A new version of the tax-cut bill at the heart of next week’s special legislative session seeks to further limit property-tax revenue growth — a provision producing angst around what proponents are touting as a compromise solution that could head off a costly ballot battle.
Colorado legislators will gavel into session again at 10 a.m. Monday at the request of Gov. Jared Polis to consider a brokered deal designed to stop two property-tax-cut initiatives that could cut billions of dollars in state and local funding from going to the ballot. Instead, the Democratic governor is asking legislators to pass a bipartisan bill that will expand a recently passed $1.3 billion property-tax cut to roughly $1.6 billion and will, if signed into law, commit proponents of Initiatives 50 and 108 to pulling down their efforts from the November ballot and not introduce similar measures again in the future.
The proposed bill would expand the relief passed in Senate Bill 233 by reducing annual property-tax-revenue growth caps on local governments to 5.25% and imposing a 6% annual growth cap on the amount of such tax revenue that can be collected for schools. It also would expand tax breaks on nonresidential property to include state-assessed industrial property and vacant land and agricultural property and would further lower assessment rates on residential property to 6.25% for local-government funding and 7.05% for school funding.
How bill would limit property-tax growth further
But Aurora Public Schools Chief Financial Officer Brett Johnson noted to fellow members of the Commission on Property Tax during a meeting Friday that a change in wording on how the annual property-tax revenue growth caps are calculated could have big impacts.
A proposal presented to the influential commission on Aug. 12 would have established a base rate from which property-tax revenues for each school district could grow 6% annually — and allowed revenues to grow even more after slow years as long as their cumulative increases did not exceed the 6% annual base hike to which they could jump. However, final wording in the proposed bill allows a maximum 6% annual growth in such revenues — meaning that if they grew only 1% one year, they could grow only 7% over a two-year period rather than grow by a larger amount the second year to reach a 12% biennial cap.
State leaders say Colorado needs more homes, like these in a neighborhood in Westminster.
That same ratchet effect could occur for local-government revenues if they fail to reach their 5.25% cap in any given year, Johnson noted. And given that SB 233 had a 5.5% annual cap on property-tax-revenue growth for local governments and no cap on the growth for school districts, the new provisions are beginning to make the proposed compromise bill much more restrictive than what legislators OK’d in May, he argued.
Had the proposed caps been in place since 2012, school districts statewide would have received 30% less in property-tax revenues over that period, Johnson said. And the provisions that lead to a ratchet effect after economically slow years could have decreased revenues by another 25%, he added.
“Those are material changes that I would view as adding onto the decrease of the cap,” Johnson said.
One of many bills coming forward
Those concerns won’t by themselves sink the proposed legislation, whose primary sponsors are Democratic House Speaker Julie McCluskie of Dillon and Republican House Minority Leader Rose Pugliese of Colorado Springs. But they add onto a growing list of concerns that indicate that Polis’ brokered deal may not be a slam dunk, particularly with members of his own party airing some of the strongest grievances.
Sen. Chris Hansen, the Denver Democrat who chairs the tax commission and who will cosponsor the brokered bill in the Senate, noted that 10 to 15 other bills are expected to be introduced during a special session expected to go longer than the customary three days.
State Rep. Lisa Frizell (left) and state Sen. Chris Hansen (right) listen to testimony Friday during the Commission on Property Tax meeting.
Some, such as efforts to direct more of the residential property-tax breaks to lower-value homes and a proposal by Hansen that would require future property-tax changes to be made at the local rather than the state level, speak to criticisms of the main bill. And it’s unknown how much legislators can tweak the brokered bill or pass other legislation before initiative proponents pull back their deal offer and take their chances on the ballot.
Special-district, business leaders raise questions
Meanwhile, other constituencies are expressing increasing reluctance to back the new property-tax-cut effort, feeling that the funding reductions in SB 233 were as much as they could stomach. Ann Terry, executive director of the Special District Association, asserted Friday that the proposal will reduce assessed value in the fire, library and other districts she represents by $606 million in 2025 and $743 million the next year, forcing staff cuts and reductions in operating hours of the services the districts fund.
Loren Furman, the Colorado Chamber of Commerce president/CEO who helped to write SB 233, also questioned what more business interests would get out of this new proposal after SB 233 lowered commercial assessment rates to 25% over the next two years. The beneficiaries of the new bill are largely owners of vacant land and state-assessed property — that land owned by public utilities — and even their tax breaks will be less significant than the reductions in commercial or agricultural land assessments through 2027.
Colorado Chamber of Commerce President/CEO Loren Furman asks questions during Friday’s Commission on Property Tax meeting.
Bill advocates, however, noted that what the new legislative proposal offers is a deal that could be much better across the board for property owners and local governments than the passage of Initiatives 50 and 108.
Initiative 50 would cap annual statewide increases in property-tax revenue at 4% and require a statewide vote if governments wanted to keep revenues more than that. Initiative 108 would reduce 7.15% residential assessment rates to 5.7% and 29% commercial and agricultural assessment rates to 24% in 2025 and require the state to backfill local governments seeing a revenue decline because of the measure.
A plea to remember residents’ property-tax struggles
Initiative authors Advance Colorado and Colorado Concern have argued repeatedly that the reductions are needed after property owners statewide saw tax bills rocket up by some 30% last year because of increased property valuations.
But state budget leaders have said a backfill provision in Initiative 108 could require shifting $2 billion in general-fund money to local governments to replace revenues lost because of the measure — a hefty total that initiative backers dispute. And developers have warned that Initiative 50 could slow homebuilding significantly if property-tax-revenue caps limit what special districts can raise to repay bonded debt, especially as its cap-setting formula does not include explicit exemptions for new construction.
The proposed bill would exempt boosts in property-tax revenue caused by new construction or rezoning properties for new development, as well as revenues that have been pledged specifically to repay bonded debt. And Elbert County Commissioner Chris Richardson reminded other tax-commission members that the reason Advance Colorado and Colorado Concern proposed their cuts was because of a public outcry that residents are being hurt by soaring property-tax bills — the kind of outcry that would make passage of tax-cut initiatives more likely at the ballot.
“I know there is a lot of frustration on the part of those who are in government. Yeah, it’s hard to do more with less. But it’s also hard for taxpayers to do more with less,” Richardson said. “We all signed up to do this on the part of the people. We can’t keep looking back at the people and asking them to give more.”