How did property taxes become a political emergency in Colorado? 40 years of history and one wild market

Kevin J. Beaty/Denverite
Pam Giordano sits in her kitchen in Denver’s Goldsmith neighborhood. Nov. 17, 2023.

Pam Giordano and her husband bought their tri-level home nearly 30 years ago. The price sounds almost unbelievable today: $138,000 for a couple thousand square feet of south Denver real estate.

Since then, the home’s value has nearly quadrupled, according to property tracking websites. But the property tax bill has grown much more slowly — increasing from about $1,100 in the mid-’90s to about $1,900 in the couple’s most recent tax bill. 

Accounting for inflation, their tax burden has actually fallen.

“Well, it's nice to know that something is down in today's dollars,” said Giordano, 76 years old.

The Giordanos, like homeowners across Colorado, have been shielded from rising taxes over the last 40 years. Even as the value of their homes rose and rose, state law continuously drove down a major component of residential tax rates across Colorado.

But that’s changing now.

A combination of policy and economic changes mean that homeowners across Colorado, for the first time in decades, are facing a sharp increase in their property taxes. In the Giordanos’ case, their home’s taxable value is set to jump 30 percent, which means their annual tax bill could rise by a nearly equal amount, up to about $600.

“It makes the future a lot more uncertain. Let's face it: We are well beyond our peak earning years,” said Giordano, a mostly retired teacher whose husband is retired from environmental management.

For the Giordanos, the hike for a single year could nearly equal the increases that they saw over the last three decades combined. The unexpected expense will put more strain on their retirement plan, they said, even with the tax breaks Colorado offers for seniors. They even thought about moving to the suburbs, only to realize that would only cost them more.

And it’s a common situation, since home values have jumped by 30 percent and more for homeowners across the state in the last couple years. 

That rising financial concern has dominated the state’s politics for the past six months. And now it’s become a political emergency. “We all acknowledge that this is something that is not sustainable and is providing a lot of hurt for people in our communities,” said Senate President Steve Fenberg on Friday morning as the legislature gaveled in for a special session to address the issue.

Earlier this year, Democrats ran a major ballot measure, Proposition HH, to lower property tax rates and make other changes. And when that failed, Gov. Jared Polis took the unusual step of calling lawmakers back to work to try to pass a fix before the mid-December deadline for locking in next year’s property tax rates.

Hart Van Denburg/CPR News
Gov. Jared Polis prepares to break the glass front of a prop containing the executive order for a special legislative session to deal with rising property taxes, after Proposition HH was soundly defeated by voters two days previously.

They’re likely to cut residential tax rates for the second time in two years. That will reverse some, but not all, of next year’s tax burden increases for homeowners like the Giordanos. Democrats also want to pass tax policies that will benefit lower-income people who may not own property. 

Republicans in the legislature want to see even larger property tax cuts, ones that Democrats say the state can not afford. And conservatives and business leaders outside of the statehouse are hatching plans for far more dramatic changes to the state’s tax system, which could appear on the Nov. 2024 ballot.

“The people of Colorado are asking for relief from property taxes that are going to tax some people out of their homes if we don't fix it,” said Sen. Paul Lundeen, the Republican minority leader.

But the drive to broadly cut property taxes doesn’t have unanimous support, especially on the left. Progressives are calling for a greater focus on renter relief. And, in some circles, they argue that property tax cuts should be limited to less affluent homeowners, since Colorado’s tax rates are so low already.

“This across-the-board sort of emergency response to our property taxes … when none of that concern is shown for the renting population, it is a little bit hard to swallow,” said Logan Davis, a Democratic strategist and author.

It all adds up to a pressing political question: How far will Colorado go to keep property taxes low?

Low taxes, but a big increase:

Two things are true about property taxes in Colorado: Homeowners are facing some of the sharpest property tax increases in the state’s recent history, with impacts that could range from a mere financial inconvenience to a budget buster, depending on the household.

At the same time, Colorado homeowners are still paying some of the lowest property tax rates in the country, a reality that has shaped the state’s tax system and slowed the growth of revenues for services like schools and local governments.

