Colorado’s property tax code would be reimagined — with long-term rate cuts for homeowners and businesses and a local revenue cap — under a fiercely negotiated, last-minute bipartisan bill introduced in the legislature Monday that aims to provide tax relief while protecting funding for K-12 schools.
The measure, Senate Bill 233, comes with just three days left in Colorado’s 2024 legislative session — the minimum amount of time needed to pass a bill. And it was the product of negotiations with Colorado Concern, a nonprofit representing CEOs in the state that was working on a plan to ask voters on the November ballot for an even bigger property tax break.
Lawmakers, Gov. Jared Polis’ office and interest groups were working through the weekend with Colorado Concern to reach an agreement. The nonprofit said a deal hasn’t been reached yet, but that it’s continuing to work with lawmakers on Senate Bill 233 and will continue its ballot measure push in the meantime.
Still, the legislation is the culmination of months and back forth since voters last year rejected Proposition HH and sent the legislature back to the property tax drawing board.
“This policy reflects some very tough choices, but finds meaningful property tax reductions while protecting the future of our K-12 funding,” said Rep. Chris deGruy Kennedy, a Lakewood Democrat who is one of the main sponsors of the bill.
Republican Sen. Barbara Kirkmeyer of Brighton and Republican Rep. Lisa Frizell of Castle Rock are also main sponsors. Frizell called the bill “a great opportunity for the citizens of Colorado.”
Senate Bill 233 passed the Senate State, Military and Veterans Affairs Committee unanimously on Monday and then was approved on a preliminary vote on the Senate floor.
How it would work
The measure, which would likely save the average homeowner several hundred dollars annually, calls for holding residential and commercial property tax rates steady this year, for taxes owed in 2025. Because the rates are supposed to rise under current law, however, that would cost schools roughly $350 million, money that would be reimbursed out of the state’s education fund, which is filled with income tax revenue.
As much as $20 million in reimbursements would be made to local governments that would lose money under the plan compared to their 2022 revenues. Those dollars would come out of the state’s reserves, set aside to pay for government programs in an economic downturn. The source of the money may change during the lawmaking process.
The vast majority of the hit to local governments won’t be reimbursed, though their revenues are still growing because of the effect of rising property values on tax bills.
Starting in 2025, the real changes would begin.
Property taxes fund schools and other local governments, and the state property assessment rate that determines how much people and businesses owe doesn’t differ depending on who is collecting the revenue. That would change under Senate Bill 233, with one rate for schools and another for all local governments.
The school rate for residential properties would be higher to prevent K-12 losses that the state would have to pay for out of its budget. (Schools make up the largest share of Coloradans property tax bills.)
The measure would also enact a new cap on local government property tax collections, limiting them to 5.5% growth in any given year. The cap would not apply to school districts. It could only be overridden by a local referendum.
Here’s how the rates would work:
- For the 2025 tax year, the residential assessment rate for local governments would be 6.7%. The rate for schools would go to 7.15%.
- For the 2026 tax year, the residential assessment rate for local governments would be set at 6.95%. Homeowners would also receive a 10% exemption from taxation on their properties’ value, up to $70,000. For schools, however, the rate would stay at 7.15%, with no value exemption. The rate changes and value exemption would continue in perpetuity. There would be upward adjustments in the value exemption for inflation and downward rate changes for the school assessment rate if local revenue statewide makes up 60% of K-12 funding.
- For the 2025 tax year, the commercial rate for local governments and schools would be 27%. In 2026, the commercial rate for local governments and schools would go down to 26%. In 2027, it would move to 25% and stay there in perpetuity.
It’s difficult to say how the changes — some of which will be finalized as the legislation makes its way through the Capitol — would affect individual homeowners and business owners, because property taxes depend so heavily on local mill levy rates. But the plan likely represents several hundred dollars in savings each year for homeowners below what they would have paid.
(The residential assessment rate would be 6.7%, with a flat $55,000 value reduction for 2024. The commercial rate would be 27.9%, with a flat $30,000 value reduction.)
Coloradans’ property taxes will still be higher than they were in 2022, before rising property values led to increased tax bills, but if Senate Bill 233 passes they won’t be as high as they would have been.
Sen. Chris Hansen, a Denver Democrat and another main sponsor of the bill, said he is “really proud of this work.”
“We busted our tails,” said Hansen, one of the chief architects of the plan, explaining that the measure was really the culmination of six years of work and debate at the Capitol.
The legislative session ends Wednesday, meaning lawmakers and the public have little time to digest and pass the property tax measure. Since the bill has bipartisan support, however, its chances of becoming law are solid.
A bipartisan commission led by Hansen has been working since last year, when voters rejected Proposition HH, a 10-year property tax and state spending plan, to come up with a long-term solution to rising property tax bills in the state. But finding a solution has been elusive because property taxes are so complicated in how they’re levied and how they affect the state and local government budget, as well as schools.
