Colorado Democrats say property tax relief is coming. There’s no money in the state budget to pay for it.

Colorado Democrats say property tax relief is coming. There’s no money in the state budget to pay for it.

Last year, state lawmakers budgeted $200 million to cover the cost of statewide property cuts. Colorado’s budget proposal for the 2024-25 fiscal year has no such money set aside.

By Brian Eason (April 4th, 2024)

With just a month left in the state’s legislative session, top Colorado lawmakers still haven’t come out with a plan to deliver promised property tax relief — but they insist one is coming.

“This is still a very high priority,” Sen. Chris Hansen, a Denver Democrat who is leading the legislature’s tax discussions, said Tuesday. “I expect to pass a large property tax bill this session.”

There’s just one problem. Unlike this time last year, there’s no money set aside in the budget to pay for it.

That has left lawmakers with limited options — and difficult trade-offs — as they look to overhaul Colorado’s property tax code in the face of public outcry over rising tax bills.

Last year, property values jumped 40% from the previous assessment cycle in 2020, sparking a multimillion dollar ballot fight and a special legislative session. The latter culminated in temporary tax cuts and the creation of a special bipartisan commission to study long-term reforms.

Meanwhile, conservative groups have proposed a number of measures for the ballot that could cut property taxes by billions of dollars over time. If any of them are approved, they would likely force elected officials to cut spending on public services whether they want to or not — adding pressure on lawmakers to come up with a solution of their own.

The commission, chaired by Hansen, released a preliminary report in March that backed a number of ideas to cut taxes and limit the sort of big jumps that occurred in the wake of the pandemic — but it stopped short of specific proposals.

And while Hansen says negotiations are progressing, no clear consensus has emerged on how much tax relief to provide, or what form it should take. And whatever the Democratic majority does remains unlikely to win over many Republicans, who have long sought deeper tax cuts than the political left is willing to entertain.

One area where there is bipartisan agreement: Lawmakers say the state legislature shouldn’t be adjusting property tax rates year after year, when statewide changes can have disparate effects on urban, rural and mountain communities.

“We need to figure a way for the state to get out of (the property tax debate),” House Minority Leader Rose Pugliese, a Colorado Springs Republican, told The Colorado Sun. “I just don’t know if we’re any closer to figuring that out today.”

Here’s some of the key questions to watch:

If the state cuts school taxes, how will it fund K-12?

Last year, state lawmakers set aside $200 million to reimburse school districts and some local government agencies for the revenue they would lose to statewide property cuts.

But Colorado’s $40.6 billion budget proposal for the 2024-25 fiscal year has no such cushion. And as it stands today, the budget relies on property taxes going up, not down.

The across-the-board tax cuts adopted in the November special session are set to expire Dec. 31. Under one estimate, if lawmakers decided to extend the temporary tax cuts another year, they could have to come up with an extra $250 million to keep their promise of fully funding K-12 schools in the next budget.

Lawmakers say they only have two realistic options to come up with that kind of cash if they cut school property taxes again: the State Education Fund and the state’s rainy day fund. But both pose political challenges.

The K-12 education account, which is funded through income taxes, is sitting on a record $1.5 billion balance for now. But revenue projections from the governor’s Office of State Planning and Budgeting show the fund could be depleted to as little as $150 million within the next four years if lawmakers extend the tax cuts.

“It’s not really a great option,” said Rep. Chris deGruy Kennedy, a Lakewood Democrat who serves on the tax commission. He fears dipping into the State Education Fund could imperil the state’s ability to meet its constitutional obligations to fund K-12 in the future. “Frankly, I feel that our paying off of (the school funding shortfall) is pretty tenuous.”

That leaves the state’s reserves, which sit at $2.4 billion, or 15% of general fund spending. But Democrats and their allies outside the Capitol don’t want to touch that money either, fearing it could lead to K-12 or higher education cuts during the next economic downturn.

“The reserve is there for when we hit hard times,” said Scott Wasserman, president of the Bell Policy Center, a liberal think tank that supported Proposition HH, last year’s failed Democratic ballot measure to cut property taxes. “We should not be spending money out of our savings account right now.”