In fact, the only states with lower rates for homeowners are Alabama and Hawaii, according to the National Tax Foundation.

The Lincoln Institute of Land Policy similarly found that homeowners in Denver pay the 50th lowest tax rate among an index of 53 cities spread across every state. In most of those cities, homeowners pay more than 1 percent of their home’s value in taxes every year, while Denverites pay only a half-percent, the study found.

Those low rates mean that skyrocketing property values haven’t led to similarly skyrocketing tax bills. Despite the city’s booming real-estate market, Denver homeowners’ tax bills in 2021 were in the middle of the national pack. Local tax bills were higher in places as diverse as Sioux Falls, S.D.; Omaha, Neb.; and Columbus, Ohio, according to the Lincoln Institute.

Jeremy Sparig for CPR News
Homes in Castle Rock, Colorado, Friday, October 13, 2023.

It wasn’t always this way. But over the last few decades, one major component of Colorado’s residential property tax rates has dropped significantly, thanks to an amendment in the state constitution. When the Giordanos bought their home in 1994, the statewide assessment rate was about 13 percent — meaning the couple was paying taxes on about 13 percent of the home’s actual value. 

But over the years, that assessment rate dropped lower and lower. Today, it’s just 7 percent. So while the Giordanos’ home value grew by more than 300 percent, their tax bill increased by only about 70 percent.

That was a result, in large part, of the Gallagher Amendment, approved by voters in 1982. The amendment set strict limits on how much of the state’s property taxes should be paid by homeowners, forcing the state to cut residential rates year after year. 

Pam Giordano loved the Gallagher Amendment, and even knew its author, the late Dennis Gallagher, a former Denver auditor and lawmaker with a big personality.

“I didn't know him well, but he was quite a guy,” she said.

If the Gallagher Amendment were still in place today, it would have put a hard brake on next year’s tax increase for homeowners.

But the measure had its share of unintended consequences, too, shrinking the tax bases for some rural communities and emergency services to unsustainable levels, according to leaders of those areas. It also resulted in commercial properties paying tax rates about four times higher than homeowners.

As a result, a bipartisan coalition convinced voters to repeal the measure in 2020, arguing that the change would stabilize local governments’ budgets. And the repeal did not include any replacement policy — a major point of criticism for Pam Giordano and others who opposed the change.

Kevin Bommer, executive director of the Colorado Municipal League, supported the repeal. But he thinks that the end of Gallagher opened the door for today’s tax wars.

“This is what happens when you say, as part of repealing Gallagher, you're going to have a permanent replacement — and then no one does anything,” he said. “And so now there's going to be lots of great ideas on what to do.”

How low should property taxes be?

This may sound obvious, but homeowners tend to hate property taxes. They’re often seen as a tax on an unrealized gain, since a 40 percent increase in market value doesn’t always correlate with a similar gain in services provided to the homeowner.

“Any survey that is done, and not just in this country, but everywhere, people just do not like the property tax,” said Therese McGuire, a professor at the Kellogg School of Management at Northwestern University whose work has included a focus on property tax policy.

But property taxes also have benefits as a funding source for key services, she said, adding: “When you ask an economist, it might be their favorite tax.”

Property taxes are relatively hard to avoid paying. They’re less likely to have distorting effects on the economy, since they’re not so closely linked to a person’s spending and saving habits. They may discourage communities from intentionally driving up housing prices by blocking new construction.

And they tend to put more tax burden on wealthier people, compared to some other measures, McGuire said.

“Who owns more property wealth? It tends to be people with higher income, and so [the tax burden] tends to be distributed. The burden of the property tax tends to be at least proportional, if not progressive,” she said.

That argument resonates with Davis, the Democratic consultant. He is a new homeowner in Denver, and he was surprised, after hearing all the political uproar, to realize that his annual property taxes would be about $3,000 — comparable to a month’s rent for many in the city.

“We have been surprised at how low it is and we are happy to pay that property tax for the sake of the local schools and things of that nature,” said Davis, arguing that any property tax relief should be tailored for seniors and others with the most need.

On the other hand, even if their taxes are relatively low, some homeowners say that the sharp increase is something they’re simply not prepared for — especially if they’re barely hanging on in the first place.

