Tax increases throughout Colorado typically result in a knee jerk reaction of “NO!” causing special districts to go the voters to mitigate future service cuts. Colorado Mountain College last year attempted a localized version of this that would have automatically increased its mill levy when the assessment rate went down, but voters said no. Some other voters in districts such as Vail Recreation District, Eagle River Fire Protection and Gypsum Fire were more pragmatic and voted yes.
What’s impacting these special districts? Why do they continually face declining revenues even though property values increase?
Booming home values along the Front Range are triggering cascading statewide property tax cuts, providing relief to urban homeowners but squeezing government agencies in rural areas where property values weren’t growing in the first place.
The reason: a little-known property tax-limiting provision of Colorado’s state constitution: the Gallagher Amendment.
Enacted in 1982 the Gallagher Amendment to the Colorado Constitution was designed to maintain a constant ratio between the property tax revenue that comes from residential property and from business property. To simplify a set of complex formulas, the effect of Gallagher was to reduce the assessment rate (the percent of property value that is subject to taxation) whenever statewide total residential property values increased faster than business property values.
As a result of the Gallagher Amendment, the assessment rate for residential property has declined by more than two-thirds over the years because of Colorado’s population growth and because of increases in residential real estate values. The net effect has been a marked decline in revenues collected from property tax.
In layman’s terms, when home values grow faster than business values, homeowners pay proportionately less and commercial property owners pay proportionately more.
Sounds great on the surface. Yeah, less tax! But the flip side of paying lower residential property tax rates is reduced services from local metro districts and special districts.
Since 1982, residential property values in Colorado have grown faster than nonresidential properties, causing the assessment rate on residential properties to drop from 21 percent in 1982 to 7.2% today. The assessment rate on Colorado businesses is 29%.
Established in 1982 — a time that saw taxpayer revolts across the country — the Gallagher amendment set a limit on how much of the statewide property-tax load could fall on homeowners. Residential properties under the Gallagher formula could make up no more than 45 percent of the state’s property-tax base. Other properties make up the remaining 55 percent.
That means whenever home values rise faster than those of commercial, industrial and agricultural properties, the residential assessment rate — the formula that determines a property’s assessed value — must drop. Which reduces the ability for local special districts to fulfill their services (fire, school, recreation, metro district, etc.).
We need to protect our rural communities by addressing the intense, negative impact the Gallagher amendment has had, and will have, in the future. Completely eliminating the complicated interplay between Gallagher and TABOR statewide would require a constitutional change. That’s a tall order — and politically fraught.
Until that time comes, it’s up to individual districts to make their case for sales taxes, mill levy overrides, and other localized solutions. We encourage voters to avoid the knee jerk reaction to tax increases, and to thoroughly research each ballot initiative. That’s not to suggest that every tax increase is worthy – but rather to suggest that the Gallagher Amendment has real impacts on our districts and our commercial property owners, and to understand exactly why these districts require new or different funding.
Chris Romer is president & CEO of Vail Valley Partnership. Learn more at VailValleyPartnership.com