Not all school districts collect property taxes equally, which has been robbing some Colorado students of fair funding in education, according to advocates who hope to see lawmakers overhaul the state’s school finance system this legislative session.
A key component of the overhaul would be establishing a uniform mill levy for schools. This would shift most of the responsibility for funding schools back to property taxpayers in districts and, in time, would free up about $453 million annually in the state budget, some of which was going to fund districts capable of funding themselves.
While the state currently backfills significant amounts of money for more well-off districts, legislation to be introduced this session would redistribute that money so that districts with much higher needs would receive more state support.
Advocates, including Leslie Colwell, vice president of K-12 education initiatives at the Colorado Children’s Campaign, say the legislation, which has not yet been presented in the statehouse, would benefit all 178 Colorado school districts.
“If we could establish a uniform property tax rate to support local public education in Colorado, it would create a more fair system,” Colwell said. “It would mean more equitable distribution of resources for kids, and it would raise a significant amount of revenue to address that adequacy piece.”
Under a uniform mill levy — or mill levy equalization — the state’s role would shift from subsidizing districts with low property tax rates to equalizing for differences in property value from district to district, according to Colwell.
The changes would help overhaul a school finance system that never intended to harm schools, but that ultimately has led to widespread inequity in Colorado, Colwell said.
“Now that we can see how the system has played out and how we have piled advantages on certain districts and disadvantages on others, we have an obligation as a state to fix it,” she said.
The pending legislation would require districts with adequate local resources to fully fund themselves with only local tax dollars — and not take any money from the state.
The districts that can do that are in communities with high property tax values. Many of those communities would have to ask voters to raise property taxes for schools.
Districts that are unable to fully fund themselves would be required to increase their property tax rate to 27 mills, and the state would backfill the remainder needed for their district’s schools.
A mill rate is a tax rate — how much tax is paid per dollar of a property’s total assessed value. One mill will generate a different amount of money in different communities depending on their property values.
The changes are being drafted in a bill sponsored by Rep. Daneya Esgar, a Democrat from Pueblo, and Sen. Rachel Zenzinger, an Arvada Democrat. Both declined interviews in advance of the bill’s introduction.
Proposal has its detractors already
Currently, Colorado sends about $453 million in state funds to districts where school property tax rates are below the level needed to fully fund themselves, or below 27 mills.
If districts were collecting adequate property taxes, that sum could be used to fill the significant — and growing — funding gap fueled by Colorado’s budget stabilization factor, or negative factor. The negative factor, which represents the debt that the state owes to public schools, was established in 2009 as the state struggled to afford required increases in K-12 spending during the Great Recession. Rather than boost funding to the degree the constitution required, the state developed the negative factor to keep track of how much it was underfunding schools annually.
This school year, the negative factor amounts to about $572 million.
Michael Fields, executive director of the conservative organization Colorado Rising State Action, is skeptical about the benefits of mill levy equalization.
“I think that until people have faith in the system, just putting more money into the system isn’t going to fix anything,” he said.
Fields finds flaws in how the state determines per-pupil funding and said classrooms aren’t getting enough money. He said the focus should be on building trust in education, demonstrating an effective use of resources and compensating teachers with a good wage.
“I think proponents think they’re going to fix a problem that they’re not,” Fields said.
A funding system that breeds inequity
Colorado’s history of inequitable school funding was set in motion in 1988, when property tax rates were all over the place, similar to how they are today, Colwell said.
The legislature aimed to establish a consistent level of investment in schools through a uniform tax rate, mandating all districts levy the number of mills at which they would be fully funded, or at most 40 mills. That would have resulted in local communities covering half of the funding needed for K-12 education with the other half contributed by the state, Colwell said.
By 1991, all districts had reached 40 mills or the number that would enable them to be fully funded with local property tax revenues. But in 1992, Colorado voters passed the Taxpayer’s Bill of Rights, which capped the amount of revenue the state government and local governments could generate and spend. In K-12 education, that cap was dictated by growth in inflation and student enrollment, according to Colwell.
That posed a problem for school districts in communities where the assessed value of properties was rising rapidly, causing them to generate revenue amounts above their constitutional limit.
The solution: decrease property tax rates.
