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Coloradans were set to get a property tax cut. Gov. Polis is mulling a workaround to stop it.

Averting the cut would free up state money that lawmakers could spend on schools and roads, but homeowners would miss out on planned property tax relief

More than 68 percent of voters in Eagle County approved Greater Eagle Fire Protection District's ballot initiative seeking relief under the Gallagher Amendment. (Jason Blevins, The Colorado Sun)
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Gov. Jared Polis plans to ask lawmakers to forgo an expected statewide property tax cut this year, in a bid to stave off local budget cuts and free up state funding for other priorities.

If the gambit succeeds, it would deny Colorado homeowners an estimated 3.5 percent property tax cut they otherwise would have received beginning this tax year. For a homeowner paying the average statewide property tax levy of 80 mills, that would represent about a $70 difference in taxes paid on the median home worth $350,000.

Doing so would prevent — or at least delay — another round of budget cuts for public agencies in rural areas that have been hit especially hard since the Great Recession. But it’s not clear how the governor’s plans, as described to The Colorado Sun by multiple sources and confirmed by lawmakers, will be received in the state legislature — or by the general public.

The expected tax cuts are triggered by the Gallagher Amendment, a constitutional provision that limits the growth of residential taxes and requires businesses to pay the lion’s share of property taxes in the state. Lawmakers for years have tried to come up with a solution to Gallagher, which has helped relieve the rising costs of homeownership along the Front Range, but with troubling consequences for public services that vary widely from one community to the next.

If a tax cut is averted, it would also boost local tax revenue to school districts, which would allow the state to chip in less for K-12. That, in turn, could free up funding for some of Polis’ priorities, such as full-day kindergarten, or for those of state lawmakers, such as a recent deal to spend additional $70 million for transportation without a clear funding source.

Polis administration officials on Monday agreed to be interviewed for this story, but did not meet The Sun’s publication deadline.

House Speaker KC Becker, D-Boulder. (Handout)

In a brief interview, House Speaker KC Becker declined to stake out a position. “I think that there are ongoing conversations, but nothing’s decided,” the Boulder Democrat told The Sun.

The strategy is not without risks. For one thing, the move could lead to a taxpayer lawsuit, accusing them of circumventing the state constitution.

It could also provoke political backlash. Colorado’s rising cost of living is a sore spot for many residents. And an administrative move to deny property tax relief may not sit well with homeowners or many lawmakers.

Plus, critics say, it would stop short of the sort of long-term Gallagher fix that many believe is needed.

“My overall preference was to let it adjust down one last time and then repeal the Gallagher Amendment,” said Sen. Jack Tate, R-Centennial, who served on an interim committee to study Gallagher reforms. “My feeling is that this is just a stall tactic, because some folks down here at the Capitol don’t want to take on the Gallagher repeal head on.”

MORE: What you need to know about TABOR, Gallagher, Amendment 23 and the hidden forces that constrain spending in Colorado

Here’s how it would work

The Gallagher Amendment requires lawmakers to limit residential property taxes to 45 percent of the statewide property tax base, with businesses contributing the rest. As Colorado’s economy has changed and home values have soared over the years, that has caused the residential assessment rate to fall periodically, giving homeowners a tax cut.

In 2017, the residential assessment rate fell to 7.2 percent from 7.96 percent. And a preliminary rate study completed in January estimates that lawmakers may have to cut it again to 6.95 percent from 7.2.

Within the next few days, the Department of Local Affairs is scheduled to complete another rate study and issue a final recommendation to the legislature. At that point, the Polis administration is expected to argue that, historically, the final number hasn’t typically matched reality. The study produces an estimate of property values all over the state, and actual assessments will vary by a certain amount.

A for sale sign sits outside a home in Colorado. (Jeremy Martinez, Special to The Colorado Sun)

So if the current rate falls within that margin of error, the administration argues, the rate shouldn’t have to change prematurely.

The strategy is already generating interest from local government groups. In an email to local officials across the state, Colorado Counties Inc. said it learned from Polis that “there is a strong legal basis and historical precedent” for keeping the rate where it is.

In an interview, Gini Pingenot, the group’s legislative director, told the Sun that her organization hasn’t taken an official position yet, but said the argument “makes sense.” And, she added, it would help counties across the state that have struggled to keep up with growing demands amid the mandated tax cuts.

“If we can’t even stay afloat, we’re not going to be able to meet the expectations of our citizens,” Pingenot said.

Preventing a cut would have widespread implications. But it wouldn’t be a long-term fix.

Gallagher’s complicated, and it has varying impacts in different parts of the state.

In communities where home values are rising the fastest, it limits the amount that taxes go up. That provides homeowners some relief from rising tax bills, without taking too big a bite out of the public coffers in places like Denver that are flush with cash, anyway. But in communities where home values are growing slowly, or not at all, its mandated tax cuts can leave the “have nots” of Colorado governments with even less to spend on public services.

It’s not immediately clear how much money the maneuver will free up for the state budget. That will depend on the final rate study, which is due no later than April 15. But generally speaking, the larger the estimated cut, the more money the state would save by keeping the rate the same. That’s because schools would collect more local property tax dollars, and the state won’t need to spend as much to meet its school finance obligations.

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“This could be a gamechanger for a whole slew of bills that are piled up in Appropriations (Committee) just waiting for some sliver of hope,” Pingenot said.

Some Democratic lawmakers are already expressing support for the idea. Sen. Lois Court, a Denver Democrat who served on the interim committee to study Gallagher, told the Sun she would support keeping the rate the same if it’s legal to do so. “I’m not sure of the specific details yet because we haven’t gotten the number yet, but I agree that if we don’t have to change it, there’s no reason to change it.”

State Sen. Lois Court, a Denver Democrat, speaks to reporters as Colorado lawmakers unveil their proposal to eliminate the state’s TABOR cap on Wednesday, March 20, 2019. (Jesse Paul, The Colorado Sun)

Sen. Jeff Bridges, D-Greenwood Village, agrees. “This is a way to create certainty and predictability in the uncertain economic and fiscal environment we have in Colorado today, not just for homeowners but for the services they count on like schools, libraries, and fire protection,” Bridges wrote in a text message.

Interestingly, the 2017 bill decreasing the rate to 7.2 percent may have paved the way for the new administration’s strategy. In the past, Gallagher-related bills have written into state law that the new residential rate lasts for two years, meaning the legislature has to pass another bill once those two years are up. But the 2017 measure said the new rate would stay in effect “until the next property tax year that the General Assembly adjusts the ratio.”

That means the administration won’t need the full legislature’s support to keep the rate flat — it just needs enough support to defeat any attempts to change it. Polis could even veto a bill if lawmakers pass one.

Staff writer Jesse Paul contributed to this report.


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