Inflation and Gallagher Amendment Repeal
One role that DenCO Property Management (DenCO) provides to our owners is to inform them about pending legislation that may affect the finances and value of their residential real estate investments. High demand for housing relative to supply and inflation caused the steep rise in property values. However, the increase in taxation is not entirely due to higher property values. Colorado voters’ repeal of the Gallagher Amendment played a role because the law was the only mechanism that moderated residential property tax growth. After the repeal, there were calls for a longer-term fix, but the legislature passed only temporary stopgap measures.
When assessors sent out property value estimates in the spring of 2023, many residential property owners and investors were shocked by the higher-than-expected 2023 value assessments and their corresponding future tax increases. Under current law, the average property tax owed increased by 36%, significantly higher than historical averages. Some homeowners face even higher increases. Not surprisingly, citizens pressured their representatives for tax relief. So, the governor and legislature developed Proposition HH (Prop HH or HH), which is on the ballot this November.
The measure asks the following:
“Shall the state reduce property taxes for homes and businesses, including expanding property tax relief for seniors, and backfill counties, water districts, fire districts, ambulance and hospital districts, and other local governments and fund school districts by using a portion of the state surplus up to the proposition HH cap as defined in this measure?”
Sounds reasonable, right? Prop HH has been covered extensively by the Denver Post and Denver Gazette. Both papers describe the proposition as a sleight of hand, whose true purpose is to fund the State’s educational efforts. The problem is that the measure, if passed, only reduces the assessment rate .06 percent from 6.76 percent to 6.7 percent.
The Straight Skinny on HH
The Common Sense Institute (CSI) is a non-partisan research organization dedicated to protecting and promoting Colorado’s economy. CSI studied the initiative’s effects with their analysis going to 2040. They found that HH reduces property taxes by $21 billion. However, state tax revenue increases to $42 billion, meaning Prop HH is a net 2-to1 boost for state revenue. Colorado homeowners who vote for the measure will increase their taxes by $21 billion over the next 17 years. Since the tax relief comes from Taxpayer’s Bill of Rights (TABOR) funds, homeowners will fund their own tax relief.
Colorado Property Taxes
In 2022, the State collected 72% of its general fund from property taxes, or about $12.7 Billion based on 2021 property values. Over half of the property tax revenue goes to public school districts. County governments receive 23%, special districts 21%, municipalities 5%, and local colleges 1%.
Taxpayer’s Bill of Rights (TABOR)
Colorado voters approved TABOR in 1992 as a constitutional amendment to restrain government spending and allow taxpayers more control over proposed tax increases. Voters keep on embracing tax relief and reject state tax increases and proposals to dismantle TABOR.
Some believe that Prop HH is an end-run around TABOR because the CSI study shows that TABOR refunds could go away entirely under certain economic situations. Their suspicions might be correct because the HH was hatched behind closed doors by the governor and legislators with little input from the public and business interests across the State. The bill is complicated, adjusting statewide property tax assessment rates and withholding TABOR refunds. It gives local governments additional powers over setting mill levies. With so many moving parts, HH might violate state constitutional provisions limiting ballot proposals to a single subject.
Impact on Renters
Thirty-three percent of all Colorado households rent and will not directly benefit from Proposition HH. CSI found that joint filing renters lose over $5,000 in future TABOR refunds. Also, rents will probably increase across Colorado as owners and landlords pass these property tax increases onto them. So, renters lose twice with HH with the loss of their TABOR refunds and increased rents.
If Not HH, Then What?
Proposition HH will be the only property tax-related measure on the ballot in 2023. Some voters might vote for it without being informed about HH’s complexities. Another measure called Initiative 50 has gained enough signatures to qualify for the 2024 ballot. Initiative 50 would impose a 4% annual growth limit on total statewide property tax revenue. The 4 percent cap assures homeowners that any significant tax increase will not occur unless they approve it. However, this initiative would not impact property taxes this year.
Coloradans will still see the most significant property tax increase in state history — over $3 billion if passed. The research by CSI shows it is a tax increase for people who own real estate, with most of the money going to education. The ballot does not describe any accountability measures or spending guidelines. Teacher unions are heavily supporting Prop HH with their contributions. Instead of allowing this considerable increase, the governor and legislature could call a special session to cut or cap property taxes without taking away the TABOR tax refunds. But they will not, so homeowners in Colorado need to take the time to fully understand the initiative before they vote on it on November 7.
Professional management companies like DenCO keep their owners up to speed on Colorado real estate laws and regulations. Owners needing help managing their rentals should hire DenCO. DenCO manages over 150 rentals in the DU, Washington Park, and other neighborhoods in the Denver area and has been in business since 1999. Call us at 303-722-9688 or click here to complete a Contact Us form.
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