In some communities, particularly those experiencing an oil and gas boom, property values soared, causing property tax rates to plummet, Colwell said, citing the example of Primero RE-2 School District in rural Las Animas County. That district’s property tax rate dropped from 40 mills in 1993 to 1.68 mills in 2006.
Some districts in Weld County also cut their property taxes and mill levies and are fully funded because of oil and gas values. Those districts include Pawnee School District Re-12, Prairie School District and Platte Valley School District RE7.
In 2007, after property tax rates had continued to fall, the legislature stepped in and froze the rates to keep them from ratcheting down. At that point, some districts were approaching 0 mills, according to Colwell.
That legislative decision, she said, also froze inequities in place with no way for districts to resolve them and no incentive to change because they can count on the state to backfill budget gaps.
The resulting system has been an unbalanced one in which wealthier school districts are in many cases receiving state funding at the expense of districts in lower-income communities, and the state’s role in funding public education has become increasingly outsized.
The scales have tipped so far that the state is now providing 61% of education funding while local communities cover the remaining 39%, according to figures provided by the Colorado Children’s Campaign.
That’s one reason Colorado struggles so much to buy down the negative factor, Colwell said. It already shoulders a lot of the responsibility in funding education.
Districts’ heavy reliance on state education funding raises a concern for Colwell, particularly in the event of an economic downturn. If districts don’t have a more reliable stream of property tax dollars, they would likely have to endure more cuts during a downtown.
It’s also a matter of doing right by students and making sure that communities invest a fair share of local revenue into their schools.
Should Colorado continue with its current approach to education funding, the unintended consequence of inequity will, in effect, become an intended consequence, Colwell said.
It comes down to a local community decision about what a community’s investment in education will look like, she said, as districts will no longer “be taken care of by the state to the detriment of other districts and their funding.”
A tool to level the school funding field
The concept of mill levy equalization has been part of conversations and bill drafts over the past four years but has never been formalized in a piece of legislation, according to Tracie Rainey, executive director of the Colorado School Finance Project.
Esgar and Zenzinger’s bill would reconfigure property tax rates in Colorado so that, beginning in 2023, districts would be required to levy the number of mills that would allow them to be fully funded by property tax, but no more than 27 mills.
Pitkin County — the home of Aspen School District — has a current school property tax rate of 4.4 mills, for instance, and would need to climb to about 6 mills to fully fund the district. Once the district fully implemented a uniform mill levy, it would operate with about $19.9 million, all from local funding, and would have about $1.4 million more than it currently has for its schools.
Other districts like Primero RE-2 School District, in Weston, would face a much steeper increase. While Las Animas County residents currently have a property tax rate of 1.68 mills — the lowest in the state — they would have to notch up to more than 26 mills in order to comply with a uniform mill levy for schools and fully fund itself. Once mill levy equalization was fully implemented, the district would benefit from about $2.9 million in local revenue to fund its schools, an increase of more than $200,000 from its current school funding figure.
In Custer County, northwest of Primero, the property tax rate would have to jump to 27 mills from 22.9 mills. Once the district fully implemented a uniform mill levy, it would gain close to $184,000 for total operational funding of about $4.1 million, largely driven by local taxpayer dollars.
Because of Colorado’s tax-revenue limiting TABOR requirement, the bill would require every Colorado school district to ask its voters to approve the tax increase. Districts would increase their property tax rates slowly — by 1 mill per year — and those rural school districts needing to increase by 10 or more mills would be granted permission to wait to start increasing mills until 2025.
Thirty-four districts would need to jump by 10 or more mills.
Districts whose taxpayers struck down the idea of mill levy equalization would face a penalty with a decrease in state funding. The legislation, however, establishes something of a safety net for districts, ensuring that they wouldn’t lose so much money that they couldn’t operate.
The bill also offers some financial incentives to encourage districts to make the move toward mill levy equalization. For example, a district whose voters agree to increase their property taxes sooner than they’re required to will be able to keep additional tax dollars generated without any effect on how much they receive from the state.
The legislation also addresses another layer of inequity: mill levy overrides, in which school districts ask voters for approval to raise their school property taxes beyond what the state will allow. Those extra dollars can support operational expenses, such as teacher pay raises or investments in technology.
