Property-tax-cut proponents accuse state officials of misinterpreting ballot language when predicting draconian cuts

Buildings in downtown Denver reflect in the windows of a skyscraper on the 16th Street Mall.

Proponents and opponents are battling over a key phrase in a property-tax cut proposal that may appear on November’s ballot — one whose interpretation could determine if the state would need to cut its budget by $200 million or $3 billion if Initiative 108 passes.

Initiative 108, authored by Advance Colorado and Colorado Concern, seeks to reduce the state’s 7.15% residential tax-assessment rate to 5.7% and cut the 29% nonresidential assessment rate to 24%. Backers are gathering signatures to get it onto the ballot alongside the already certified Initiative 50, which would cap annual statewide increases in property-tax revenue at 4%.

To counter those proposals, legislators in May passed Senate Bill 233, which caps annual growth in statewide property-tax revenues for local governments at 5.5% but exempts revenue that is going to school districts and is pledged to repay bonds and other debt. It also lowers the nonresidential assessment rate to 25% and residential assessment rates to 6.95%, calculated only after residents deduct 10% of home value, up to $70,000.

On June 14, Office of State Planning and Budgeting Director Mark Ferrandino told the Commission on Property Tax that legislators must cut $2.25 billion to $3 billion if voters OK the initiatives — a total representing 13% to 18% of the projected $17 billion general-fund budget. That is necessary because a provision in Initiative 108 requires the general fund to “reimburse local districts for lost revenue as a result of passage of this measure,” he said.

What is “lost revenue”?

The meaning of that provision is now the subject of debate, as was demonstrated during a discussion hosted last month by the Colorado Trustee Network featuring Advance Colorado President Michael Fields and SB 233 cosponsoring Sen. Chris Hansen, D-Denver. And it was the focal point of a Colorado Concern-commissioned study released Friday that pegged the amount of backfill that legislators would have to give to school districts and local governments at a much smaller $200 million.

Advance Colorado President Michael Fields and State Sen. Chris Hansen debate Fields’ property-tax-cut proposal in an online event held Tuesday by the Colorado Trustee Network

Colorado Concern argues that the provision must be interpreted to mean that the general fund will backfill any local government whose overall revenues are lower than they were the previous year because of the property-tax cut, if it passes.

The nonpartisan Legislative Council, however, interprets that provision to mandate backfill for any revenue local governments would have gotten had there not been a cut in tax-assessment levels — a $2.25 billion hit that could rise to $3 billion if it must include funding for jurisdictions that floated higher mill levies to fund bond sales or other debut issuances.

Property-tax cut proponents explain their interpretation

The modeling done for Colorado Concern forecast that statewide property-tax collections would drop from $15.24 billion in 2024 to $15.04 billion in 2025 were the two initiatives to pass, leaving local governments with just $200 million less than the year before. That backfill total represents less than 1.5% of the state’s current general-fund budget and the same amount that legislators were prepared to repay local governments and schools had their failed Proposition HH relief proposal passed at the 2023 ballot, it said.

“The trumped-up doomsday talk about the local backfill requirement is a fiction based on a totally inaccurate reading of the very simple language in Initiative 108,” said Josh Penry, a campaign strategist for the tax-cut proposals. “And a property tax cut that effectively takes property tax revenues back to 2023 levels is fair and reasonable, not the apocalyptical cut to the government, as Senator Hansen claims.”

Hansen, however, told The Sum & Substance Friday that he was not interpreting the language but following the guidance issued by the Office of Legislative Legal Services, which pinned the backfill number at $2.25 billion or higher. If the measures pass, legislators will have no choice but to follow the direction of OLLS, which will lead to cuts that Ferrandino predicted could strip at least $800 million from higher education and force closure of some colleges or campuses, he said.

“Schools are very clearly going to claim that as lost revenue and demand that the general fund backfill it,” Hansen said. “Michael Fields is trying to win a campaign. That is his job. But he doesn’t get to make up the legal opinion of OLLS.”

Two sides are beginning to debate the property-tax measures

Hansen, in relying on the OLLS opinion, noted during the event that statewide property-tax revenue increases have remained below 4% only 15 times in the past 60 years, setting up the likelihood that backfill would become a common need if the measures pass. To achieve that, the state must make “massive cuts” that also could include reimbursement rate cuts to Medicaid providers that could threaten some rural hospitals, he said.

Yet the study from Colorado Concern argued that tax districts can’t “lose” revenue they never had in the first place, requiring that revenue losses be defined as a collection of revenue that is lower one year than it had been the previous year.

Proponents of Initiative 108 have until July 25 to submit the necessary number of signatures to the Colorado Secretary of State’s office to qualify for the November ballot.