Amendment B: Repeal property tax assessment rate restrictions

For the past few weeks, Colorado television and the internet have been littered with commercials about Amendment B. This amendment seeks to repeal the nearly 40-year-old Gallagher Amendment, a provision in the Colorado constitution used to calculate property tax rates.

As it is now, residential property taxes make up 45% of the overall tax base, while nonresidential properties--primarily businesses, --make up the other 55% of property tax revenue. As Colorado’s population has grown, the value of housing has increased far more than commercial property. But the Gallagher Amendment, passed by Colorado voters in 1982, keeps driving the taxes on commercial property up to keep the ratio set almost 40 years ago intact. Since Gallagher was adopted, homeowners have collectively saved $35 billion on their residential tax bills.

For nonresidential property owners, this law becomes problematic when residential property values are on the rise. A commercial building in Niwot with an actual value of $950,000 and a tax bill of $20,000 in 2018, saw an increase in property taxes to over $27,000 in 2019, though there were no changes to the building.

This immediately is felt by small businesses, either through taxes paid by building owners or in rent increases passed on to tenants, but it also affects other public services at large. For example, in Denver, home values have risen faster than the Gallagher Amendment can make adjustments for it. But in rural communities, with more stagnant home values, county and local governments faced budget cuts, especially if they have limited commercial entities that can make up for that tax revenue loss.

Since 1999, the residential assessment rates would have increased six times, but in each instance the legislature instead allowed the tax rate to stay flat rather than going to the voters. This is because while legislators can cut or maintain taxes, due to the Taxpayer Bill of Rights (TABOR) they must put all potential tax increases to a vote of the people. That means local governments are somewhat limited in terms of how to offset some of the revenue lost from residential property tax cuts.

It is also worth noting that, according to the Mountain View Fire Rescue District’s (MVFRD) Gallagher FAQ page, that while 45% of the state’s property value in 1982 (when Gallagher passed) was residential properties, today, residential properties make up 75% of the state value. This means that commercial properties make up 25% of state property value today and they’re still responsible for 55% of the total property taxes.

With Gallagher in place, it’s expected that property tax revenues will fall again--about 18% in 2021--which will likely further exacerbate the burden put on commercial and other nonresidential properties. Currently, nonresidential owners pay approximately four times more than homeowners do.

Since property taxes fund a variety of services at the state and local level, including special districts (e.g. fire districts) and school districts, proponents of Amendment B often point out that the repeated decrease in residential property taxes puts extra pressure on these services. In areas that do not have automatic mill levy increases (which is a property tax rate based on dollars per $1000 of assessed value), these districts then have to go to their constituents to discuss mill levy adjustments.

For example, MVFRD had to conduct a special meeting this August about an independent election and adjusting the district’s mill levy to offset decreases in funding as result of a Residential Assessment Rate reduction. Fire Chief Dave Beebe—who’s been dispatched to help with the Cameron Peak Fire—sent a sent a letter to residents on the issue of mill levy adjustments related to Gallagher. In it, he describes how the district’s revenue largely comes from property taxes, but over the past ten years, they’ve seen decreased funding.

“Historically, the only remedy for this decrease in District revenue was to hold an election and ask the voters to approve an increase in the District’s Mill Levy,” wrote Chief Beebe. “While the District has been successful with elections in the past, holding elections is very expensive.”

Instead, Beebe asks residents to essentially consider an automatic mill levy adjustment should residential assessment rates be adjusted. He says that those who would oppose this issue oppose all tax issues, “even those meant for life saving services.”

Neither Beebe nor MVFRD have directly commented on Amendment B itself, largely for two reasons: there haven’t been many constituents reaching out to them about the issue and also because they have to abide by the Colorado Fair Campaign Practices Act.

However, other local officials have commented on the amendment. "As a commissioner, I think a 'yes' on Amendment B preserves critical services and protects our local businesses, farmers and ranchers in Boulder County from taking even bigger tax hits,” said Boulder County Commissioner Deb Gardner. “Fire districts and K-12 schools across (our) state have been forced to make serious cuts as a result of the Gallagher Amendment - and these are things that our community simply cannot afford to lose."

To be more specific, according to Taunia Hottman, a principal of Clermont Elliot, a communications firm working on the amendment, keeping Gallagher would mean a $300 million property tax increase for those with nonresidential properties.

Amendment B aims to prevent that by repealing the amendment and freezing the property taxes at their current rates. “They [homeowners] get to enjoy the third lowest property tax rate in the entire US,” said Hottman. But, the 45%-55% tax ratio and automatic cuts would cease to exist. So, while it won’t immediately increase tax rates, it also prevents future tax cuts.

If passed, the state government would be relieved of the estimated $247 million increase in school funding that was originally expected with the next tax cut. But long-term, the future of property taxes are still unclear.

This doubt comes in part from proponents of Gallagher who believe that with rising home values in the future, the state will once again see complaints over increased taxes. The likely future increase in taxes could mean that landlords increase rental rates.

Opponents of Amendment B also say that there are better alternatives to revenue concerns than amending the state constitution. Instead, local governments can and should ask voters to increase taxes, thus allowing individual municipalities the autonomy to decide how to fund their communities.

According to Hottman, Amendment B gives relief to all the small businesses, schools, fire departments and other entities. “Let’s help those who may be struggling in a really hard way because of COVID,” she said.

The secretary of state’s office puts out lists of groups both in favor and in opposition to various ballot measures. More information can be found here.

For information about the group in favor, visit the website Yes on Amendment B

For information about the group opposed, visit Keep Property Taxes Low