Mill levy overrides exacerbate gaps in equity across districts. In districts with low property values, even when they manage to pass mill levy overrides, the total amount generated isn’t substantial, Colwell said. A Mill Levy Override Equalization Fund established through the bill would correct for that to an extent. Starting in 2025, the legislation would direct that fund to provide matching dollars to qualifying districts for their mill levy overrides.
Will taxpayers say yes to tax increases?
Rainey sees mill levy equalization as one puzzle piece in improving Colorado’s model of school finance. While it will generate revenue, it still won’t fill the funding hole created by the negative factor.
“It is a portion of help potentially, but it is not the sole answer to funding in Colorado,” she said.
Both Colwell and Sam Battan, founder of Colorado Youth Congress, acknowledge that mill levy equalization isn’t the only step to take toward fixing Colorado’s school finance problem, but it’s an important one.
“I think given where we’re at currently, this bill is our best chance at making improvements to our school funding system,” said Battan, whose student-driven organization has selected school finance as its campaign focus this year.
“Unless we address the inadequacies and inequities of our school funding system,” he added, “then we’re going to miss out on a lot of potential of our young people.”
Colwell emphasizes that mill levy equalization would not hit individual taxpayers with significant property tax increases. Calculations provided by the Colorado Children’s Campaign show that in the Cherry Creek School District, for instance, it will take nine years to reach 27 mills and residential property owners would take on $59 in additional taxes per $100,000 of value. Littleton Public Schools would hit 27 mills in two years and residential property owners would add $11.78 per $100,000 of value to their bills.
Still, one potential challenge standing in front of the legislation: taxpayers’ willingness to take on a tax increase.
Fields, of Colorado Rising State Action, said that while he’s sure some taxpayers will support a tax hike in their communities for the sake of their schools, he isn’t confident that support will be as widespread as what proponents are projecting.
Colorado puts a priority on local control of schools, and anger over mandates coming out of Denver — especially in rural areas — could make the tax increases a tough sell.
Additionally, many communities already feel they face a high tax burden, he said. “To be forced to do more I think could have a negative reaction.”
Primero RE-2 School District is one of those places.
Superintendent Bill Naccarato said local taxpayers oppose the idea of mill levy equalization “because of how much it’s going to affect them economically.”
The same is true in the Custer County School District, though Superintendent Mike McFalls said the population could surprise the district. Custer County has a heavy base of conservatives as well as a lot of retirees who generally oppose increasing taxes, he said. But many of those retirees are wealthy and actively support the schools.
A uniform mill levy would likely be embraced by residents supporting Cañon City Schools, where the mill levy rate is already at 27. Superintendent George Welsh predicts that taxpayers in his community won’t oppose the tax policy changes “because their taxes will stay the same.”
Thirty-eight other districts also currently face a property tax rate of 27 mills.
Welsh highlighted the glaring inequity of property-tax collection in his own county. Taxpayers in Fremont Re-2 School District, a neighbor of Cañon City Schools in Florence, currently pay a property tax rate of 15.2 mills. That means that residents from the two districts who live on opposite sides of the same street pay significantly different amounts of property taxes, even if their homes are valued about the same. A Cañon City resident living across the street from a Florence resident could pay almost twice as much in school-related taxes, Welsh said.
A tax increase might also be an easier sell for Aspen School District in Pitkin County, though Interim Superintendent Tom Heald said it may be tough to generate support for a property tax increase at the same time the district is seeking taxpayer support to fix school buildings.
“To do both of those in one or two years’ time might not fly,” Heald said, adding that it would be easier to explain the need for bonding and for building expenses to the community than it is to explain the need to increase the tax rate for mill levy equalization.
Still, the district leader sees the bigger picture.
Once people understand the inequity in school funding across the state and the ratcheting impact of TABOR, Heald said, those who favor local control in their communities will support mill levy equalization.
“I don’t know that any of us want to be beholden to the state if we can do this on our own, through our own assessed valuations,” Heald said.
He acknowledges it will be tough to get taxpayers to understand the concept of mill levy equalization as anything more than a tax increase. In conversations with other Western Slope superintendents, Heald said they’ve indicated this kind of policy would never gain traction in their communities.
His argument: “We have to at least try.”