State lawmakers on Wednesday introduced an 11th-hour bill to temporarily reduce property tax assessment rates, hoping to help Coloradans contend with skyrocketing real estate prices and the rising property tax bills that follow.
The measure, Senate Bill 293, would also allow people to put off a portion of their increased residential property tax payments until they sell their property, starting in the 2023 tax year.
State Sens. Chris Hansen, D-Denver, and Bob Rankin, R-Carbondale, are prime sponsors of the legislation. They say their effort will preserve government revenue while aiding Coloradans contending with the economic downtown caused by the coronavirus crisis.
The average price of a home in Colorado was $661,551 in April, up 36.4% over the past year.
School districts will be most affected by the change because their funding is tied to property taxes. But Hansen and Rankin said they won’t see any reduction in funding.
“It does result in less revenue than if we did nothing, but I think we have to keep in mind the water level is rising here across the state,” Hansen said of the bill, which comes just days before the 2021 legislative session is set to adjourn. “There’s still going to be increased revenue for all these districts.”
Here’s how the measure would work:
- For the 2022 and 2023 tax years, the 7.15% rate at which homes are now assessed would be reduced to 6.95% for single-family homes. The rate would be reduced to 6.8% for multifamily homes.
- For the same tax years, the 29% rate at which nonresidential property is assessed, would be reduced to 26.4% for two, newly created subsets of property: agricultural property and renewable-energy property, which make up a fraction of all taxed property.
After the 2023 tax year, lawmakers will be forced to revisit the situation. They could restore the old rates at which property is assessed without a vote of the people, as is required by the Taxpayer’s Bill of Rights, because the reductions are explicitly temporary.
“It could go back up without a TABOR vote, but we really don’t anticipate that,” Rankin said. “Our intent is that taxes don’t go up any faster than government needs. With the rapidly escalating property values, we need to control the tax increases in some reasonable way.”
The proposed changes come after voters repealed the Gallagher Amendment in November. The complicated tax policy, paired with TABOR, drove down the rate at which property is assessed, starving local government services of funding.
“When we repealed Gallagher, we knew that we might face this situation where property taxes started going up faster than was reasonable,” Rankin said. “It happened a little faster than we expected.”
The clause in the measure allowing people to delay paying a percentage of their increased property tax bills may be the most consequential part of the policy.
Here’s how it works: Residential property owners would have to pay at least 4.3% of their property tax bills and defer the rest until they sell their homes. Whatever else is owed essentially becomes a lien that can come out of the gains realized when the home is sold.
“On net, it would all work out the same,” Hansen said, “but we allow deferrals so that those taxpayers who might be in a situation where they have rising values but fixed income, they would essentially be able to defer the growth in property tax until they made a transaction (on their) property.”
Hansen said about 10% of the housing stock in Denver is bought and sold each year, meaning that local coffers won’t be starved of the tax revenue for too long. Homeowners can only defer up to $10,000 in property taxes.
“This is an expansion of an existing program,” Hansen said. Seniors and veterans already can put off all property tax increases until they sell.
The bill calls for the state to backfill deferred payments as a loan to local governments. The revenue loss is expected to be upward of $200 million.
Nonpartisan fiscal analysts believe the change will cost the state budget between $50 million and $60 million in increased funding for local schools to make up for the deferrals in the 2022-23 and 2023-24 fiscal years.
But not everyone is happy about the proposal.
Michael Fields, who leads the conservative tax policy group Colorado Rising Action, sees the bill as an affront to a tax-decrease ballot measure he is working on. The measure, now called Initiative 27, would even more so reduce the rates at which property is assessed and permanently. The reduction to government coffers would be north of $1 billion if the measure passes.
Proponents of Initiative 27 will have to collect about 125,000 signatures by Aug. 2 to get on the November ballot.
“It’s very clear that they are trying to kneecap our ballot issue before it’s even voted on,” he said.
Because SB 293 would create new subcategories for residential and some nonresidential properties, state fiscal analysts say Initiative 27 would only apply to lodging property rather than all nonresidential property and only to multifamily residential property rather than all residential property. The reason for the effect is that SB 293 amends the underlying statutes that Initiative 27 is attempting to change.
Fields also contends that creating new subcategories of residential and nonresidential property for taxing purposes could create legal questions to be decided by the Colorado Supreme Court.
Rankin said lawmakers are “trying to be respectful” of the ballot measure and “at the same time manage the budget situation.” He believed SB 293 was crafted in a way that can work with Initiative 27.
SB 293 has not been scheduled for its first committee hearing.