewood to obtain voter approval before enacting them,” the ruling reads. “Because Lakewood did not do so, both ordinances violated TABOR.”

The high court declared the tax “void.”

TABOR was passed by voters in 1992, just four years before Lakewood put the tax on new mobile carriers. The amendment, besides requiring voter approval for new taxes, requires that any taxing entity in Colorado reimburse tax revenues that come in above a cap set by an equation that factors in population growth plus inflation — unless voters give the taxing district approval to retain the revenues.

The justices rejected Lakewood’s argument that the revenue from the tax, which in recent years amounted to around $3.6 million annually, was incidental to the larger goal of establishing an equitable and consistent taxing framework for all the new telecommunications companies entering the market and providing service in the city.

Lakewood’s business and occupation tax, the high court concluded, “created new tax liabilities for previously untaxed types of providers and types of services.”

Loren Furman, the president and CEO of the Colorado Chamber of Commerce, said the ruling was the first time the state’s high court “found a violation of TABOR’s voter approval requirement for ‘new taxes.’ ”

The chamber filed an amicus brief in support of MetroPCS in the case.

“We believe this decision draws a sharp line in the sand: If you expand the parties or transactions subject to a tax, and you know the expansion will generate non-trivial additional revenue, you need to get a vote,” Furman told The Denver Post. “This decision should serve as a strong precedent should taxpayers need to challenge new taxes.”

Kathy White, the executive director of the Colorado Fiscal Institute, said the Supreme Court ruling revealed just how archaic and inflexible TABOR was in the current moment.

The law, she said, “creates these very arcane and frozen tax policies.”

The court’s justices “are trying to make this structure that is very old apply to an economy in a world that is very different,” she said. “Lakewood applied the tax to the changing economy and changing telecom industry. But the court didn’t see it that way.”

Lakewood’s TABOR challenges come as the Democratic-majority state legislature floated a potential ballot measure for November to exempt K-12 education funding from the cap on state tax collections on the first day of the new session. House Speaker Julie McCluskie, a Dillon Democrat, called for modernizing “our outdated fiscal structure” in her opening day speech Wednesday.

It’s the latest attempt by Democrats to scale back the constraints of TABOR, following an ambitious effort by state lawmakers just a year ago to de-claw the constitutional amendment.

Now city must ‘bite that bullet’

The long and short of Lakewood’s situation, White said, is that the city and its 155,000 residents are going to have “bite that bullet” despite fiscal decisions that were made by city leaders as much as 30 years ago. And it comes against the backdrop of declining revenues projected for Lakewood in 2026 — 1% less than the previous year, according to the city budget.

“The people of Lakewood don’t get a park or a new light on Rooney Road — just because 177 profitable companies got a tax refund,” she hypothesized. “It cripples the effective functioning of government.”