Colorado’s property tax picture was muddied Friday afternoon when members of a bipartisan state commission tasked with overhauling the tax code called for big changes to a draft proposal created by Democrats in the legislature, saying parts were either totally unworkable or needed major reworking.
The disconnect, with less than two weeks left in Colorado’s 2024 legislative session, will heap pressure onto state lawmakers as they race to come up with a bill to head off measures cutting property taxes placed or being pursued for the November ballot by a conservative group.
The legislative session ends May 8. The latest a bill could be introduced and still have enough time to pass would be May 6, a week from Monday.
“We’re getting down to the end of session and we’re going to have to start having to make some very difficult decisions,” said state Sen. Chris Hansen, a Denver Democrat.
Hansen is behind the draft proposal and chair of the bipartisan property tax commission created after voters in November 2023 resoundingly rejected Proposition HH, the 10-year property tax relief plan placed on the ballot by Democrats in the legislature and Gov. Jared Polis.
The 19-member commission, made up of lawmakers, local elected leaders and business representatives, has been working since December to come up with another way to prevent big spikes in Coloradans’ property tax bills while not harming schools and local governments, who are primarily funded by property tax revenue. (A temporary fix adopted during a special session in November has expired.)
But despite their months of work, there is little consensus on how to proceed, highlighting how complicated and politically fraught Colorado’s property tax system is.
Making things more difficult is the reality that there are limited pools of money from which the legislature can draw to reimburse schools and local governments for any cuts, which will almost certainly total hundreds of millions of dollars. Democrats and Republicans in the legislature have promised to fully fund K-12 schools this year for the first time since the Great Recession, and any property tax cuts would affect their ability to uphold that pledge.
“I think there is 100% bipartisan consensus that we do not want to hurt school funding in any way,” Hansen said.
But Broomfield Mayor Guyleen Castriotta, a member of the commission, said some parts of Hansen’s proposal hadn’t been fully vetted for unintended consequences.
“I think we need to really be a little bit more thoughtful,” she said.
The draft proposal, which Hansen said was aimed at incorporating the commission’s recommendations, would let people exempt 10% of their primary residence’s value from taxation, up to $75,000. In most communities, that homestead exemption would represent a maximum savings of around $450 a year, though tax bills can vary greatly depending on local mill levy rates.
It also would reduce the commercial property tax assessment rate over five years and force local governments, excluding schools, to vote to keep any annual increases in property tax revenue that are above 5.5%.
The primary homestead exemption and the flexible cap on local revenue increases were among 10 recommendations endorsed by the commission when it issued its preliminary report in March. That report also called for a number of broader property tax code reforms to mitigate taxpayer sticker shock, some of which appear in Hansen’s proposal. But the recommendations lacked specifics needed to craft a bill — namely, how much tax relief the state should actually provide.
On Friday, some members of the commission balked at the homestead exemption, saying it would be too costly and impossible to enact this year.
“That is extremely attractive and people love that concept,” said Ann Terry, who leads the Special District Association of Colorado and sits on the commission. “(But) it is something that is extremely expensive and just adds to additional cuts in the local government world.”
Colorado Property Tax Administrator JoAnn Groff said county assessors couldn’t even deploy the change before 2025.
“We do not have the ability to make that adjustment,” she said.
Terry instead proposed imposing an annual property tax revenue increase cap of 6% on local governments. Her plan would exclude schools and provide some wiggle room to account for new construction and inflation.
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Other parts of Hansen’s draft that are sparking debate include a provision that would average out property value increases over several years to prevent big year-over-year jumps in the taxes homeowners and businesses pay. For the last tax year, residential values skyrocketed by a median of 40% across the state.
Several commissioners said the averaging-out provision is unworkable for county assessors.
Commissioners said they liked provisions in the draft increasing the threshold at which homeowners can defer their property tax increases and giving taxpayers who don’t pay their property taxes through their mortgage the option of paying their property taxes monthly, rather than in one or two lump sums as they do today. But commissioners said both would be tough to implement and needed more thought.
One area of agreement in the draft: A proposed five-year reduction in the commercial property tax assessment rate, which last year was 27.9% and is set to rise to 29% this year. The rate would go down for taxes owed next year to 27.5%. It would then decrease by 0.5 percentage points each year until it reaches 25.5%.
The commission spent the end of its four-hour meeting Friday focusing on how to make a temporary cut — as the legislature has done in each of the past three years since voters repealed the Gallagher Amendment. The amendment triggered billions of dollars in property tax cuts from its adoption in 1982 until it was undone.
The break endorsed by the commission for taxes owed in 2025 would represent a slight increase over what property owners paid this year. The panel also expressed interest in imposing the 6% local cap starting for taxes owed in 2026.
Even in those scenarios, however, where the reimbursement money for schools and local governments would come from — and how much they would get — is unclear. The cuts the commission were discussing Friday would cost the state and local governments a combined hundreds of millions of dollars.
Commissioners agreed, however, that they needed to do something to try to persuade voters not to back the deeper property tax cuts placed on the November ballot by the conservative group Advance Colorado. The nonprofit’s Initiative 50, which has already made the ballot, would set a statewide 4% annual cap on property tax revenue, causing deep funding cuts to schools and local governments.
Ultimately, it will be up to Hansen and other members of the legislature to put together a bill. The commission doesn’t have the power to draft legislation — it can just make suggestions.
“We have a commission that’s providing expert input into this process,” Hansen said. “There’s also a legislative process that I, as a bill sponsor, with my colleagues have to pass a bill. That is a very different thing than hearing feedback from a commission. Obviously, I’m going to listen closely to this — the experts in the room — and try to balance those different inputs into a piece of legislation I can get to the governor’s desk.”
Sean Dougherty, a real estate agent from Fort Collins who sits on the commission, said at the end of Friday’s meeting that he was unclear how Hansen would proceed.
“I’m not really sure what will be coming forward in this draft bill,” he said.
“Well,” Hansen joked, “that makes two of us.”
Hansen told The Colorado Sun on Friday night that he has other policy plans ready to go.
“I have a very good idea what’s going to be in the next version,” he told The Sun.
The meeting Friday was the commission’s last before the end of the 2024 legislative session. The panel will gather again after May 8 as it continues working toward systemic changes to the state’s property tax code.