DENVER — Colorado voters will be asked in November whether they would like to cut tax assessment rates for residential and commercial properties. However, a newly passed state law significantly complicates the ballot question.
If Proposition 120 passes, however, the question’s creators are promising to sue the state, further complicating the measure.
How the Gallagher Amendment repeal set the stage
Last year, Colorado voters decided they wanted to repeal the Gallagher Amendment.
The four-decade-old law was meant to be a way to keep residential property tax rates lower than the rates paid by non-residential property owners, like businesses.
The state’s overall property tax would be split, with residential properties paying 45% of the share while non-residential properties paid 55% of the share.
When the Gallagher Amendment was signed into law, the home assessment rates were 21%. With property values going up and new homes being built, the assessment rates were lowered to keep the same 45/55 ratio mandated by Gallagher.
Over the years, those assessment rates have dipped and are now at 7.15% today.
With the amendment’s repeal, however, the current rate was kept intact instead of dipping once again this year as home values rise. However, home assessment rates have gone up significantly over the past year, meaning owners will be paying more in taxes.
Proposition 120 asks voters whether they would like to lower the assessment rates on residential properties to 6.5% and commercial properties to 26.4% permanently.
It also allows lawmakers to retain $25 million above the state’s constitutional spending limits per year through 2027 — but only if the money is spent on homestead exemptions.
Those exemptions allow veterans with service-related disabilities and seniors to exempt 50% of the first $200,000 of their residential property value from taxes. On average, it saved these groups $584 in 2020.
While Prop. 120 supporters were gathering signatures and going through the title board process to get their question on the November ballot, Colorado lawmakers introduced, debated and passed a workaround during the final days of the 2021 legislative session.
Senate Bill 21-293 temporarily drops the residential assessment rates to 6.8% for multi-family homes and 6.95% for single-family homes. It also lowers the assessment rates for agricultural or renewable energy production commercial properties to 26.4% temporarily.
The drop will last for the next two tax years to offer some financial relief to families and some businesses as they try to recover from the COVID pandemic.
“What we were trying to do on a bipartisan basis with Senate Bill 293 was to provide immediate and targeted property tax relief to the state of Colorado,” said Sen. Chris Hansen, D-Denver, one of the bill’s primary sponsors. “We are in a situation now where there’s high appreciation.”
The new state law also further divides the property assessment rate categories. Instead of everything being lumped into either residential or commercial assessment categories, the new law creates six sub-categories:
- Multi-family residential (such as apartment complexes, townhomes and condos)
- Single-family residential
- Commercial non-residential
- Renewable energy production
As a result, a nonpartisan Blue Book analysis of Prop.120 determined that it will only apply to lodging and multi-family homes if it passes, despite how the ballot question reads.
Because ballot language must go through such a long and complicated process, it cannot be changed to adjust for the changes.
“At that point, it was a title, it was a proposal in front of the title board. We are doing our job at the state legislature to carefully manage property tax,” Hansen said.
A potential lawsuit
Supporters of Prop. 120 have promised to fight back, though, and say if the ballot question is successful, they will sue the state to have it apply as intended.
“This has never happened it’s totally unprecedented in Colorado,” said Michael Fields, the executive director of Colorado Rising Action. “They’re trying to undermine the vote before it even happens. They’re not even trusting voters enough to let them fully weigh in on something that’s in front of them.”
Fields believes the new law undermines the citizen initiative process and called the legislature’s move an attempt to kneecap the ballot initiative.
If Prop. 120 is applied as intended, it would result in a $1 billion tax cut across the state.
Supporters argue that there is legal precedent in the state where the most-recently passed law is the one that applies, so Fields believes he has a good shot of winning a court battle.
“It definitely makes it complicated because everywhere I’m going to try to get support, I have to say well we’re not sure what’s going to happen,” Fields said. “If we pass this it will definitely be for lodging and multi family, the question is will it be a larger billion dollar tax cut or not?”
The arguments for Prop. 120
If the ballot question were to pass and the legal challenge were to be successful, the tax cuts would be deeper and the rate changes would be permanent rather than the temporary relief offered by SB21-293.
“Across-the-board, you’re talking about double digit increases to your property value, but also your property taxes and so we said you know we knew this was coming we think that we should adjust these down to really slow the growth of it,” Fields said.
