Colorado voters would be asked in November to approve a 10-year plan aimed at preventing property taxes from rising at a historic clip under an eleventh-hour proposal unveiled Monday by Gov. Jared Polis and Democrats in the state legislature.
The effort, which would reduce Taxpayer’s Bill of Rights refunds in order to make up for the cuts, is aimed at combating a dizzying rise in property values that will cause a corresponding jump in homeowners’ and businesses’ tax burden. Property tax bills are in large part determined by property values, and home values increased statewide by an average of 40% over the past two years.
Proponents of the measure say it would cut the projected property tax increase for the average Colorado homeowner by 62% in the 2023 tax year for which taxes are due in April 2024.
Under the plan, the statewide residential assessment rate, a major determinant in property taxes, would be reduced over the next decade. There would also be cuts in the assessment rates for commercial property.
To get the measure on the November ballot, the proposal only needs the support of a simple majority in the legislature. The measure was introduced Monday as Senate Bill 303 and state lawmakers will have to act quickly, as the 2023 legislative session in Colorado ends on May 8.
“We are deeply committed to providing property tax relief for homeowners so nobody’s priced out of where they live,” Polis said Monday in an interview with The Colorado Sun.
Polis told The Sun he has three goals for the plan: provide immediate relief, give property owners some financial certainty and make the state more attractive to businesses.
Colorado’s property taxes, which fund schools and other local government services and programs, are among the nation’s lowest. But the real estate frenzy during the COVID-19 pandemic that dramatically increased home prices, paired with voters’ decision in 2020 to repeal the Gallagher Amendment, which prevented property taxes from rising too fast, set up conditions for a property tax spike this year.
That can pose financial challenges for Coloradans who bought their homes years ago, when property taxes were much lower, especially those who are on a fixed income, like retirees. Higher property taxes can also affect renters if landlords pass on their increased costs.
Brooke Zerbato, a Colorado realtor, said at a news conference Monday during which the plan was unveiled that she has clients who are selling their homes because of their rising property tax bills. “I’ve had to tell clients that they can’t afford homes because of tax bills,” she said.
While the plan unveiled Monday is not the permanent replacement for the Gallagher Amendment promised by Polis, it provides a decade of certainty for property owners, whose property tax burden has changed at the whims of the legislature for three consecutive years.
Polis said lawmakers and interest groups decided a decade was the right amount of time for the legislature to check in and determine if the cuts are working as intended.
“We kind of came to the conclusion that a decade is a sensible time of time for it to be looked at to make sure it’s still working for where Colorado is then,” the governor said.
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At the end of the decade, the legislature and governor would have the option to continue the plan, ask voters for approval to change it or simply let the state revert back to its existing property tax scheme.
County assessors warned Coloradans last week to expect a sharp rise in their property tax bills in 2024 and 2025 because of a dramatic increase in home values. Assessors calculate home values in the spring of odd years based on economic conditions on June 30 of the previous year.
So this year’s values are based on what properties were worth on June 30, 2022.
In all nine Denver-area counties — Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert, Jefferson and Larimer — the median increase in residential property values from June 2020 ranged from 35% to 45%.
The median increase in residential home values was as high as 60% in some mountain communities. Counties in rural northeast Colorado saw the smallest median increases, ranging between 25% and 35%.
The details of the plan
How are property taxes calculated?
Property taxes are determined by how much your county assessor values your property, what the state’s property assessment rate is and what your local mill-levy rate is.
A mill is a $1 payment on every $1,000 of assessed value.
Property taxes in Colorado are calculated by multiplying the statewide assessment rate by the value of a home as determined by a county assessor. That number is then multiplied by the local mill levy rate. (A mill is a $1 payment on every $1,000 of assessed value.)
If the value of a home, as determined by a county assessor, goes up, so does the owner’s tax bill — even if the tax rate isn’t going up. In Colorado, the Taxpayer’s Bill of Rights, a 1992 constitutional amendment approved by voters, dictates that tax rates can only be increased by a vote of the people.
Here’s how the proposal would work:
- The residential assessment rate would be reduced to 6.7% in 2023 for taxes owed in 2024, down from 6.765% and 6.976%. The rate would remain unchanged through the 2032 tax year, for taxes owed in 2033. The assessment rate would be slightly higher for people’s second single-family homes — at 7.1% — from the 2025 tax year through the 2032 tax year.
- In addition to the assessment rate cuts, residential property owners would get to exempt the first $40,000 in their home’s value from taxation for the 2023 and 2024 tax years. The break would persist until the 2032 tax year, except for second single-family homes, which would stop being subject to the benefit in the 2025 tax year.
- For commercial properties, the assessment rate would be reduced to 27.85% through 2026, down from 29%. The state would be required to evaluate economic conditions to determine if the rate reduction should continue. If the determination is made that the rate reductions should persist, the commercial assessment rate would be reduced to 27.65% in 2027, 26.9% in 2029 and 25.9% starting in 2031.
- For agricultural properties and properties used for renewable energy, the assessment rate would be reduced to 26.4% from 29% through the 2032 tax year. For properties that fall under both classifications, such as those used for agrivoltaics, the rate would be cut to 21.9%.