“There's no buffer. Every month it's just white knuckling it to the first [day of the next month],” said Lauri Lynnxe Murphy, an artist who owns a home in Denver’s Athmar Park neighborhood. She fears a tax hike of hundreds of dollars will push her budget over the edge.

Republicans, meanwhile, say that the state’s low residential taxes are something to be cherished, and they want the state to take firm action to keep it that way.

“Any economy is far more vibrant when the people have more of their hard earned cash in their hands,” Lundeen said.

Tax bills are also affected by a variety of local factors, not just statewide actions. For example, sudden changes in the southern Colorado property market mean that increases are especially sharp there, even in once-sleepy areas. 

Local governments and other taxing districts also make decisions that affect a homeowners taxes. They are free to lower the local property tax mills, as some are doing so now. They can also raise local tax rates —  but only if voters approve the change in an election. That’s happened numerous times in Denver, but can be more difficult in more conservative communities. 

Finally, homeowners in some areas might pay significantly higher tax rates because they are part of a “metro district,” used by developers to finance construction, or other special taxing districts.

Lawmakers are rushing to help homeowners — and maybe renters, too.

Lawmakers are working in the Capitol now to hammer out a tax relief package for next year.The decisions they make will determine who benefits, and how much. 

Democrats are planning to grant nearly $400 million in relief to homeowners — enough to cancel out only a portion of next year’s valuation spike.

They also have responded to criticisms about their focus on homeowners by adding a suite of other policies aimed at lower-income households..

That includes plans for spending $185 million to expand a tax credit for lower-income families; “flattening” TABOR refunds to the benefit of lower income taxpayers; and creating a $30 million relief fund for renters.

The “plight of those who cannot afford to buy homes in the first place is also deserving of a special legislative session,” wrote state Rep. Javier Mabrey, a Democrat, in a social media post. 

Republican leaders say the special session should stay almost exclusively focused on property taxes, and they’ve proposed much larger cuts for home and business owners— totaling well over $1 billion in property tax relief.

Kevin J. Beaty/Denverite
Pam Giordano sits in her home in Denver's Goldsmith neighborhood. Nov. 17, 2023.

Pam Giordano, the south Denver homeowner, agrees that the special session should be all about property owners. She’s sympathetic to the plight of renters, but she said they need to live within their means and adapt to the times.

“Honestly, we could have afforded a nicer house in a better neighborhood than where we live, but we made the decision to make sure that we weren't house poor. So those were decisions we made. I think people have to be cognizant of their circumstances and not look to government to fix everything,” she said.

Asked whether homeowners were now asking the government to solve their problems, too, Giordano said that homeowners need government intervention because their rising costs are the result of government policies.

“This is a reaction to a government action,” she said, urging greater relief.

The real debate hasn’t even started yet.

Prop. HH and the special session may just be the opening salvos of the 2024 property tax war.

Lawmakers have already pledged to study long-term reforms for property taxes. But the voters may not wait for them. Various ideological interests have introduced a bevy of ballot measures for 2024 that would each dramatically redraw the state’s tax system.

Two different groups — one representing political conservatives, the other representing businesses — have proposed measures that would ensure property tax bills can only grow by a small amount each year. 

Meanwhile, the progressive Bell Policy Center is working on a measure to put an end to statewide intervention in property taxes — leaving it entirely to local districts instead. And Democrats may try another ballot measure of their own next year, too.

Dennis Gallagher, who died in 2022, would not have been surprised by the brewing fight. On the night that his namesake amendment was repealed, he told CPR News that home taxes would soon start to increase dramatically.

“I think we’re going to as taxpayers be a lot more vigilant in Colorado,” he said in an interview.

And he predicted that it would end in a “California-type property tax revolution,” referring to the controversial voter-approved law that has strictly limited California’s residential taxes and rewritten state politics since 1978. 

In Colorado, the lines of the modern battle are still taking shape. Only one of the ballot measures — the conservative group’s tax cap — has gathered enough signatures to secure its place on the ballot so far. But the months ahead are likely to bring millions of dollars and countless hours of debate about the next chapter in the state’s unusual property tax history.