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Since the repeal of the Gallagher Amendment in 2020, advocacy groups and state leaders have been working to address the challenge of offering property tax relief to strained homeowners facing rising property values. They’ve aimed to balance this relief with ensuring adequate funding for essential services supported by property taxes such as, schools, emergency response, and local government programs. 

Initiatives 50 and 108 are the latest efforts to cut costs for cash-strapped families. Nevertheless, these efforts might result in budget cuts at the state and local levels that could curtail resources for their communities. The potential crisis and public outcry has prompted Gov. Polis to call for a special legislative session starting on Aug. 26 to decide the fate of these measures on the November ballot.

Here’s what you need to know before it starts. This brief will delve into the history of property tax law in Colorado (Gallagher Amendment), the current governing law (SB24-233), and potential future amendments to that law (HB24B-1001) which are expected to be discussed in the upcoming special legislative session.

1. Gallagher Amendment

2. SB24-233

3. HB24B-1001

4. Conclusion

How are Property Taxes Calculated 

If you have a $560,000 home and the assessment rate is 6.7%, you only pay property taxes on $37,520 of the home’s value. That assessed value is multiplied by your locally approved mills for your school district, county, city, and special districts like fire protection districts and libraries. All property taxes are local. No property taxes go to the state budget. 

A Brief History of Property Taxes in Colorado

Between 1982 and 2020, property taxes were governed by the Gallagher Amendment. If residential property taxes increased at a higher rate than non-residential property taxes, the assessment rate – the portion of a home’s value subject to property taxes – had to decrease.

During Gallagher’s time, the assessment rate dropped from 21% to 7.15%. Gallagher also limited the total residential property in the state, leading to scenarios where certain areas experienced significant growth while services were reduced in other regions. In 2020, voters overturned the Gallagher Amendment.

With Gallagher no longer driving down rates, the assessment rate on homes would remain at 7.15% unless state legislators lowered it, which they did with a series of bills to help counteract the recent spikes in home values.

The residential assessment rate dropped to 6.95% in 2021, 6.765% in 2022, and 6.7% in 2023 and 2024. In addition to the lower assessment rates on homes, a portion of the home’s market value was also exempted. In 2023, $55,000 of the market value of a home was subtracted. Subtracting a flat rate gives a bigger cut to homes of lower value. 

Current Law Property Taxes 

Today, property tax laws in Colorado are governed by SB24-233.They impose a residential assessment rate (RAR) of 6.7% and a $55,000 subtraction from market value for 2024. It gets more complicated in 2025 under current law, with two different assessment rates on homes: one for schools (RAR of 7.15%) and one for other local governments. And even more complicated in 2026, where the first 10% of the home’s market value up to $700,000 is subtracted for the non-school local government portion.

SB24-233 vs Other Proposals

This memo compares current law (SB24-233) to an amended version, which is likely to be debated during the upcoming special legislative session (HB24B-1001), and to the ballot initiative 108.  

For property taxes on homes, the amended version of 233 is very similar to the original except with lower residential assessment rates. Instead of 7.15% for schools, HB24B-1001 would drop that rate to either 7.05% or 6.95% (depending on whether growth in property is above or below 5%). For other local governments, the residential assessment rate would be 6.25% or 6.15% in 2025 instead of 6.4% and 6.8% or 6.7% instead of 6.95% in 2026. 

Initiative 108 would lower the residential assessment rate to 5.7% for all local governments including schools with no subtracted value. In addition, if Initiative 108 passes, the property tax cuts in SB24-233 go away for property tax year 2024. This means no value subtraction and a RAR of 7.07% in 2024. This would cause the average homeowner to pay $512 more in property taxes in 2024.  

Homeowner Impacts

HB24B-1001 would lower property taxes for the average homeowner by $62 in 2025 compared to current law and $179 in 2026. Initiative 108 would raise taxes for the average homeowner by $512 in 2024, then lower them by $539 in 2025 and $504 in 2026 compared to current law.

State and Local Budget Impacts

HB24B-1001 would lower property taxes by $255 million in 2025 and $295 million in 2026 and onward. The state would be required to backfill a portion of lost property tax revenue to school districts and local governments.

Initiative 108 would lower property taxes by $2.25 billion in 2025 and would require the state budget to backfill all the revenue that local governments lose out due to the property tax cuts. Backfilling the entire cost of 108 to local districts would require the state to reduce its entire budget by 18% each year, a bigger cut than the 11% reduction the state implemented after the Great Recession.

Changes to Non-Residential Property Taxes 

Initiative 108 would cut all the non-residential assessment rate to 24% whereas current law (233) only lowers the non-residential assessment rate to 27% from 29% for commercial and agricultural property classes and excludes some other non-residential class. HB24B-1001 would expand that 27% rate for other non-residential property classes (industrial, vacant, natural resources, and state assessed). 

Under HB24B-1001, 62% of the additional property tax cuts go to non-residential property owners. A big portion the property tax savings of Initiative 108 would go to non-residential property owners.

Revenue Caps 

Under current law (233), some local governments will be subject to a 5.5% revenue cap starting in 2025. The limit is based off 2023 collections grown annually by 5.5%. There are, however, a lot of exclusions and exemptions. It doesn’t apply to school districts, home-rule local governments, local governments that currently have a TABOR limit or another 5.5% limit. It also doesn’t count revenue generated from new voter-approved mill levies, mills levied for bonded debt, new construction, and oil/gas/mines. 

Initiative 108 doesn’t include a cap. 

HB24B-1001 would build upon the revenue limit framework in 233 but also include a cap on school districts of 6% (12% per two-year cycle), unless inflation plus student growth is greater than 6%, in which case the cap would be the inflation plus student growth rate. 

Initiative 50

Initiative 50 would cap annual property tax revenue at 4% growth statewide.  

The cap is all but unworkable. It might make sense if all property taxes went to the state budget. But they don’t. Property taxes in Colorado are completely individual to local areas. This means tax rates and property growth vary dramatically from city to city and county to county. Unlike the caps in 233 which are unique to each local government, the cap in Initiative 50 is applied to total property tax revenue in the state. 

So when property tax collections grow faster than 4%, the state and local governments will have to make changes, but the initiative doesn’t detail exactly how that would work. Will local governments grant tax refunds? Will the legislature approve discounts across the state? What about growing counties compared to shrinking population counties? Local governments will be pitted against each other to fight over revenue to fit under the cap.

In 45 of the past 60 years, property tax revenue has grown faster than 4%. A cap like this would result in billions of dollars of cuts to schools, fire districts, libraries, and county budgets.

Conclusion

The state budget is currently unable to keep pace in real terms, falling short of meeting the requirements to accommodate caseload growth, inflation, salary increases, and other operational necessities. To maintain stability in real terms, an additional $1 billion is necessary, yet the available revenue under the TABOR cap is only $650 million. This year, we successfully met the voter-approved school funding levels from 2000 after 15 years of insufficient funding due to the budget stabilization factor. Further reductions in revenue pose a threat to Colorado’s ability to adequately support our schools. Therefore, we are cautious about additional property tax cuts, such as those proposed in HB24B-1001. Initiatives 108 and 50 would have detrimental effects on funding for public services and schools if they were to pass in the ballot. While HB24B-1001 would be more acceptable if it did not impose revenue limits on local governments, the constraints on school districts’ revenue in HB24B-1001 are particularly concerning.