Earlier this week, county assessors held a press conference announcing that property owners in Colorado should expect to see extremely high valuations of their property. The announcement came as no surprise to policymakers, who have been bracing for these new numbers since the summer of last year. The new numbers are a snapshot of the property market on June 30, 2022. Many believe these numbers to be the equivalent of an awkward family photo, a snapshot of property values at their post-pandemic-driven peak.
As anomalous as these new property values are, our laws require that they be used for the purposes of property taxes paid in 2024 and 2025. As a result, if the state legislature and local governments fail to respond, property owners will see significant jumps in their property tax bills.
This is not the first time in recent history that we’ve seen property values spike like this. It is, however, the first time since 1982 that Colorado’s residential property owners have had to deal with the implications of value spikes. From 1982 until 2020, the Gallagher amendment ensured that when residential property values went up, residential assessment rates would go down and non-residential rates would go up to absorb the blow. The problem with that arrangement was twofold: residential heavy communities were falling short on revenue, particularly for their schools, and non-residential property owners were stuck with extremely high assessment rates.
There were good reasons to repeal Gallagher, but the timing couldn’t have been worse. Soon after the vote, the pandemic hit and residential home values skyrocketed. In reaction, the legislature passed temporary legislation in 2022 reducing state assessment rates and reducing values for tax purposes. We’re actually in the midst of those reductions now. They came at a cost – in order to backfill local districts, TABOR surplus dollars were used and appropriated as tax rebates back to communities.
That “backfill” is incredibly important. Local governments rely predominantly on property tax revenue to fund the programs and services we all count on. There’s no question that many local districts, especially the thousands of special districts, need to take a good hard look at their rates and consider lowering them temporarily. At the same time, these value increases aren’t the boon to these local governments we think they are. First, when home values and other costs go up, local governments need to keep up with the costs. Second, many of these communities are playing catch up from years of reduced property tax revenues.
Nowhere is this “catch up” dynamic more on display than in K-12 education. Unlike with other local services, shortfalls in school funding must be made up by the state. If local share dips, the state share needs to go up. When the state share goes up, there’s less money for other things. That’s why the collective goal in the education community has been to get the local share up. The accrued debt our state owes to our schools is massive. In fact, that’s one of the reasons Gallagher was repealed. If it hadn’t been repealed, residential rates would have plummeted and the local share for schools would have cratered.
So how do we move forward, shielding homeowners from large property tax increases while stabilizing education funding? That’s precisely what our legislators and governor are determining right now. From my perspective, they need to meet a few criteria. First, whatever they come up with must be as targeted as possible. Large corporations and owners of $2 million dollar homes don’t need a tax break. The owners of lower-value homes and small businesses do.
Second, the solution to this challenge must be temporary. Setting policy at the peak of the market is a huge mistake. Permanent caps and formulas never anticipate the future. We only need to look at our own experience with Gallagher or California’s experience with Prop 13 to see that.
Finally, there must be adequate funding for our communities. A big tax cut may feel good, but further underpaying teachers, underfunding fire departments and less money for public safety does no one any good.
All of this is an important reminder about the role taxes play in our communities. Too often, we forget about the other side of the ledger, i.e. what our taxes pay for. And that’s precisely what the proponents of various blunt instruments like value or revenue growth caps are doing. For instance, in a bumbled effort to hijack the legislative process, one conservative group proposed a 3 percent revenue growth cap on individual properties. Not only would this cost local districts dearly ($2.2 billion!), but it would quite literally destroy our property tax system by making it impossible for the multiple taxing districts that one property sits in to adjust their rates in a way that conforms with this proposed law.
Look, there’s no getting around that something has to change. It’s absolutely absurd that we are sitting on a $2 billion-plus TABOR surplus while we scramble to find the money for our schools, and local communities worry about the impact of lowering property taxes. It’s also ridiculous that our tax system can’t tell the difference between a $20 million estate in Aspen and a $500,000 home in Adams County. There’s a law against charging a different property tax rate for Amazon than there is against the property tax rate on a barber shop. We have no functional way to send targeted relief to renters.
If you’re frustrated about this, you are right to be. Values, assessment rates, mill levies and school budgets are not the things we think about all day, nor should they be. At this moment, however, all of us need to be paying attention.
