Radical changes to how Coloradans pay for government services — long talked about but previously considered improbable — are now close to becoming bills in the General Assembly.
Taken individually, a group of state tax bills in the works offer an overhaul of how Coloradans pay property taxes, backfill public schools and pay for a multibillion-dollar backlog of maintenance projects for roads and bridges. Taken together, the bills represent a fundamental shift in the way Colorado works.
“The overarching conversation here is that the people of Colorado for the last quarter century have put conflicting tax policy into the constitution without realizing it,” said Sen. Lois Court, D-Denver. “Standing alone each amendment can sound good, but combined they have caused an incredible mess.”
Supporters of fixing that “incredible mess” see Colorado’s booming economy and one of the lowest unemployment rates in the country contrasted with leaky school roofs, outdated textbooks and fire districts that worry about how they can keep their response times from rising.
Opponents see Colorado’s tax laws as a driver of economic growth and a selling point for both businesses and people. And perhaps more importantly, they think these laws represent one of the last protections against a state government that grows more liberal with each election.
In 2018, Democrats swept Republicans out of power in the Senate and kept control of the House and governorship. That opened the door for some of these proposals, but it’s no guarantee that any of them will become law.
“I think as folks continue to work on their various proposals, we will see what can really break through,” said House Speaker KC Becker, D-Boulder.
Different groups of lawmakers are working on major reforms for school finance, the Gallagher property tax amendment and the Taxpayer’s Bill of Rights — all of which they want their colleagues to vote on before the session ends May 3.
The property tax problem in rural Colorado
How much people pay in property taxes for their homes and businesses was put into the state constitution back in 1982 with an amendment that’s come to be known as Gallagher.
The whole purpose of Gallagher, according to the state lawmaker for whom it’s named, was to protect homeowners from paying too much by ensuring commercial property owners always paid more.
But the explosive rise of home prices along the Front Range has left both Republicans and Democrats thinking that a single, statewide property tax rate just doesn’t work anymore. And they want voters to repeal the whole amendment.
“Gallagher piles more tax burden on commercial property owners … ,” said Sen. Jack Tate, a Republican from Centennial. “The entrepreneurial class is taking it in the shorts.”
The Gallagher Amendment created a formula that says when you add up all the commercial and residential property taxes for the entire state, the share paid by homeowners can’t exceed 45 percent. All commercial owners always pay property taxes on 29 percent of their building’s vale, but the residential assessment rate floats up and down to maintain that 55/45 split.
The problem that Tate, Court and Sen. Bob Rankin, R-Carbondale, see with that statewide rate is that it effectively creates a residential tax cut in rural areas because the decrease in property taxes is bigger than the increase in home values.
One way rural counties have tried to address the problem is by asking voters for more money. The problem there, Tate said, is those mill levy increases also apply to commercial property owners, running up their already higher taxes.
The three senators are working with Rep. Daneya Esgar, D-Pueblo, on a bill to refer a repeal of the Gallagher Amendment to voters in 2020.
An end to the TABOR tax refund
Gallagher isn’t the only major piece of tax policy enshrined in Colorado’s constitution. Ten years after voters said yes to that amendment, they passed the Taxpayer’s Bill of Rights, or TABOR.
The 1992 amendment did a lot of things, but the two major changes it made were to mandate that voters approve all tax increases and limit how much tax revenue state and local governments could keep each year by imposing a strict spending cap.
Getting around that cap is called “de-Brucing,” after TABOR author Douglas Bruce, and dozens of local governments have successfully asked their residents for permission to do so over the years. Becker wants to ask voters in 2019 or 2020 whether the state can do the same.
Here’s how that would work: December’s economic forecast predicted Colorado would exceed the TABOR cap by $609 million by June 2020. If Becker’s bill were law today, the state could keep that money and divide it evenly among K-12 education, higher education and transportation.
“There’s a sense out there in the public that this is a logical thing to do — that it does not make sense to constitutionally prohibit the state from growing with the economy,” Becker said. “The state should be able to make good investments when times are good.”
But supporters of TABOR such as Michael Fields, director of the conservative Colorado Rising Action, call this a tax increase.
TABOR limits how big government can grow, and any changes to its formula are an attempt to “trick you,” Fields said. “We just feel confident that the more you explain what TABOR is, the more people like it.”
The Colorado Fiscal Institute is testing whether a full repeal of the TABOR amendment would be possible, but Becker said she doesn’t support that effort.
“Can we just look at those parts of TABOR that make Colorado hard to govern?” Becker said.
The school funding formula
Colorado has a constitutional obligation to make sure local school districts maintain a certain level of funding, and that has meant sending them more general fund dollars each year.
The problem, as Sen. Rankin sees it, is that those dollars aren’t distributed fairly. Wealthy districts often get more than their poorer neighbors. For example, homeowners in the Sierra Grande School District — one of the poorest in the state — pay eight times more in property taxes than the wealthier Primero School District and get less from the state.
On top of that inequity, low property taxes have made Primero’s voters more likely to approve requests for “overrides,” or additional dollars that don’t count toward the mandatory minimum.
“It’s unfair to taxpayers,” Rankin said during an interview in December.
He wants to create a law that would essentially require every school district in the state to adopt a consistent property tax rate unless they could meet the minimum per-pupil funding level with a lower rate. Districts whose voters didn’t approve the higher tax rate would see reductions in their state education aid.
It’s an idea Rankin has worked on for years, but he’s cautiously optimistic that 2019 will be the year he succeeds. Democratic Gov. Jared Polis seems more open to big changes than his predecessor, and Rankin has received tentative support from key Democrats such as Joint Budget Committee Chairman Dominick Moreno, a senator from Commerce City.
“I really do think it’s a change in leadership,” Becker said. “It is really rethinking what went wrong, or what can we do differently.”