Inaction hasn’t been seen as a viable option. If lawmakers do nothing, the residential rate would eventually return to 7.15% and the commercial rate would eventually return to 29%. And while Colorado’s property taxes on average are among the lowest in the nation, they differ wildly across the state. Additionally, rising property values have increased tax bills at a high clip, which is a problem for people on fixed or low incomes who may have purchased their homes when they were worth much less.
The governor joked at a news conference at the Capitol on Monday that Colorado has been waiting for smoke to rise from the building in a signal that a property tax deal had been reached.
“I think at times over the last several years, and definitely over the last several months and hours, we didn’t think we were gonna get there,” Senate President Steve Fenberg, D-Boulder, said at the news conference.
Heading off ballot measures
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Read moreThe legislature is also hoping to pass the bill in part to persuade voters not to support deeper cuts on or heading for the November ballot that would likely devastate local and state budgets.
One of those measures, backed by the conservative political nonprofit Advance Colorado, would impose a statewide 4% cap on property tax revenue. That question, Initiative 50, has already qualified to appear on the November ballot.
On the surface, a 4% limit may not sound like a big deal. But statewide property tax revenue has grown by less than 4% just 15 times in the past 60 years, a Colorado Sun analysis of Department of Local Affairs data found.
Another measure backed by Advance Colorado and Colorado Concern, Initiative 108, would slash the residential assessment rate to 5.7% starting in 2025 and to 24% for commercial properties. It would require the legislature to reimburse all school and local district losses — likely billions of dollars.
Colorado Concern had previously been an ally of Polis in the property tax conversation and supported Proposition HH. But in February, the group teamed up with Advance Colorado to work on property tax ballot measures for November that would have much larger property tax breaks.
Now, Colorado Concern appears to be back working with the governor and the legislature. Colorado Concern CEO Dave Davia, clad in a tuxedo, was at the Capitol on Saturday. He was seen lingering outside of the Colorado Senate majority office and then went into the governor’s office.
But Davia said in a statement Monday that Senate Bill 233 still isn’t enough.
“Colorado Concern and its leadership have worked in good faith with the legislature for months toward meaningful and long-term property tax relief,” he said. “Unfortunately, Senate Bill 233 does not represent material tax relief for Colorado homeowners and small business owners. A deal has not been reached at this time. We are committed to continuing to work toward a legislative solution in the final days of the session but have not removed our support for Initiatives 50 and 108.”
That was news to the sponsors of Senate Bill 233, who thought they were on solid ground with Colorado Concern.
Michael Fields, president of Advance Colorado, told The Colorado Sun on Sunday night that he definitely wasn’t part of any agreement with lawmakers.
“We haven’t made any deal,” Fields said, an indication that he still may move forward with Initiative 50 or a similar measure.
Advance Colorado, which doesn’t disclose its donors, has deep pockets.
The governor sidestepped questions Monday about the prospect of Initiative 50 or something similar being on the November ballot. Kirkmeyer said she hadn’t reviewed the measures and couldn’t say whether she would support them.
But Kirkmeyer and House Minority Leader Rose Pugliese, R-Colorado Springs, were the chief critics of Proposition HH and both are now supporting Senate Bill 233 in a stunning change.
“I’m incredibly proud to be part of this legislation,” Pugliese said at the news conference.
Scott Wasserman, who leads the Bell Policy Center, the liberal fiscal policy think tank, said Senate Bill 233 shows how preferable a legislative compromise is to ballot-box fights.
“I fully support this alternative to that madness,” said Wasserman, who helped shape Senate Bill 233.
The effect on local governments
The 5.5% local cap on revenue growth in Senate Bill 233 represents a middle ground from the flexible cap many Democrats preferred — in which local officials could vote as a governing body to overcome the limit — and the more restrictive Initiative 50 cap.
Under the conservative proposals offered for the November ballot, voters statewide would have to elect to waive the limit in a given year. The ballot measures would also limit property tax revenue everywhere, even if home values aren’t rising in every county, which could lead to tax disparities from one community to another.
By contrast, Senate Bill 233 would set local limits that could be overridden by local voters.
Notably, the state already has a 5.5% local limit on property tax growth; however, in many local governments voters have elected to waive that limit.
Meanwhile, Colorado business leaders have long sought commercial property tax cuts, after being left out of decades of automatic tax relief for homeowners under the Gallagher Amendment. Voters repealed that amendment in 2020, leaving property tax bills unchecked as home values soared.
But the timing of the cuts could be tough to swallow for local governments. State and national forecasters expect a downturn in commercial real estate prices in the wake of the pandemic, which gutted offices as employees shifted to remote and hybrid work.
If the new measure passes, it will mark the fourth time in as many years that lawmakers will have passed a property tax bill in the final days of the legislative session. This year’s legislation, however, would mark the most lasting change of any of the previously considered bills.
In a symbol of how many times in recent years Democrats have tried to tackle property taxes, the “CUTTING PROPERTY TAXES” sign affixed to the governor’s lectern during his news conference Monday on Senate Bill 233 showed signs of wear. It wasn’t making its first appearance.