Both of our statewide ballot issues this year come to us as reactions to voters’ decisions in 2020:
We repealed the Gallagher Amendment that lowered tax rates as property values went up, and we approved Proposition EE that increased taxes on cigarettes and nicotine products to raise money to pay for preschool programs.
Gallagher passed in 1982, 10 years before TABOR. As property values rose strongly around most of Colorado, the residential assessment rate went down steadily from 21% in 1982 to 7.15% in 2020. Commercial properties remained at a fixed 29%. In 2021, the Legislature temporarily reduced the assessment rate for 2022 and 2023 to 6.765%, where it is now. HH would lower that rate to 6.7% through 2032. Without HH, the rate would rise to 6.976% for 2024 taxes due in 2025 and 7.15% for 2025 taxes due in 2026.
Schools, in particular, suffered from this low-taxes-regardless-of-consequences policy. The Legislature was forced to create the Budget Stabilization Factor, commonly the “BS Factor,” an amount in the hundreds of millions of dollars annually, that was an unredeemable IOU for the shortfall in funding legally required under the Colorado Constitution, itself probably a low-ball figure. Between 2000, when the Amendment 23 school funding initiative passed, and 2022, that IOU surpassed $9 billion. Colorado ranked 35th in per-pupil funding in 2021, according to the U.S Census Public Elementary-Secondary Education Finances. It ranks 46th in full-time-equivalent per pupil spending in higher education, according to State Higher Education Finance Public Higher Education Data. Is it any wonder that public education advocates support a proposition that can put over $2 billion in revenue per year into K-12 education alone and a total of about $10 billion over the 10-year life of HH?
Between 2021, the last year properties were reassessed, and 2023, real estate values increased by about 40% across Colorado, with a much greater increase in Pitkin County. Because Gallagher was repealed without any replacement, Coloradans stand to pay much higher real estate taxes going forward. The Truth-In-Taxation provision in HH would limit local tax increases, except for those of school districts and home rule jurisdictions, to the rate of inflation or require a public hearing and the passage of a resolution or an ordinance. Like much of the Proposition, it’s uncertain how effective this element of HH would be. Would every taxing entity really engage in an election campaign every time its revenues increase by more than 4%?
The annual amount of tax relief under HH is estimated to be between $1 billion and $1.6 billion. In order to offset the loss of income to schools, fire protection, police, local governments and other local tax jurisdictions, HH proposes to raise the TABOR cap by 1%. The cap is the amount over which revenues received by the state must be returned to taxpayers in the form of TABOR refunds.
By reducing over time but NOT eliminating TABOR refunds, money will become available to backfill tax jurisdictions for their lost real estate tax revenue. This is from the Colorado Sun explainer:
- Schools would be reimbursed for all of the revenue lost due to the reductions in Proposition HH.
- Ambulance, fire and health districts would be completely reimbursed for their revenue reductions until their area assessed property values rise more than 20% above their 2022 levels. After that threshold is reached, the state will reimburse only half of their lost funding.
- All other local districts funded by property taxes would be completely reimbursed until their area assessed property values rise more than 20% above their 2022 levels, the repayments from the state stop. (In 2023, however, all districts will receive reimbursement for separate property tax reductions adopted by the legislature in 2022 even if their property values grow by more than 20%.)
- County governments with more than 300,000 people will get only partial backfill unless their areas assessed property values grow by less than 10%.
TABOR REFUNDS
Taxpayers get a TABOR refund in every year in which the economy outpaces population growth plus inflation. All taxpayers will receive a flat $832 for 2023, regardless of income, then a projected $326-$1,028 in 2024, and a projected $269-$848 in 2025, depending on income. The Blue Book makes it clear that TABOR refunds are not eliminated. However, for years in which the TABOR cap including the 1% HH cap increase is not exceeded by state revenues, there would be no TABOR refund.
PROPERTY TAX CHANGES
HH would not lower taxes. It would lower the increase in taxes virtually everyone in the state will experience whether they own or rent their residence and are taxed directly or indirectly. The relief would begin in 2023 for taxes due next year, and continue until 2032.