The proposal would also prevent many local districts from collecting an increase in property taxes above the rate of inflation, though school districts would be exempt and local governments could override the cap after giving notice to property owners. Utah has a similar system, and that’s what the provision in the Colorado proposal is modeled after.
Finally, the proposal would let seniors who claim a homestead property tax exemption continue to claim the benefit if they move to a new home. Seniors qualify for the exemption if they have lived in their home for 10 years. Currently, if they relocate — say to downsize — they lose the benefit.
The exemption dramatically decreases how much seniors who qualify owe in property taxes.
“Right now, if you downsize after 10 years you lose that benefit,” said Sen. Chris Hansen, a Denver Democrat and lead sponsor of the property tax bill. “Under this proposal, if you’ve qualified for senior homestead, you’re going to keep it for the rest of your life.”
What is TABOR?
The Taxpayer’s Bill of Rights, or TABOR, is a 1992 constitutional amendment that requires voter approval for all tax increases in Colorado. It also caps government growth and spending, mandating that tax revenue collected in excess of the cap be refunded to taxpayers. The cap is calculated using inflation and population rates.
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To account for the cuts, the legislature is planning to spend $200 million to repay local governments, including schools, for the revenue they would have collected. Additionally, the plan calls for using about $250 million of the $2.7 billion Colorado is projected to collect in the current fiscal year, which ends June 30, above TABOR cap to further account for local districts’ revenue reduction.
Additionally, voters would be asked in November to increase the TABOR cap on government growth and spending, which is calculated by annual growth in population and inflation, by an extra 1%. (Any money collected over the cap has to be refunded.)
The governor’s office estimates that would let the state keep an extra $167 million over the cap next year. That money is intended to go toward helping local governments recoup the reduction in their projected increase in property tax revenue.
The other lead sponsors of Senate Bill 303 are: Senate President Steve Fenberg, D-Boulder, and Democratic Reps. Mike Weissman of Aurora and Chris deGruy Kennedy of Lakewood.
“I believe we found with this piece of legislation is a responsible and balanced approach that both delivers the property tax reductions that people are going to need to keep up with the high cost of living without undercutting the ability of our local governments to keep up with these critical services,” deGruy Kennedy said.
There were no Republican state lawmakers at the news conference Monday unveiling the bill. Democrats don’t need any GOP votes to pass the measure, but Republicans can use delay tactics to try to prevent the legislation’s passage.
Polis sidestepped a question about whether proponents of the measure have a backup plan if the bill doesn’t pass before the legislative session ends May 8.
More than one property tax measure on the November 2023 ballot?
If the legislature’s property tax measure makes it to the ballot, it may not be the only one voters are asked to consider. In the vacuum left by the General Assembly’s inaction until now, conservative and liberal political nonprofits have begun pursuing ballot measures to make property tax changes.
Advance Colorado, the conservative fiscal nonprofit, entered the conversation first this year with Initiative 21, which would be on the November statewide ballot. It would amend the state constitution to cap property tax increases at 3% per property and set aside up to $100 million in state TABOR surplus each year for fire districts.
TABOR caps government growth and spending each year based on population increases and the rate of inflation. Any money collected above the cap must be refunded to taxpayers unless voters say otherwise.
The Bell Policy Center, the liberal-leaning fiscal nonprofit, responded by filing eight potential 2023 ballot measures for review by the state’s Title Board. The measures, submitted in partnership with the Colorado Education Association, the state’s largest teacher union, would reduce or cap property tax increases and/or use TABOR surplus to replace the revenue lost by school, fire district and local water project budgets.
Supporters of ballot initiatives must collect 125,000 voter signatures to get an initiative on the statewide ballot.
It’s even harder to get a constitutional amendment on the statewide ballot. That comes with the additional requirement that the voter signatures gathered include at least 2% of the registered voters in each of Colorado’s 35 state Senate districts. Additionally, constitutional amendments require the support of at least 55% of voters to pass.
Scott Wasserman, who leads the Bell Policy Center and stood as a supporter of Polis’ plan at the news conference Monday, said his organization is waiting to see if Initiative 21 moves forward before decided whether to pursue their ballot measures. “We’re leaving them until we know for sure,” he said.
Michael Fields, who leads Advance Colorado, said in a written statement Monday that the legislature’s proposal is weak. That’s an indication Advance Colorado doesn’t plan to back off Initiative 21.
“We’ve got a five-alarm fire in Colorado and our governor showed up with a squirt gun,” he said in a written statement. “We really waited this whole session for this half-baked proposal? Voters deserve a real, long-term solution to this crisis.”
Polis said he’s confident that voters will back the legislature’s plan if they face multiple property tax options in November.
“There may very well be other proposals,” Polis said, “but they have shortcomings in that they will gut school districts or not be equitable in terms of who they benefit. This is thoughtful.”
The proposal, should it pass the legislature and be approved by voters, would mean that property tax estimated Colorado property owners recently began receiving in the mail are inaccurate. The tax burden would be greatly reduced under the new plan.
Some county assessors’ websites have already been updated with new values, but they should all be updated by May 1. Property owners have until June 8 to appeal value assessments.
Colorado has deferral programs for people who can’t afford major increases in their property taxes.
The next property revaluation won’t happen until the spring of 2025.