Colorado homeowners can expect a double whammy on their next property tax bill: higher taxes driven by rising home values, and little relief from a constitutional provision designed to help.
On the other hand, booming home and industrial property values will mean more money for school districts, local governments and special districts that rely on property tax dollars to fund public services.
Those are the two big takeaways of the state’s final property tax study for 2019, which lawmakers use to set property assessment rates every two years — but the ramifications don’t end there.
Here’s what else you need to know about the rate study, and what it means for the state budget, school districts and taxpayers.
State lawmakers will have $99 million more to spend in next year’s budget.
The reason? More property taxes mean more local dollars for school districts, so the state doesn’t have to spend as much to meet its school finance obligations. But while the state doesn’t have to spend the extra $99 million on schools, lawmakers want to anyway.
The School Finance Act introduced this week contains an $25 million to reduce the $672 million “negative factor,” which is the annual debt the state owes local districts. That’s in addition to the $77 million set aside in the state budget package, bringing the total reduction to $102 million.
If it’s approved, the annual school finance bill also would allocate an extra $25 million for rural schools and $5 million for behavioral health needs that wasn’t previously in the initial state budget package.
And Sen. Dominick Moreno, the Democratic chairman of the Joint Budget Committee, told The Colorado Sun that any leftover money related to the property tax windfall will likely be deposited in the state education fund.
The plan drew praise Wednesday from the Colorado Education Association, as well as Gov. Jared Polis.
“Gov. Polis has advocated for historic investments in K-12 education,” spokeswoman Laurie Cipriano said in a statement. “… With the improved forecast for property tax revenue, the governor would like to see the additional resources be made available to schools and to increase the reserves in the State Education Fund.”
Most homeowners will see higher taxes — and less relief than expected.
Lawmakers use the April property tax study to determine if residential tax rates must be cut to stay in compliance with the Gallagher Amendment. The constitutional provision basically says that businesses are supposed to pay 55 percent of statewide property taxes, and homeowners are supposed to pay about 45 percent.
Preliminary estimates predicted a big tax cut this year for homeowners would be needed to maintain that ratio. One of the earliest estimates projected the assessment rate could drop as low as 6.11 percent from 7.2 percent. The final study recommended that lawmakers set the rate closer to the current one, at 7.15 percent.
How does that translate to actual property taxes? On the median home worth $350,000, a taxpayer would save about $14 on the average property tax payment — a cut of less than 1 percent. (Mill levies vary from place to place, so your actual bill may vary.)
The catch: most people’s home values are rising much faster than the expected cut, especially along the Front Range. So most homeowners will wind up paying more in taxes. Statewide residential property values are expected to increase 17 percent compared to the last statewide assessment in 2017, though some of that is because of new construction.
Seniors, though, will get a little more relief. An analysis by Colorado Legislative Council found that the higher-than-expected tax rate means senior citizens will get an extra $7.7 million tax cut through the state’s homestead exemption.
Home values are rising faster than expected. So why aren’t residents getting a bigger tax cut?
This is one of the ways in which Gallagher can be counterintuitive. Preliminary studies didn’t expect home values to rise quite this fast. And in theory, that should mean a bigger tax cut.
But homeowners don’t get a tax cut just because their values rise — they have to rise faster than business property values. But a booming economy has caused business values to rise faster than expected, too. That calculation includes industrial property values, which are expected to increase 20 percent, and oil and gas assessments, which are expected to jump by 39 percent.
What about the governor’s plans to avoid a tax cut entirely?
The governor’s office didn’t respond to a question Wednesday about the rate. But the final rate study included a chart that shed some light on the administration’s plans, which were first reported by The Sun.
A state review of 20 years of rate adjustments found that the April forecast was typically off by nearly 3 percent from what the rate should have been once property assessments were appealed and finalized. Administration officials have argued that as long as the study recommends a rate within that margin of error, it shouldn’t be changed prematurely, because the initial forecasts are imprecise.
Some Democratic lawmakers initially expressed support leaving the rate unchanged. But state Sen. Lois Court, D-Denver, told The Sun she plans to introduce a bill to cut the rate to 7.15 percent, after all.
The thinking is twofold, she said: It’s not a huge difference, financially. And she doesn’t want to risk losing a lawsuit and being ordered to give the money back to taxpayers anyway.