{"id":53512,"date":"2020-06-03T14:11:17","date_gmt":"2020-06-03T20:11:17","guid":{"rendered":"https:\/\/dh.durangoherald.com\/tj\/colorado-lawmakers-move-to-repeal-gallagher-property-tax-amendment\/"},"modified":"2020-06-03T20:11:17","modified_gmt":"2020-06-03T20:11:17","slug":"colorado-lawmakers-move-to-repeal-gallagher-property-tax-amendment","status":"publish","type":"post","link":"https:\/\/dh.durangoherald.com\/tj\/colorado-lawmakers-move-to-repeal-gallagher-property-tax-amendment\/","title":{"rendered":"Colorado lawmakers move to repeal Gallagher property tax amendment"},"content":{"rendered":"\n

\"Jason
Jason Blevins, The Colorado SunMore than 68 percent of voters in Eagle County approved Greater Eagle Fire Protection District's ballot initiative seeking relief under the Gallagher Amendment.<\/span>du1-i-syn<\/span><\/figcaption><\/figure>\n<\/p>

In a desperate attempt to stave off further budget calamity, state lawmakers are fast-tracking a landmark ballot measure that would ask voters to repeal the<\/p>\n

The bipartisan proposal \u2014 which requires a legislative supermajority to pass \u2014 represents the nuclear option for tackling Gallagher, a sign that the growing economic crisis is upending long-held assumptions about what is politically feasible in tax-averse Colorado. It is also an indication of just how desperate state lawmakers have become as they face an economic abyss unlike any other in their lifetimes.<\/p>\n

Last week, state budget writers put the finishing touches on a proposed spending plan that cuts $3 billion this year and next. And earlier in May, lawmakers learned that Gallagher could trigger an 18% residential property tax cut, which would mean an additional $491 million in cuts to schools and $204 million in cuts to county governments starting in July 2021.<\/p>\n

After years of political hand-wringing over Gallagher\u2019s effects on public services across the state, lawmakers said the possibility of a massive tax cut in the middle of a pandemic finally represented a bridge too far.<\/p>\n

\u201cWe\u2019re in an unprecedented moment,\u201d said Sen. Chris Hansen, a Democrat from Denver. \u201cAnd when that happens, some of the business-as-usual hurdles often fall away.\u201d<\/p>\n

In this case, each side has been energized by different threats. For Democrats, it\u2019s the prospect of deep cuts to local funding for public education, with no assurance there will be any state funding to fall back on. For Republicans, the lower property taxes from Gallagher<\/a> means another round of cuts to fire and hospital services in the rural communities many of them represent. It also means a potential round of local tax hikes on businesses across the state that are already reeling from the coronavirus shutdown this spring.<\/p>\n

A day after the measure\u2019s introduction, lawmakers on Tuesday passed the resolution unanimously out of the Senate Finance Committee, sending it straight to the Senate floor. And after years of inaction, the rapid pace has caught a number of key stakeholders off guard.<\/p>\n

A number of local chambers of commerce across the state are in support, but Colorado Counties Inc., a long-time proponent of Gallagher reform that advocates on behalf of county governments, hasn\u2019t taken a position.<\/p>\n

Scott Wasserman, who runs the left-leaning Bell Policy Center and supports repealing Gallagher, said he has \u201cconcerns\u201d about the measure\u2019s timing. On the political right, the Independence Institute hasn\u2019t taken a stance, while another conservative group, Colorado Rising State Action, opposes it on the grounds that repealing Gallagher won\u2019t address broader inequities in the school finance system.<\/p>\n

Moreover, like the failed Proposition CC campaign from a year ago, the subject matter is complicated for voters \u2014 with huge implications for public services as well as taxpayers\u2019 wallets. Gallagher affects different communities in different ways, pitting the financial interests of Front Range homeowners against rural fire services, business owners and school funding needs that will trickle up to the state budget.<\/p>\n

Nonetheless, policymakers say now is the time to try \u2014 if only because they can\u2019t afford to wait any longer. \u201cWe\u2019re at the end of the line now,\u201d said Sen. Jack Tate, a Centennial Republican who is co-sponsoring the repeal effort. \u201cWe can\u2019t be punishing businesses. We can\u2019t \u2026 have them continue to pay a higher and higher tax burden\u201d during an economic downturn.<\/p>\n

How the Gallagher Amendment works<\/div>\n

Adopted by voters in 1982, the Gallagher Amendment is designed to provide ongoing tax relief to homeowners by limiting residential property to no more than 45% of the total property tax base statewide. It required businesses to pick up the remaining 55% share of the tax burden.<\/p>\n

Over time, it has accomplished just what it set out to do \u2014 and then some. The residential assessment rate, which is used to calculate property taxes, has fallen from 21% when Gallagher was adopted to 7.15% today. Business property is assessed at 29% \u2014 meaning businesses pay four times the property tax rate that homeowners do. If the residential rate is cut to 5.88% in 2021 as projected, businesses would be on the hook for five times the residential tax rate.<\/p>\n

It helps to imagine Gallagher as a balancing scale, with residential property values on one side, and non-residential property, such as commercial buildings and oil and gas, on the other. Usually, rapidly rising home values are what disrupts the 45% to 55% split, triggering a residential tax cut. This time, home values are indeed on the rise \u2014 but it\u2019s a precipitous drop in business values and oil and gas from the current economic downturn that\u2019s expected to tip the scale out of balance.<\/p>\n

