Colorado property tax increases could be capped by 2022 ballot measure

A housing development in Weld County that sits close to I-25. Dec. 11, 2021.
Kevin J. Beaty/Denverite
A housing development in Weld County. Dec. 11, 2021.

An effort to slow the increase of property taxes — and the growth of local government revenues — by amending the state constitution took a significant step forward on Wednesday.

The proposed constitutional amendment would set a 3% limit on how much property tax values can increase each year for owners of many residential, commercial and other properties.

The state’s title board approved language for the ballot initiative on Wednesday, meaning its backers now can gather signatures from voters.

If they succeed, the choice will go before voters this fall.

And it’s already started a debate among Democrats. 

Backers argue it would help beleaguered homeowners, renters and businesses amid rising costs, while critics warn that it would deliver disproportionate benefits to the wealthy while locking the state into another burdensome fiscal limit.

The bill is, in part, a reaction to the scorching-hot housing market — rising home values mean higher tax bills. It would also, backers say, help commercial businesses that have historically paid higher property tax rates in Colorado and now are recovering from pandemic turbulence.

“Because of historic growth in property values, Coloradans will face a real property tax increase of between 20% and 30% if nothing is done. That will make our current affordable housing crisis even worse,” wrote Mike Kopp, president of the business-oriented nonprofit Colorado Concern that is backing the measure.

Some Denver neighborhoods saw a 15% valuation gain from 2019 to 2021, Denverite reported, equivalent to about $400 in new taxes on a home with a tax value of $500,000.

A cascade of effects 

The proponents of the tax measure would have to gather about 125,000 voter signatures from across the state to place the question on the November 2022 ballot, where it will have to get the support of 55% of voters to be approved.

The initiative, titled “Concerning Property Valuation,” is backed by two state lawmakers — Rep. Alex Valdez, a Democrat, and Rep. Colin Larson, a Republican. Valdez said he was responding to the plight of downtown Denver businesses and longtime homeowners. The change also could indirectly help renters, he argued.

“So, we're gonna have to do something or we're going to compound the housing crisis that we're already experiencing,” he said in an interview.

Under the proposed limit, local governments’ property tax revenues could still grow, but they would miss out on about $1.2 billion of potential new revenues in fiscal year 2023-24, and more going forward. 

That change would have a cascading effect. Legislative staffers calculated that, because of the new limits on local spending, the state government would have to pitch in about $360 million extra for schools in 2023-24, which could come at the expense of other priorities.

Progressive advocates argue that the state and local governments need the extra money. Inflation, wage increases and population growth are driving up costs for government services, from building roads and transit to running schools.

And they say that limiting property values would give a disproportionate benefit to wealthy people and large businesses. The same 3% cap would apply to all properties, which could deliver tens of thousands of dollars in savings for the most expensive properties.

“While it’s clear that some property tax relief could be beneficial for Colorado homeowners, the proponents’ untargeted approach that treats the mansions of multi-millionaires the same as condo starter homes is a recipe for driving up economic inequities at the cost of public services that Coloradans – and businesses – rely on heavily to live their lives and make ends meet,” stated a memo from the progressive Colorado Fiscal Institute.

Scott Wasserman, president of the progressive Bell Policy Center, argued that the initiative repeats past mistakes. Voters only recently repealed the Gallagher Amendment, which for decades had driven down residential property tax rates and starved rural districts for funding.

“Colorado should have learned more than any other state that you do not put formulas or numbers in the constitution. And you do not put more handcuffs on local decision making,” Wasserman said.

Wasserman acknowledged that many property owners are bracing for higher taxes, but he said that Colorado has among the very lowest property taxes and rebuffed the idea that taxes area a primary driver of the housing affordability crisis. He prefers a temporary, more flexible approach that includes replacement funding.

Valdez said that he would prefer a more progressive approach, too, but saw this as a “meaningful measure.”

“I am an absolute believer in progressive taxation, and I would absolutely support a ballot measure that proposed that sort of taxation system. We don't have that,” he said. “What we have is a housing crisis.”

The measure’s fiscal uncertainty will test a new state law

If it makes the ballot, the measure will be a test of a new state law that requires initiatives to detail their fiscal effects. Voters often find tax breaks appealing. But the language on voters’ ballots would frame the change as a “reduction of $1.3 billion in property tax revenue” that would affect “counties, school districts, water districts, fire districts,” among others.  

A lawyer for the proponents argued that the warning of lost revenue was too broad, since various districts will be affected differently due to their different tax laws.

The Colorado proposal would specifically limit the growth of property tax valuations. In many cases, there’s a direct connection between valuations and taxes: A 3% rise in value equals a 3% increase in the tax bill. 

But there are some taxing districts, especially schools, where the formula is more complicated. In those districts, some property tax rates are “floating,” meaning the property tax formula may automatically change in reaction to the new limits. Those areas may see a smaller effect on government revenue.

The proposal also makes a special exception for when homes are sold. Upon a sale, the property would be reassessed at its current value. 

The initiative resembles a similar law in California, where voters in 1978 approved Prop. 13, which limits value growth to 2% annually. Progressive critics argue that initiative has done little to help California’s housing market, which is one of the nation’s most expensive.

Another big initiative

Meanwhile, Colorado voters this year may face another major financial question: The title board has also approved language for a measure that would redirect a portion of income taxes — about $1 billion or more yearly — into schools. 

The schools funding measure would not result in higher tax bills, but it could reduce the amount of money the state pays in TABOR refunds to taxpayers, Wasserman said. That initiative must also gather signatures to make the ballot.