Colorado lawmakers pass property tax deal that aims to stop November ballot measures

The passage of House Bill 1001, which came despite consternation from some liberal Democrats, marks the end of Colorado’s four-day special legislative session

Brian EasonandJesse Paul10:47 AM MDT on Aug 29, 2024

from The Colorado Sun

Photo:Entrance to the Senate chambers in the State Capitol on Wednesday, Jan. 24, 2024, in Denver. (AP Photo/David Zalubowski)

Colorado lawmakers on Thursday gave final approval to a property tax deal that will provide small cuts to homeowners and some businesses, while putting new limits on future property tax growth.

In exchange, a pair of conservative groups agreed to remove two measures from the November ballot that would have enacted far deeper cuts, jeopardizing public services and private development across the state.

It was the fifth time in the past four years that the General Assembly passed a statewide property tax cut, as lawmakers try to strike a balance between funding public services like K-12 schools, while providing some relief from the state’s rising cost of living, which has escalated since the pandemic. 

The measure, House Bill 1001, passed with bipartisan support during a four-day special session, even as progressive Democrats objected, likening the bargain to extortion. Once it is signed into law by Gov. Jared Polis, the bill would cut property taxes owed in 2026 by an estimated $255 million in the deal to prevent a $2.4 billion tax cut in Initiative 108 from going before voters.

The ballot measure’s backers, Advance Colorado and Colorado Concern, also agreed to withdraw Initiative 50, a restrictive 4% cap on future property tax revenue that would have triggered ongoing cuts to tax rates in perpetuity — even in rural areas where the tax base isn’t growing.

Polis has said he won’t sign House Bill 1001 until Initiatives 50 and 108 are removed from the ballot. The removal takes a simple letter to the Colorado Secretary of State’s Office. It must happen by Sept. 6 to prevent the measures from being on the November ballot.

Supporters of the deal inside and out of the state Capitol were divided over the merits of additional tax cuts, but a wide coalition of groups from across the political spectrum agreed that the measures were too damaging to risk.

“I strongly believe in supporting working families and a progressive tax code that makes sure everyone pays their fair share,” state Rep. Kyle Brown, a Louisville Democrat, said during the first hearing for House Bill 1001 this week. “This bill is hardly that. But I support it anyway, even if I don’t really like it that much. It is my responsibility to guard against the enormous consequences of these ballot measures.”

The deal was negotiated behind closed doors in recent weeks among a small group of Democratic and Republican legislators, the governor’s office and Michael Fields, the leader of Advance Colorado. The threat of the ballot measures gave Fields significant leverage over the legislation’s progress. 

Attempts by progressive Democrats to shift the tax relief toward lower income earners were dead on arrival, with moderate Democrats joining with Republicans to kill proposals that could threaten the deal with Fields.

“I understand the intention here,” state Rep. Judy Amabile, a Boulder Democrat, said during a hearing for a bill that would have offered less property tax relief on people’s second and subsequent homes than on their primary residence. “I don’t think it’s been vetted enough.”

A handful of Democrats voted against House Bill 1001 in the House and Senate in protest of its lack of progressive provisions. 

“I haven’t thought hard and long about the political ramifications of this bill. I probably should,” said Sen. Nick Hinrichsen, a Pueblo Democrat who spoke at length on the Senate floor Thursday in opposition to the measure. “I have thought long and hard about the policy impacts of this bill. I have a really good idea of who this bill will benefit.”

And some Republicans were opposed to House Bill 1001 because they felt voters should be allowed to weigh in on their property taxes. 

“I think it’s horrible that we cannot let the people vote their own property tax decrease in,” said state Rep. Scott Bottoms, a Colorado Springs Republican.

But it wasn’t enough to stop the measure from passing with broad bipartisan support. The bill cleared the House on a 45-18 vote and the Senate on a 30-4 vote. Democrats control both chambers by wide margins.

The anatomy of the deal

The measure builds on Senate Bill 233, the property tax cut lawmakers passed in the final days of their regular legislative session, which ended in May.

When they passed it, lawmakers had hoped the $1 billion tax cut would satisfy conservatives and business groups. Some Democrats said they only voted for the measure because they believed it would.

It didn’t. Conservatives insisted the deal didn’t go far enough to serve as a true replacement for the tax-limiting Gallagher Amendment, which voters repealed in 2020.