While he disagrees with the intention of SB21-293, Fields says the silver lining is that the new law proves an acknowledgment that property tax rates are too high and people deserve some relief.
He credits his ballot question for starting to get the conversation about helping property owners.
Even if the lawsuit is unsuccessful, if Prop. 120 passes, lodging and multi-family homes would see some additional relief.
“A lot of folks don’t realize that they’re paying a property tax because it’s baked into the rent payment. But when property taxes go up, rent payments go up, and when they go down, they go down,” said Drew Hamrick, the general counsel from the Colorado Apartment Association. “Any reduction on taxes on housing is a good thing.”
Hamrick believes that the potential lawsuit would be successful but says even if it isn’t it could help the state’s many renters to save some money.
The arguments against Prop. 120
Opponents of Prop. 120, like Hansen, say the ballot measure, in its original form, would have significantly hurt special districts, schools and more.
“To me, that was a fundamental flaw of what the Proposition 120 people brought forward was it undercut all these services at the worst possible time,” Hansen said.
He describes the ballot question as a blunt instrument that would have long-term negative impacts on the state.
Others, like Sen. Bob Rankin, R-Carbondale, say the measure would have disproportionate impacts on rural areas that rely on these property taxes for nearly the entirety of their budgets.
While the property tax cuts might work for the Front Range, which is experiencing the steepest increase in property prices, Rankin says rural areas would suffer the most.
“It doesn’t make any sense at all, where people on the Front Range vote on a ballot initiative that reduces their property taxes and cuts the budget of a small fire district by 20%,” Rankin said.
Instead, Rankin argues county commissioners throughout the state have the ability to reduce their mill levies as they see necessary, and a one-size-fits-all strategy is not helpful for the state. He believes it should be up to individual areas to control their own taxes.
Fear and uncertainty
While Hansen is confident SB21-293 with survive any legal challenges, others are worried.
The chiefs from smaller fire districts are banding together to ask people to vote against Prop. 120 because they are worried a potential lawsuit could be successful.
The Inter-Canyon Fire Protection District covers 52 square miles in Jefferson County and operates on a $1.5 million annual budget.
That budget is responsible for providing all of the needs for five fire stations, 15 emergency vehicles, and a small paid staff.
Over the past 30 years, the area’s call volume has doubled, though, and the equipment is quickly aging.
“The vast majority of our budget, over 90%, comes from our residential tax space. We have very little commercial development within our area,” said Dan Hatlestad, the battalion chief.
If Prop. 120 were to pass and the lawsuit were successful, the fire district would see a significant cut to its annual budget. Hatlestad says that would result in the elimination of some services.
Nearby fire districts are dealing with similar constraints. Indian Hills Fire and Rescue operates on a $425,000 annual budget and says it has cut corners anywhere it can, including rebuilding vehicle engines rather than trying to buy new equipment.
However, the fire chiefs say there are only so many places to cut before response times slow.
“When it comes to emergency services, people really need to ask themselves, especially in these rural communities that were living off that mill levy in that tax base, are they willing to skip on that?” said Damian Difeo from Golden Gate Fire, which covers 50 square miles. “That’s not something you’re thinking about when you’re hanging upside down in your car on the side of the road in a snowstorm.”
So, they are asking people to vote no on Prop. 120.
The Colorado Education Association also opposes the measure because it is worried about what this could mean for schools.
CEA President Amie Baca-Oehlert says schools are already severely underfunded and this ballot question would only make things worse.
“We cannot have one more thing that will negatively impact the funding of our public schools,” Baca-Oehlert said.
While the state is supposed to backfill any loss in local school funding, Baca-Oehlert is not confident the state has the funds to be able to do that because of the negative factor that currently exists for schools.
She worries this ballot question will have a disproportionate impact on low-income districts in particular.
“Our students deserve better and we should, as voters, vote for our students when you vote at the ballot box,” she said.
Fields disagrees and says localities and the state government have more money than ever with the federal pandemic help so now is the time to cut property taxes.
“I’m pretty confident that statewide government is going to have more money even if this cut happens,” he said.
Prop. 120 seems relatively straightforward on the November ballot, but the new state law and potential lawsuit have significantly complicated the measure.
Ultimately, though, it will be up to voters to decide whether they’re willing to take a risk by passing it before finding out who it will truly apply to.