On the same ballot that cemented statewide Democratic power not seen since 1936, Colorado’s voters once again sent their elected leaders mixed messages on taxes and spending.
They voted to raise taxes in one measure, and cut them in another.
They authorized expansive new social programs, while limiting the state’s ability to afford the programs already in place.
And perhaps most significantly, they repealed the Gallagher Amendment, relinquishing its stranglehold on local tax policy and untangling one of the key threads in Colorado’s intractable fiscal knot. But not without tying a new knot elsewhere with the passage of Proposition 117, which prevents state lawmakers from creating certain fee-based government programs without voter approval.
In other words, it was par for the course for a fickle Colorado electorate.
“I’ve been a part of the fiscal policy landscape in Colorado for a long time,” said Carol Hedges, executive director for the Colorado Fiscal Institute, a progressive tax policy organization. “This isn’t the first time we’ve had mixed results.”
And once again, it left unanswered questions. “I don’t know what it means,” Hedges added. “I think it was an election where immediate pocketbook issues and immediate family issues were close at hand, and I don’t know how to reconcile all of these (contradictions).”
If history’s any guide, the decisions voters made at the ballot box in 2020 will have far-reaching consequences for state and local budgets for decades to come. Based on conversations with policymakers and fiscal advocates on both sides of the aisle to sort through all of the implications, here’s what to expect:
Gallagher falls, relieving budget pressures, but eliminating automatic tax relief
The single biggest decision voters made was the approval of Amendment B to repeal the Gallagher Amendment, the constitutional provision that has delivered billions in tax cuts to homeowners since it was adopted in 1982.
Over time, those tax cuts exacerbated the urban-rural divide. Rising property values along the Front Range dictated statewide cuts, gutting essential services in places where home values weren’t rising fast enough to keep up. Gallagher also shifted higher taxes on to businesses in communities that raised mill levies in response to the cuts.
“The reality is that the Gallagher Amendment has been negatively impacting so many groups throughout Colorado in so many different ways,” said state Sen. Jack Tate, a Centennial Republican who co-authored the bipartisan legislative measure that put the repeal effort on the ballot.
With Gallagher gone, he added, “we’re back at the point where, for the most part, property tax policy will be the matter of local communities — they can decide what they need to fund or not fund.”
In the short term, the repeal means homeowners will forgo a projected 18% property tax cut in 2021 and lose one of Colorado’s few backstops against the rapid rise in housing costs. With no cut forthcoming, property tax bills will likely go up for many Coloradans next year due to rising property values. The assessment rates, which determine the taxable value of property, are frozen in statute as a result of the referendum.
It also means the state and local governments will be spared from additional budget cuts in the middle of a recession that has already led to public sector layoffs. If next year’s Gallagher cut had gone through as planned, it would have cost counties $204 million and school districts $491 million in tax revenue. Some of those cuts ultimately would have been passed on to the state, which has a constitutional responsibility to backfill local funding reductions for schools.
“Amendment B passing was such a big deal,” said state Sen. Dominick Moreno, the Democratic vice-chairman of the Joint Budget Committee. “I think with at least one piece of that knot being untied from our constitution, we’re going to be better able to manage the state fiscally going forward.”
Income taxes fall, but cigarette and payroll taxes climb
At the state level, Tuesday’s tax changes are a mixed bag for budget writers and taxpayers alike.
For individual taxpayers, the effects of Tuesday’s election depend on how much you make — and whether or not you smoke or vape. Here’s why:
- Proposition 118, which created a family medical leave program funded through a 0.45% payroll tax, will cost $234 per year for the average employee making $52,000 annually. Employers are required to match with the same amount.
- Proposition EE more than doubles the taxes on a pack of cigarettes starting in January 2021 to $1.94 a pack, with taxes scheduled to rise to a high of $2.64 a pack by 2027. It also imposes new taxes on nicotine products.
- Proposition 116 cuts the state income tax rate from 4.63% to 4.55%. For the average taxpayer, that won’t amount to much; the median earner would save $37 annually on income taxes, according to a legislative analysis. Someone making $1 million in taxable income would save $800.