But a few months later, as July turned to August, both sides agreed to return to the negotiating table to avoid an expensive — and risky — ballot fight.

Senate Bill 233 cut residential, commercial and agricultural tax assessment rates, beginning this year for taxes owed in 2025. It provided a new residential exemption, chopping 10% off the home’s taxable value, or $70,000, whichever is less. It enacted a 5.5% annual cap on local government revenue growth. And it created separate assessment rates for schools and local governments, allowing lawmakers to cut local taxes more deeply than that of K-12 schools.

The new deal cuts the residential assessment rate slightly more. It also extends the commercial tax cuts under Senate Bill 233 to other types of businesses, including industrial and state-assessed properties. (Oil and gas will continue to be taxed at a higher rate.)

It changes the local government cap to 10.5% over each two-year assessment cycle, and enacts a new cap on school taxes that will limit their growth to 12% each assessment cycle, or an average of 6% a year.

What it means for homeowners

For homeowners, the size of the tax cut varies by your home’s value and where you live.

Property tax rates are set in two stages. The state sets the assessment rate, which determines the taxable value of your property. Then local governments, school districts and special districts each set their own mill levies.

In tax year 2025 for taxes owed in 2026, House Bill 1001 lowers the residential assessment rate to as low as 6.15% for local governments, and to 6.95% for school districts.

In the 2026 tax year, it sets the local government assessment rate at 6.8%, down from 6.95%. But because the 10% exemption kicks in that year, the effective tax rate will be the equivalent of 6.4% for the average home.

At the local level, the average tax rate statewide is a little over 80 mills. But Colorado has more than 4,000 overlapping taxing districts, so individual homeowners can pay wildly different tax bills from one neighborhood to the next.

A homeowner with a $700,000 house paying the average mill levy would save around $75 a year.

The revenue caps found in the measure will also limit future large spikes in tax bills, providing a safeguard against what happened last tax year. The caps are not expected to come into play over the next few years.

What it means for businesses

Starting in the 2025 tax year, most nonresidential property taxes will begin falling from 29% today to the 25% commercial tax rates found in Senate Bill 233 by the 2027 tax year.

Landlords, whose properties are taxed at the residential rate, will benefit from the cuts for homeowners, after the legislature defeated attempts by progressive Democrats to limit the 10% tax exemption to primary residences.

What it means for K-12 schools and local governments

Local services are expected to lose $255 million in property tax collections in the first year that the measure takes effect, according to legislative analysts.

That figure grows to $291 million in the 2026 tax year, which would affect government budgets in 2027.

Local governments account for just under half of the expected losses, facing cuts of $119 million and $131 million for their budgets in 2026 and 2027, respectively.

School districts stand to lose $136 million in 2026 and $161 million in 2027. That will be only partly offset by increased school finance spending from the state government.

The deal preserves the state’s new school finance formula, which was on the chopping block to be repealed if either of the ballot measures passed.

Throughout the special session, Democrats said they were worried about the impact of cuts to schools and local governments — especially fire districts, just weeks after wildfires tore across much of the Front Range.

Republicans, though, said local governments were in part to blame for the public outcry over property taxes. A Colorado Sun analysis of state property tax data found that less than half of the state’s local governments cut their taxes last year in response to rising property values. Overall, the average statewide mill levy fell 4.3%, while revenues climbed 20%. 

“They had a windfall, and they could have helped our taxpayers by adjusting their mill levies,” said Rep. Rick Taggart, a Grand Junction Republican. “And quite honestly, had they done that, we probably wouldn’t be here today. That’s the reason why we’re here.”

Local government officials counter that the “windfall” came after decades of austerity under the Gallagher Amendment and following the Great Recession.

Nonetheless, a number of local governments and special districts signed on to the deal, saying a small cut was better than the alternative under Initiatives 108 and 50.

What it means for the state budget

If the ballot measures disappear as promised, Colorado budget writers would avoid their disaster scenario: a $800 million jump in school finance expenses alone, on top of a legally vague directive to reimburse local governments for further tax cuts.

But the state won’t escape without some financial challenges.

The measure will ultimately require the state to spend an additional $83 million on K-12 starting in the 2025-26 budget, a figure that grows to $100 million a year later.That will require more cuts from a state budget that was already facing a projected $572 million shortfall. Higher education and Medicaid are likely targets to bear the brunt of the cost.