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Lawmakers can allow school districts to raise property taxes without voter approval, Colorado Supreme Court rules

Monday’s ruling will likely allow districts to recoup millions of dollars in lost revenue and resolve a complicated tax issue that’s been swirling around the legislature and schools since 2007

The Ralph L. Carr Colorado Judicial Center in Denver, home of the Colorado Supreme Court, the Colorado Court of Appeals and the Colorado attorney general's office. (Jeremy Martinez, Special to The Colorado Sun - file photo)
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The Colorado legislature may permit school districts to incrementally raise property taxes in coming years without the normally required voter approval under a bill that’s headed to Gov. Jared Polis’ desk, the state Supreme Court ruled on Monday. 

Lawmakers asked the court to rule on the legality of House Bill 1164, which seeks to reverse the effects of erroneous guidance about the Taxpayer’s Bill of Rights spending cap from the Colorado Department of Education that prompted districts to lower property taxes to comply with the limits. The guidance came despite the districts having permission from voters to waive the cap through what’s colloquially known as “debrucing.”

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“School district voters previously approved waivers of the applicable TABOR limits,” the court said in its ruling. “Per the erroneous advice of the Colorado Department of Education, the school districts did not implement those waivers. And in House Bill 1164, the General Assembly seeks to eliminate the tax credits at issue simply to effectuate what the voters had previously authorized. In these circumstances, the court perceives nothing in TABOR requiring further voter approval.”

The court added: “House Bill 1164 simply effectuates what the voters have already approved.”

Monday’s ruling will, assuming House Bill 1164 is signed into law, allow districts to recoup tens of millions of dollars in lost revenue and resolve a complicated tax issue that’s been swirling around the legislature and schools since at least 2007. The measure passed the legislature on Monday, shortly after the Supreme Court ruling was handed down.

House Majority Leader Daneya Esgar, D-Pueblo, called the ruling “groundbreaking.”

“The decision handed down today will help us start to make up for years of deeply inequitable funding processes that have hamstrung certain districts like mine in Pueblo and held our schools back,” she said in a written statement. “It’s long past time to make fair and robust investments in our children and the future of Colorado.”

Republicans oppose the bill and they argued at the Capitol during debate over House Bill 1164 — and to the Colorado Supreme Court — that voter approval was needed to increase property taxes under the measure. Ultimately, however, the court found their arguments “unpersuasive.”

It’s estimated that House Bill 1164 would generate more than $90 million for school districts in the next fiscal year, which begins in July, and about $288 million annually when the property tax increases reach their highest level by 2040.

Simla Elementary School kindergarten teacher Holly Koehn’s classroom at the Big Sandy School on Feb. 25, 2019. (Mark Reis, Special to The Colorado Sun)

The extra money will ease the legislature’s constitutionally mandated funding burden when it comes to local districts, freeing up money to drive down the budget-stabilization factor, which is the amount of money the legislature underpays schools each year.

Under House Bill 1164, districts would be allowed to raise their mill-levy rates by one mill a year to whichever is less: the number of mills necessary to fully fund total programs, the number of mills the district levied when it received voter approval to waive the TABOR cap, or 27 mills.

A mill is a $1 tax payment for every $1,000 of taxable property value. Property values are set by assessors in each county, and they’ve been on the rise in recent years.

After voters approved the Taxpayer’s Bill of Rights in 1992, voters in 174 of the state’s 178 school districts decided to allow districts to ignore spending caps set by the complicated tax policy. But the Colorado Department of Education, in a decision that the state Supreme Court found erroneous in 2009, told those districts they had to reduce one major source of their revenue — their mill levy property taxation rates — anyways to meet TABOR’s limits on government growth and spending.

The problem: Once mill-levy rates decreased, they couldn’t be raised again without voter approval because of TABOR. As property values changed, districts where mill-levy rates had plummeted found themselves suddenly in need of money from the state, which is constitutionally required to ensure districts have enough money to cover their costs.

The effect was inequitable. Wealthier districts’ mill-levy rates dropped, meaning the state has been sending them money to make up for funding shortfalls. Poorer districts, with a lesser tax base, couldn’t raise more money without asking voters’ approval, which is difficult to obtain.

Districts’ mill-levy rates plummeted until 2007, when the legislature froze the rates to prevent the issue from compounding further. Last year, the legislature passed a measure equalizing mill-levy rates to a district’s financial need up to 27 mills.

Proponents of House Bill 1164 see it as the final fix to the complicated mill-levy problem that’s been facing districts for at least a generation by resolving, at least in part, the effects of the Colorado Department of Education’s mistake.

Mill-levy rates are still much lower than they were when TABOR passed, however. In 1992, school districts collected an average of 38 mills in property tax. 

Chief Justice Brian Boatright wrote the Supreme Court’s dissent on the case. He agreed with Republicans that voter approval is needed to increase mill-levy rates.

“Fully funded schools are essential, and the value of education cannot be overstated,” he wrote. “The plain language of our state constitution, nevertheless, requires that the state or any local government entity obtain advance voter approval for ‘any new tax, tax rate increase, [or] mill levy above that for the prior year.'”

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Boatright said that even though a voter may have agreed to waive their district’s TABOR, House Bill 1164 would still increase the amount of money they pay and that “is the very definition of a tax increase under our constitution.”

“Therefore, in my view, this bill violates our constitution by raising tax rates without voter approval,” he wrote.

House Bill 1164 passed by a vote of 23-12 in the Senate. It passed 40-20 in the House.

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