The net effect of the three will be to raise taxes on most of the poor and middle class, while cutting them for those who make $100,000 or more, according to an analysis by the Bell Policy Center, a progressive advocacy organization.
“Colorado’s tax code is objectively more regressive today than it was yesterday,” said Scott Wasserman, the organization’s president.
Wasserman, who opposed the income tax cut but supported Proposition EE and 118, said he worries that the long-term effects of the 2020 ballot will exacerbate the state’s budget woes, making it even harder for the state to fund schools and roads.
“This will catch up with us; we know that the (revenue) projections in 2022 and 2023 don’t look good,” he said. “I think what we’ve seen historically is that Colorado never recovered from the (statewide income) tax cut in 1999, and this just adds to that and makes it worse.”
Moreno, the legislative budget writer, acknowledges there will be challenging times ahead. But on balance, he said, he expects the repeal of Gallagher and the tobacco tax hike to more than offset the revenue lost to the tax cut.
“After last night’s results, I feel better about the fiscal condition of the state than I did before,” he said Wednesday. “At least we are not on this path where these fiscal constraints in our constitution are going to lead to further reductions in services.”
Other results show fiscal ballot fights are here to stay
For Moreno, the primary takeaway from Tuesday’s conflicting results is that complicated tax policy matters would be better left to the statehouse.
“The message I got is, perhaps, we shouldn’t be making fiscal policy at the ballot box,” Moreno said. “There were a lot of conflicting feelings that I would say we got from voters last night.”
He won’t get his wish. If anything, Tuesday’s results may open up new battlegrounds in the fiscal ballot fight.
For one, Proposition 117 will require future voter referendums when lawmakers propose fee-based enterprise programs that generate more than $100 million over their first five years.
The measure was a victory for fiscal conservatives, who have long viewed the legislature’s reliance on fees as a deliberate circumvention of the Taxpayer’s Bill of Rights.
For another, the success of the Gallagher repeal and the Proposition 116 income tax cut show the importance of how issues are framed for voters that could provide a blueprint for future campaigns.
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Amendment B, for instance, eliminated future tax cuts in order to prevent budget cuts for public agencies. Proposition 116 did the exact opposite, enacting a tax cut that will exacerbate a projected state budget deficit. But the wording of Gallagher’s ballot language highlighted the impacts to public services without clearly detailing the impact it would have on property taxes. The language of Proposition 116 highlighted the impact of the tax cut, without mentioning the detrimental effects on the state budget.
Fields, the conservative advocate, said there’s no doubt ballot language matters, pointing to the difficulty of passing tax increases in Colorado, which has specific rules that call voters’ attention to the price tag.
“It’s harder to pass tax increases when the dollar amount is up front,” he said. “I would never say the only reason Gallagher (repeal) passed was the ballot language, (but) it helped.”
The repeal of Gallagher was also helped by an avalanche of campaign cash. The campaign, backed by billionaire Kent Thiry, spent $6.9 million compared to the opposition’s $722,000.
Both sides are already anticipating the next fights.
Fields expects a policy push of some sort to fill the void left by Gallagher — possibly a business tax cut, now that the non-residential assessment rate is set in statute rather than by the constitution. He also predicts a change to the education funding formula, which has been a top priority of both sides for years.
Wasserman, meanwhile, is focused on shifting more of Colorado’s tax burden away from the working class and onto the wealthy.
“The governor got his tax cut,” he said. “Now we have to talk about the other side of that coin, and what is he going to do to make sure that the tax code is fair for everyone? There’s unfinished work to be done.”
In a statement, Gov. Jared Polis, who made a nod in favor of the income tax cut ahead of the election, sent a tax policy message of his own the day after the election: stay tuned.
“Voters provided tax relief for every Coloradan and paved the way for broader fiscal and tax reform,” Polis said. “I look forward to working with the state legislature and local officials to build ourselves back even stronger than where we were before the pandemic.”
Updated at 9:10 a.m. on Thursday, Nov. 5, 2020: This story has been updated to correct the author of this article. Brian Eason wrote this story.