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A painter rappels down from the top of the Colorado Capitol building in Denver on Aug. 16, 2019. (Jesse Paul, The Colorado Sun)

When the General Assembly two years ago agreed to study the state’s dysfunctional property tax code, reform advocates were optimistic that years of warnings would finally lead to action.

A bipartisan panel came up with a variety of options to repeal and replace the Gallagher Amendment, the constitutional measure that for decades has squeezed essential local services, like first responders and schools, in order to keep residential property taxes low. But at the culmination of the study, lawmakers threw up their hands. The task of devising a compromise with broad appeal, they concluded, was politically impossible.

“I think it kind of died of its own weight,” recalled Gini Pingenot, the legislative director of Colorado Counties Inc., which has long advocated for property tax reforms.

Then came the coronavirus. Faced with a deepening state budget crisis, lawmakers last month voted 79-20 to ask voters to repeal the Gallagher Amendment and forgo an estimated 18% residential property tax cut that’s slated to kick in next year. It was a stunning rebuke of the political conventional wisdom, which has long held that Gallagher, because of its popularity with homeowners and its uneven effects on different communities, is simply too complicated to fix.

State Rep. Chris Hansen, D-Denver, in the Colorado House of Representatives on May 3, 2019. (Jesse Paul, The Colorado Sun)

However, now that the effort is shifting from the statehouse to the campaign trail, those complications that doomed past efforts have come back into focus. The authors of the repeal bill say they’ll have the support needed to mount a strong ballot push, and told The Sun to expect a campaign launch by the end of the month — possibly as soon as this week.

“I’m feeling confident there will be adequate resources for us to run a campaign,” said Sen. Chris Hansen, D-Denver. “We’ve got folks who have been working on Gallagher for decades who see this as our best opportunity to do a repeal.”

But trouble signs are already emerging that suggest would-be allies lack the enthusiasm needed to sell the 2020 electorate on a difficult ballot question. The Colorado Sun interviewed more than a dozen advocates who represent influential interests across the political spectrum. With four months until Election Day, the picture is anything but clear.

Support for the measure is indeed diverse, crossing both ideological and urban-rural lines. Business groups on the right have endorsed the measure, as have progressive tax groups on the left and the state teachers union. But enthusiasm is lacking; some told The Sun that Gallagher is not their top priority for the fall campaign, while others would not commit to spending resources to get it passed.

The opposition is unorganized, but can also claim broad diversity: conservative anti-tax groups, prominent former lawmakers, such as former Democratic House Speaker Dickie Lee Hullinghorst, and Colorado Counties Inc., which represents the interests of the state’s 64 county governments. Throw in the electorate’s deep-seated resistance to taxes, a presidential election, the pandemic, a recession and a handful of other proposals that are still vying to make the ballot, and it’s not clear how a complicated property tax question like Gallagher will be able to break through.

“In a normal world, it could be a business-education kumbaya,” said Ian Silverii, the executive director of the liberal group ProgressNow. “But we don’t live in a normal world, we live wherever this is.”

The complicated case against Gallagher

Even in something passing for a normal world, repealing Gallagher would be a big ask. Indeed, something similar has been tried before: voters in a landslide defeated a 2003 ballot measure to stop future Gallagher-related cuts, with 78% opposed.

Since its adoption in 1982, Gallagher has delivered an estimated $35 billion in property tax cuts to homeowners, according to a state analysis. In 2019 alone, homeowners paid $2.8 billion less than they would have had the Gallagher Amendment never taken effect.

Here’s how the amendment works: Gallagher was designed to make businesses pay their “fair share” of property taxes by limiting residential property to 45% of the statewide tax base, and businesses paying the remainder. So when home values rise rapidly, as they have along the Front Range, it can trigger a cut to the residential assessment rate, a key part of the formula that determines the tax bill on a home.

The Greater Eagle Fire Protection District in 2018 was one of dozens of special taxing districts across Colorado seeking taxpayer approval to annually adjust mill levy rates to offset revenue declines under the state’s Gallagher Amendment. (Jason Blevins, The Colorado Sun)

Since 1982, the residential assessment rate has dropped to 7.15% from 21%, and it’s projected to fall again to 5.88% in 2021. These cuts have reverberated unevenly across Colorado for decades, with varying consequences for different communities. Here are a few of the most significant ones:

  • For homeowners, this has meant some financial protection from rising home values — although in many Front Range neighborhoods, tax bills still rise faster than Gallagher can cut them.
  • In many rural communities, Gallagher has gutted essential public services, cutting fire and hospital district funding streams.
  • For many school districts, Gallagher has cut local funding, requiring the state to take on more of the burden of paying for K-12 education. This has led to school funding shortfalls, as well as cuts to other state services, like transportation and higher education.
  • For many businesses, Gallagher has meant higher taxes. In response to the residential assessment cuts, many local governments have raised mill levies to compensate for the lost revenue. Some governments do so automatically each time a cut is triggered. When this happens, the burden of higher taxes falls heavily on businesses, who now pay more than four times the property tax rate that homeowners do.

Those who support repeal are hoping that when voters are educated on the problems Gallagher causes, they can be persuaded to give up their tax protections.