There’s a third option lawmakers are considering — changing state law to separate school tax assessment rates from that of local governments. That could allow lawmakers to provide some tax relief to homeowners and businesses, while sparing schools — and the state budget — from the financial repercussions. It’s just not clear if it’s constitutional.

Whatever the answer, Hansen insists schools will be protected.

“I think you have an ironclad commitment from legislative Democrats that we’re not going to return to the days of the negative factor,” Hansen said, referring to the Great Recession-era budget mechanism that shortchanged K-12. “Whatever we do legislatively, it will not have a negative impact on school funding.”

How will the state distribute TABOR refunds?

The property tax negotiations aren’t happening in a vacuum.

Democratic lawmakers and Gov. Jared Polis also have competing priorities for what to do with Colorado’s revenue surplus under the Taxpayer’s Bill of Rights — an estimated $1.9 billion pot of tax money that the state isn’t allowed to spend on public services.

The TABOR amendment to the state constitution limits state revenue growth to the combined rate of inflation and population growth. Tax collections beyond that limit have to be refunded to taxpayers, but lawmakers have broad discretion on how to do so.

Polis has previously insisted on an across-the-board income tax cut as the starting point for any negotiations involving the TABOR surplus.

Progressive Democrats in the legislature want to redistribute a large chunk of it to low-income families through targeted tax credits for renters, seniors and parents of young children.

Meanwhile, some lawmakers see the TABOR surplus as the best way to cover some of the cost of property tax cuts and provide financial help to fire districts and other local government agencies.

“For us to do any sort of tax relief that goes beyond what’s in the TABOR surplus is cutting K-12, or higher education or Medicaid,” deGruy Kennedy said. “That’s really a nonstarter from my perspective.”

Nonetheless, lawmakers on both sides of the aisle are increasingly skeptical of the state reimbursing local governments for reductions in tax revenue, as some conservative ballot initiatives have proposed.

“While I agree with some of these ballot initiatives in general, I’m incredibly concerned about the backfill piece to local governments,” said Pugliese, the top House Republican. “Potentially, it could take all of our state funding.”

Who should get a tax cut?

During the special session, lawmakers relied on two levers to provide relief:

They reduced the residential assessment rate for the 2023 tax year to 6.7% from 6.765%. And they increased the amount of a home’s value that is exempt from taxation to $55,000 from $15,000. Combined, that represented about an 8% tax cut for a home worth $550,000.

The exemption was designed to provide more assistance to lower-income homeowners rather than wealthier Coloradans. But Hansen said the state wound up cutting property taxes so much on the Eastern Plains that the tax base in some communities would have shrunk without state help.

Meanwhile, in mountain communities and along the Front Range, property values rose so much that many homeowners’ tax bills went up significantly even after the cuts.

This time around, lawmakers say they want to find a way to deliver tax relief to those who actually need it, rather than cutting taxes equally for all homeowners, no matter where they live, how fast their taxes are increasing, or how wealthy they are.

One option endorsed by the tax commission is extending a version of the senior homestead exemption to nonseniors, allowing more homeowners to claim a tax break on their primary residence.

The commission has also proposed an adjustable cap on property tax growth that could give local governments flexibility to override it under certain conditions.

Whatever lawmakers decide, a deal with conservative groups outside the Capitol appears increasingly unlikely. Colorado Concern, a nonprofit alliance of state business leaders, and Advance Colorado, a conservative political nonprofit, have introduced measures that would cut assessed property values back to 2022 levels and limit property tax growth to 4% annually.

DeGruy Kennedy called the ballot measures “fundamentally unserious proposals.”

“I don’t really see a path to meeting them in the middle,” he told The Sun. “What they’re asking is too much, and the math just does not work.”

Michael Fields, the president of Advance Colorado, said he still thinks there’s interest in striking a deal — “I just don’t know if that’s going to be possible.”

“We’ve put out some parameters: There has to be a cut and a cap” on tax growth, Fields said. “It just seems like they haven’t been able to get there yet.”


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