Gov. Jared Polis wants state lawmakers to deliver an additional $200 million in property tax relief over the next two years, bringing the total respite offered by the legislature over that period to $900 million, as Democrats and Republicans debate a long-term solution to rising tax bills resulting from skyrocketing property values across Colorado.
If the legislature, which begins its 2023 lawmaking term Monday, approves the expanded relief, it will mark the third time in as many years state lawmakers slap a Band-Aid on the problem that is Colorado’s property tax situation, which has big ramifications for schools and local government entities funded by property tax revenue.
A long-term solution palatable to many people and groups involved in the discussions, however, remains elusive, which is why Polis and the General Assembly keep offering temporary fixes.
Polis made the additional relief request in his supplemental budget request last week. He didn’t say how the relief should be offered, however, explaining that he will mostly leave that to the legislature.
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If the legislature approves Polis’ request — and that’s a big “if” — it will be the second time in two years state lawmakers will have limited the increase in Coloradans’ property tax bills for 2023 and 2024 in anticipation of a jump in property tax assessments. The General Assembly in 2022 cut $700 million from Coloradans’ expected property tax bills for those years.
“Assessments had a greater increase than any of us thought — 26.5%,” Polis said last week during a news conference. “We’re happy with the relief we provided. Assessments came in higher, so it warrants additional relief.”
The governor wants the legislature to use $200 million of its discretionary general fund money to backfill tax revenue lost to school districts and other local government entities. State lawmakers may be reticent to hand over the cash, however, given the inflationary budget crunch they face this year.
Senate President Steve Fenberg, D-Boulder, told The Colorado Sun he thinks lawmakers “are open to doing general fund investments” to blunt the impact of rising assessment rates.
“I think it will happen, though, simultaneously with a longer-term (property tax) solution rather than having to do this every year,” Fenberg said. “I think the bigger question is what ways can we solve the structural problem and get property taxes on the more sustainable path for residences as well as for commercial properties.”
Fenberg was referencing a replacement for the Gallagher Amendment, which Colorado voters stripped from the state constitution in 2020. Gallagher prevented residential property tax bills from quickly rising by shifting the tax burden to commercial property owners through assessment rates, which help determine how much property owners pay in taxes. But Gallagher collided with another constitutional amendment, the Taxpayer’s Bill of Rights, in a way that hamstrung the government entities that rely on property tax revenue.
“In my opinion, and I’ve been watching this from the outside for the last number of years, when the good voters of the state of Colorado decided to repeal the Gallagher Amendment there were a couple of things they didn’t realize,” said incoming state Rep. Lisa Frizell, a Castle Rock Republican and a former Douglas County assessor. “One was that they laid the establishment of assessment rates solely (at the feet of) the legislature, which was a bit concerning.”
Frizell said the legislature keeps kicking the property tax problem down the road, but she admits it’s difficult to come up with a permanent fix.
“I don’t have a slam-dunk solution,” she said, adding that she expects home values to increase at a much larger clip than the 26.5% rate cited by Polis.
Polis agrees that a long-term replacement to Gallagher is needed. But neither he nor Democrats in the legislature have publicly offered any concrete solutions, and both chafed last year at ideas offered by conservatives, including permanent rate reductions and caps on property tax increases.
“We need some mechanism to prevent runaway property tax rates and also to address some of the injustices that Gallagher created, namely a commercial property rate that is several times higher than many other states,” Polis said. “What are we looking for? Some reductions in commercial property taxes — benefiting our small businesses, making our state more competitive, creating jobs — and then a mechanism to protect homeowners from being priced out of their homes.”
The legislature can — and may — punt on a long-term replacement for Gallagher until the 2024 lawmaking term since the relief it has passed lasts through next year.
Last year’s property tax fight was feisty and it ended with something akin to a hostage exchange in the basement of the Colorado Capitol as interest groups backed off their plans to ask voters to make broad changes to the property tax system. There was also a property tax debate at the Capitol in 2021.
Michael Fields, a conservative fiscal activist with the political nonprofit Advance Colorado Action, has been a key player in state property tax discussions. He said he’s waiting to see what the legislature comes up with this year before deciding whether to try to shape policy through a ballot measure. (A 2021 property tax ballot measure led by Fields that would have cut assessment rates for some types of property failed.)
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Scott Wasserman, who leads the Bell Policy Center, a liberal fiscal policy nonprofit, is another key player in the property tax policy debate. He said he is working on proposals.
“This is just not a sustainable way to solve the problem,” he said of the year-after-year relief measures debated in the legislature. “It’s $200 million this year. How much is it going to be next year?”
Frizell is planning to introduce a bill this year that would prevent home values from being changed by county assessors in 2023, as planned, to prevent a big jump in Coloradans’ property tax bills. Instead, she proposes the state legislature increase home values last determined in 2021 by 5%, giving lawmakers time to come up with a long-term property tax solution before 2025, when home values are set to be evaluated by assessors once again.
“I don’t think throwing money at it is always the solution,” Frizell said.
Additionally, Republicans plan to ask the legislature this year to approve the creation of a property tax task force to come up with a long-term fix.
The relief lawmakers approved in 2022
Here’s what the legislature did in 2022 through the passage of Senate Bill 238 to reduce Coloradans’ rising property tax tab:
- The residential assessment rate used to calculate how much a residential homeowner owes in property taxes in 2023 is reduced to 6.765% from 7.15%. Additionally, the first $15,000 in actual value of a residential property is waived as long as doing so doesn’t cause the assessed property value to fall below $1,000.
- For commercial properties, the assessment rate in 2023 is reduced to 27.9% from 29%. Additionally, the first $30,000 in actual value of a commercial property is waived as long as doing so doesn’t cause the assessed property value to fall below $1,000.
Assessment rates are important because they are used to calculate how much someone owes in taxes. The rate is multiplied by a home’s market value, which is determined by a county assessor. What a property owner pays is then determined by the mill levy rate. A mill is a $1 payment on every $1,000 of assessed value. The 2023 reduction will mean that a residential property owner who owns a home worth $300,000 with a mill levy of 100 will pay about $1,900 versus $2,145. (The state has a good explainer on this here.)
In 2024, the rates will go up slightly. For single-family residential property owners, the assessment rate will be approximately 6.95%, down from 7.15%. For multifamily residential property, the rate will be 6.8%.
(Why approximately, you ask? The single-family residential property assessment rate will be set in 2024 at a level to be determined by the state property tax administrator to ensure that the state hits its $700 million property tax relief target for the 2023 and 2024 property tax years.)
For those who own commercial property used for agriculture and/or to produce renewable energy, the 2024 assessment rate will be 26.4%, down from 29%.
The 2024 rates match a reduction approved for the 2021 and 2022 tax years under a measure passed by the legislature in 2021.
Finally, the legislature extended a change allowing senior citizens to defer all of the increases in their property taxes until they sell their homes while allowing everyone else to defer any increases over 4%.
It’s likely that if more property tax relief is approved by the legislature in 2023, as Polis hopes, it will simply be made by expanding the breaks offered by Senate Bill 238.