Even though Gallagher gets less attention than another tax-limiting constitutional provision \u2014 the Taxpayer\u2019s Bill of Rights \u2014 it has arguably had just as significant an impact on governance in Colorado.<\/p>\n

When Gallagher was first adopted in the early 1980s, residential properties were valued at $35 billion, a figure that represented 53% of all the value in the state, according to state property tax records. Nonetheless, businesses still paid 55% of the state\u2019s property taxes, because residential properties were assessed at a slightly lower rate.<\/p>\n

Now, amid explosive population growth and rising home prices, Colorado\u2019s residential properties in 2019 had a total market value of $874 billion, or nearly 80% of the statewide total. But thanks to Gallagher, homeowners still pay just 45% of the state\u2019s property taxes.<\/p>\n

The tax shift away from homeowners has been staggering. The state Division of Property Taxation estimates that Gallagher has saved homeowners $35.3 billion in property taxes since 1983. In 2019 alone, homeowners paid $2.8 billion less than they would have if the Gallagher Amendment had never reduced the assessment rate from 21%. For context, the state\u2019s school funding shortfall \u2014 the so-called negative factor \u2014 has never exceeded $1.1 billion in a single year.<\/p>\n

But while Gallagher has been a boon to homeowners, who now pay among the lowest effective property tax rates in the country, it has steadily increased the tax burden on businesses, whose 29% assessment rate is set in the constitution.<\/p>\n

Many communities have responded to Gallagher-initiated cuts by raising mill levies \u2014 the part of the property tax equation that people are more familiar with. In some places, this happens automatically through what\u2019s known as a \u201cfloating\u201d mill levy. Each new tax hike now hits businesses four times as hard as residential taxpayers.<\/p>\n

\"Eric
Eric Lubbers, The Colorado SunSen. Jack Tate, R-Centennial, delivers his idea &#x2014; tax incentives for private businesses that offer student loan repayment assistance to employees &#x2014; to the audience at The Colorado Sun&#x2019;s Big Ideas 2020 Forum at the Cable Center on the University of Denver campus on Jan. 14, 2020.<\/span>du1-i-syn<\/span><\/figcaption><\/figure>\n<\/p>
Gallagher\u2019s impact varies greatly<\/div>\n

Part of what has made Gallagher so resistant to political change is that it affects different communities in wildly different ways, distributing its benefits and its downsides unequally across the state.<\/p>\n

That\u2019s because the Gallagher formula triggers tax cuts based on a statewide calculation, without consideration to what\u2019s actually happening to individual taxpayers or specific government agencies.<\/p>\n

In metro Denver, for instance, home prices have more than doubled since 2010, rising to $424,051 from $202,896. But Gallagher has triggered only two tax cuts in that period, worth about a 10% tax reduction in total.<\/p>\n

For the metro area homeowners, Gallagher hasn\u2019t provided much relief because the rate cut hasn\u2019t come close to offsetting a 109% increase in property values.<\/p>\n

From the local governments\u2019 perspective, rising property values in many Front Range communities have largely compensated for any cuts to revenue Gallagher could have caused. In 2019 alone, residential values in Denver increased by 20% \u2014 more than offsetting Gallagher\u2019s 10% assessment rate cuts over the past decade. On top of that, commercial property values have risen steadily, resulting in even more funding for public coffers.<\/p>\n

But in some rural areas, the opposite has occurred. Homeowners have been the beneficiaries of Gallagher\u2019s tax cuts even when their property values may be stagnant or rising slowly. Meanwhile, small public agencies that rely on property taxes, like rural fire departments, hospital districts and county governments, have been hard hit as it squeezes public coffers in places that were already struggling financially.<\/p>\n

Complicating matters further, some taxing districts don\u2019t have much commercial property at all, making a residential tax cut that much harder to cope with financially.<\/p>\n

Lawmakers looking at four-year tax freeze<\/p>\n

While the repeal effort has wide bipartisan support at the legislature \u2014 and supporters believe it will win the two-thirds supermajority needed for passage \u2014 a companion effort to enact a four-year statutory freeze on assessment rates faces a less certain path.<\/p>\n

That bill, which has not yet been introduced, would freeze the residential assessment rate at 7.15% and the business rate at 29% for four years. The rates can\u2019t go up without voter approval under the Taxpayers\u2019 Bill of Rights, so this would effectively limit property tax cuts \u2014 at least on paper.<\/p>\n

This is largely a symbolic gesture because the legislature could repeal the statutory freeze in the future and approve a new rate. Nonetheless, some county commissioners are pushing for it as a condition of their support, saying it would provide some comfort that their revenue streams won\u2019t be cut out from under them after the immediate crisis has passed.<\/p>\n

The reason: In the long-term, repealing Gallagher could have a downside for local governments. The business tax rate, long enshrined in the constitution, would suddenly be a matter of statute, subject to the whims of the state legislature.<\/p>\n

\u201cI think there will be enormous pressure on the legislature \u2014 and in some respects rightfully so \u2014 to reduce the commercial tax rate down from 29%,\u201d said John Messner, a Gunnison County commissioner, in an interview. \u201cIt could put local governments in a worse situation than if we did nothing.\u201d<\/p>\n

The Colorado Sun is a reader-supported, journalist-owned news outlet exploring issues of statewide interest. Sign up for a newsletter and read more at coloradosun.com<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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