Under HH, the first $50,000 of home value would be exempt in 2023, dropping to $40,000 in 2024 and continuing through 2032 or beyond. After 2026, the $40,000 exemption will be available solely for primary residences.
HH would reduce the commercial rate from 29% to 27.85% through 2026, then 27.65% in 2026 and 26.9% in 2029. Agricultural and renewable energy property rates would drop to 26.4% through 2032, also from 29%, and those used for both would fall to 21.9%
SENIOR HOMESTEAD EXEMPTION
People over 65 who have owned and lived in their primary residence for at least 10 years have been able to exempt up to $100,000 of their home’s value from taxation. Currently, if they move for any reason, they lose the break in their new residence but HH would make that exemption portable.
SUPPORT
AARP Colorado
National Education Association
Colorado Education Association
The Colorado Association of School Boards
Colorado Professional Firefighters
Colorado Concern (CEOs)
Education Reform Now Advocacy Inc
Boldly Forward Colorado
Property Tax Relief Now
Gary Advocacy LLC
Pat Stryker
Sixteen Thirty Fund
The Grand Junction Sentinel
The Denver Post
OPPOSE
Advance Colorado Action
Defend Colorado
Americans for Prosperity, Colorado Issue Committee (Koch Brothers)
Colorado Municipal League
Colorado Counties, Inc (representing 61 of Colorado’s 64 counties)
Special District Association of Colorado
Colorado Association of Realtors
National Federation of Independent Businesses, state branch
“Our members’ constituents demand improvements to transportation, housing, public safety and other services,” Colorado Counties Inc President Steve O’Dorisio, an Adams County commissioner, said in a written statement. “(The) majority of CCI’s members are concerned that Prop HH could reduce local governments’ ability to respond to these public expectations, unfunded mandates and additional regulatory requirements.” (The Unaffiliated, Colorado Sun, Oct 13, 23)
The very Republican Douglas County Assessor’s Office: https://www.douglas.co.us/assessor/proposition-hh-ballot-measure/
INFORMATION
Bell Policy Center:
Colorado Sun explainer:
SUMMARY
Proposition HH is a flawed and convoluted ballot question that provides:
- Substantial and desperately needed aid for public schools
- A modicum of (inequitably distributed) tax relief
- A 1% increase in the ridiculous TABOR cap that is strangling a modern state with tax policies that are the sick fantasy of TABOR author and convicted tax felon Douglas Bruce
- A limit on how much local taxing entities can raise taxes
- A slowing in the rate of increase of real taxes paid directly or indirectly by Coloradans
- Reduced commercial property taxes estimated to be $4.5 billion over the 10-year life of HH
- A portable Senior Housing Exemption
On the other hand:
- It’s impossible to say how much HH will save any particular taxpayer.
- What happens to essential services if the real estate market drops?
- Initiative 50, a 4% statewide limit on real estate tax increases on the 2024 ballot, would hinder the state’s ability to honor HH obligations such as backfilling. We could wind up with another Budget Stabilization Factor and more worthless IOUs.
- Most lower income people are not property owners. The claimed $20 million in HH rental assistance is actually $8 million in 2024-25 and $18 million in 2025-26. Transfers to the Housing Development Grant Fund are “expected to grow but are capped at $20 million per year.” (Blue Book)
- For lower income people, TABOR refunds matter greatly. Reduced or eliminated refunds will take food off people’s tables.
- Some counties stand to lose considerable, and perhaps irreplaceable, revenue.
Parts of HH promise unknowable or illusory benefits. It isn’t fair to everyone. It’s ridiculously complicated, taking and giving, taxing and backfilling. Still, its most obvious benefit, raising the TABOR cap by 1% in order to fund public education is, full stop, worth doing. When we look at all the education-dedicated organizations on the list of HH supporters, and the Koch Brothers and other implacable foes of taxation and responsible government in opposition, add up the benefits and the problems with HH, we say YES this year and await next year’s tax battles and a fairer, more effective, tax structure for Colorado.