“This is the problem with Gallagher: it has to go, (but) it is just so complicated,” says Scott Wasserman, who leads the Bell Policy Center, a liberal think tank that favors repeal. “And can you bottle that up into a campaign?”

Broad support — but not “earth-shattering money”

On the one hand, the issue has the potential to galvanize broad support in a time of crisis. The model in Colorado is the campaign for 2005’s Referendum C, which relied on broad support from both sides of the aisle to persuade voters to temporarily give up taxpayer refunds during a budget crisis. Today, some fear it has more in common with last year’s failed campaign for Proposition CC, the measure to permanently remove the state spending cap in order to raise revenue for schools and roads.

“It’s very analogous,” Wasserman said. “When things come out of the legislature it means you’ve built a legislative coalition. And I think that we’ve seen that a legislative coalition doesn’t always translate to grassroots campaign support.”

Some prominent business groups, including the Denver Metro Chamber of Commerce and the National Federation of Independent Business, have endorsed the measure, saying that escalating commercial taxes have forced some small businesses to relocate or close.

“It affects everyone – and I don’t want this to sound derogatory, but residential property has not paid their fair share since Gallagher passed,” said Tony Gagliardi, the Colorado state director for NFIB.

In a statement, Denver chamber spokeswoman Laura Giocomo Rizzo pledged to “make our case to voters this fall, as this should be a priority not only for the business community but all Coloradans.” Other business groups, though, are still sitting on the sidelines. The state chamber of commerce, the Colorado Association of Commerce and Industry, hasn’t taken a position on repeal.

Denver teachers and union representatives rally at the Colorado Capitol on Jan. 30, 2018, as a strike looms. The union says it is more focused on changing the state’s income tax structure than repealing the Gallagher amendment this year. (John Frank, The Colorado Sun)

On the left, the Colorado Education Association has endorsed repeal, but its leader acknowledged in an interview that Gallagher may not be the teacher union’s top priority in November.

“Right now, our primary focus for the CEA is on Initiative 271,” CEA President Amie Baca-Oehlert said, referring to the Fair Tax Colorado proposal that would raise taxes on the wealthy. “We’re heavily focused on that right now and getting the signatures to get 271 on the ballot.”

If the tax overhaul or any number of other citizens initiatives make the ballot, it could divert resources from the business side as well, pitting potential Gallagher allies against each other in other costly fights.

Still, state Sen. Jack Tate, a Republican co-author of the repeal measure, insists they’ll have the fundraising they need to make the case to voters.

“I don’t think it’s going to be earth-shattering money — not $5 million, $6 million or anything like that,” he said in an interview. “But I think it’ll be over $1 million.”

Residential taxes up, business taxes down?

Opponents of repeal are all over the ideological map.

Two conservative groups, the Independence Institute and Colorado Rising Action, oppose repeal on the grounds that it would be a de facto tax increase on homeowners because it eliminates future tax cuts.

“It will be a property tax increase for the residential side, and this is during a recession,” said Michael Fields, the executive director of Colorado Rising Action. “Why would we be raising taxes during a recession?”

Fields told The Sun his group would actively campaign against it — but he’s not sure what resources his group will devote to it.

Jon Caldara, who runs the Independence Institute, offered a more blunt assessment.

“We’re against it, but the reality is, it doesn’t have a prayer of passing, so why even bother?” Caldara said.

On the left, Dickie Lee Hullinghorst, the former Democratic Speaker of the House, defended Gallagher as one of the few state policies that keep housing affordable for the working class. When lawmakers studied how to repeal and replace Gallagher in the 2018 legislative interim, she tried to work with them on reforms that would address the public sector’s funding challenges while maintaining some protections for homeowners. She said the talks fell apart because the business community wasn’t interested in a replacement.

“My opinion is they don’t want to fix it,” said Hullinghorst, whose last term ended in 2016. “They want to get rid of it, because they then can go in and get all of the property tax breaks they want by lobbying in the state legislature. That’s my very cynical opinion of that.”

She’s not alone.

Colorado Counties Inc., was perhaps the most surprising group to come out against repeal late in the legislative session. For years, the group has been among the loudest voices against Gallagher’s tax-cutting formula. Now, they fear repealing it will only lead to more tax cuts, this time for businesses instead of homeowners. Today, the business assessment rate is set in the constitution, and can’t be changed by the legislature. But if Gallagher is repealed, lawmakers could cut it by passing a state law.

“We know that the lobbying forces at the capitol are strong and influential,” Morgan County Commissioner Jim Zwetzig, the president of CCI, wrote in a June letter to lawmakers. “Given this, we anticipate unyielding pressure on the legislature to lower assessment rates.”

In a nod to the counties’ concerns, lawmakers enacted a moratorium on changing the assessment rates, freezing them in place if the repeal occurs. But it lacks the legal weight of what’s already in the constitution, and future legislatures could change course.

Hullinghorst believes her nightmare scenario is not only possible, it’s the most likely outcome if repeal is approved.

“It’s going to end up hurting the average property owner quite a bit, and business taxes are going to go down,” she said.

Brian Eason writes about the Colorado state budget, tax policy, PERA and housing. He's passionate about explaining how our government works, and why it often fails to serve the public interest. Topic expertise: Public finance, tax policy,...