A statewide property tax cut in 2019 isn’t expected to be nearly as deep as initially feared, economists told Colorado budget writers Thursday — a pronouncement that drew some relieved laughter from state lawmakers who were awaiting the latest estimates with dread.
For a year now, the expectation had been that the state’s Gallagher Amendment would require the residential property assessment rate to drop as low as 6.11 percent, and give homeowners a 15 percent tax break. But to lawmakers’ chagrin, it would also further squeeze public agencies in rural Colorado that rely on the revenue and don’t see home values rising as quickly.
Legislative economist Larson Silbaugh told the Joint Budget Committee what they could do with that estimated 15 percent cut.
“That (was) my forecast,” he said. “You can crumple it up and throw it away.”
The reason for the new outlook is not what you may think. Home values are still rising fast enough to trigger a big tax cut. But oil and gas production shot up by a whopping 30 percent from Silbaugh’s last projection. And the way Gallagher works is homeowners only get a cut when their property taxes rise faster than taxes on commercial and industrial properties.
Homeowners will still see a break. The residential assessment rate is now expected to fall to 6.78 percent from 7.2 percent, shaving residential property tax bills by about 6 percent.
But don’t hold tight to that number – it’ll change again in couple of weeks, when the Department of Local Affairs puts out its own preliminary figure ahead of the official assessment study due in April.
Here are three more takeaways from Thursday’s economic forecasts from economists in the state budget office and legislature:
Gov.-elect Jared Polis has been dealt a very different fiscal hand than his predecessor.
Gov. John Hickenlooper came into office in 2011 facing a budget deficit, and he’ll hand it to Polis at a point that state economists believe is the peak of a lengthy economic expansion.
The December forecast is the one that helps sets the tone for the coming legislative session when it comes to the money available for the lawmakers to spend.
Colorado is now projected to close out the fiscal year in June with a nearly $300 million surplus, after keeping a 7.25 percent reserve. Under the governor’s budget forecasts, the general fund will grow by another 5.9 percent next fiscal year to $13 billion, a $721 million increase in available money to spend or save.
Legislative forecasters expect a larger surplus to end this year, but slower growth next year, leaving lawmakers with a $12.9 billion general fund in the 2019-20 fiscal year.
Polis’ primary challenge is he can’t spend all the money Colorado collects, because the state’s up against the revenue cap set by the Taxpayer’s Bill of Rights.
Taxpayers will be owed a refund of roughly $240 million in the current fiscal year, according to forecasts from the governor’s office and Legislative Council. Those refunds would go out in 2020.
Over the next two years, the governor’s budget office expects the state to exceed the cap by so much it triggers a $575 million income tax cut, on top of another $264 million in sales tax refunds. The legislative forecast is more conservative, projecting a $39 million refund next fiscal year, none the following year and no income tax cut for the foreseeable future.

With so much owed to taxpayers, there’s a limit to what Polis and the Democrats can afford.
And Polis promised big spending — most notably all-day kindergarten and universal pre-school.
The forecast offered some relief for schools. The state owes school districts $79 million less this year than it allocated, because of local property tax growth and enrollment figures that came in lower than expected.
Budget writers could allow school districts to keep that money to help offset the $672 million the state underfunds K-12 each year. Or it could be spent on new programs, such as Polis’ pledge to provide all-day kindergarten, which would cost upwards of $200 million a year.
Either way, an extra $79 million won’t be enough for all the state programs Democrats want to fund. Expect the TABOR cap to dominate budget discussions next legislative session, as a result.
The state economy is humming. But there’s a catch.
Most of the good news about Colorado’s economy may have already happened, said Lauren Larson, the governor’s budget director.
“I wouldn’t characterize our forecast as rosy,” she said.
Warning signs abound. The stock markets are volatile. Tariffs imposed by the Trump administration caused a surge in steel prices in Colorado, which can have ripple effects for a number of industries.
And there are already signs that Colorado’s growth is moderating from its torrid pace, according to leading economic indicators tracked by the Federal Reserve Bank of Philadelphia.
The economists bottom line: Slow continued growth is still considered more likely than a recession — but the risks of a downturn are rising.
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