Home For Sale Real Estate Sign and House

File photo. Average sales price for metro Denver homes continued to climb in June, according to the Denver Metro Association of Realtors.  

Colorado lawmakers are pursuing a bill that seeks to do what the now-repealed Gallagher Amendment was intended to: rein in home property tax rates.

Property tax relief is a major priority for lawmakers on both sides of the aisle as well as for Gov. Jared Polis, with a looming increase of 26% in residential rates that will hit taxpayers' bills this year, and likely to be much higher in resort communities. 

Republicans in Colorado's legislature are first out of the gate on the issue, with a solution that has the potential to be bipartisan.

In the 2022 session, lawmakers set aside a total of $700 million, in part through SB 238, to provide a tax credit for the 2023 and 2024 tax years. That tax credit would be applied to cover the taxes in 2023, paid on the first $15,000 of assessed value on residential and $30,000 on commercial property. The $700 million is primarily a combination of $200 million from SB 238 and a reduction in assessment rates in 2023 and 2024, with the state backfilling any lost revenues to the counties. 

Property tax valuations are done every two years, and 2023 is a new valuation year. Assessments are being calculated on property values as of June 30, 2022, which was the high watermark of the values in the housing market.

Polis has on several occasions, including in his State of the State address, has talked about the pending increase in residential property taxes. Lawmakers and the governor worry that such a steep hike will price people out of their homes, particularly seniors. 

The solution, so far, has multiple prongs.

First is short-term property tax relief, with another $200 million added to the $700 million under a proposal from the governor to help lessen the blow on property tax increases. 

The second is the long-term fix, and a much more complicated conversation.

The first bill out of the gate on property taxes is House Bill 1054, sponsored by Rep. Lisa Frizell, R-Castle Rock and Sen. Byron Pelton, R-Sterling. The measure would hold off on that 2023 revaluation until 2025, in effect freezing property taxes for the next two years. Going forward, assessments would be done only every four years. 

"You can't talk about housing without talking about property taxes," said Assistant House Minority Leader Rose Pugliese, R-Colorado Springs, who is a co-sponsor on HB 1054. All three have backgrounds in local government: Pelton and Pugliese as county commissioners and Frizell as the Douglas County assessor. The trio is "a long-term sustainable solution" to the property tax issue, tying into the governor's goal around affordable housing.

None of the three backed the Gallagher repeal, which was approved by voters in 2020 approved, striking the 1982 provision that set specific ratios for property taxes.

Each acknowledged, though, that people didn't like tax policy in the constitution. But taking Gallagher out of the constitution without a replacement meant the legislature would have to address it, Pugliese said.

"Now we're in a situation with a temporary fix," The Colorado Springs Republican said SB 238, "but not a robust conversation...around what long-term sustainable property tax [policy] would look like."

HB 1054 would buy the legislature time to come up with a long-term fix, Pugliese said. 

The problem lawmakers are trying to solve, Frizell said, is that across the state, assessors have seen residential property tax increases ranging from 40% to 70% in resort communities, where there's a terrible shortage of housing.

"It's not conscionable for our citizens to bear this burden of increases at a time when we're already having folks struggling so hard with inflation," Frizell said. 

It's not just a problem for homeowners. Renters will get hit with higher rental costs due to those property tax increases, and for small business, they'll see higher costs with those increases passed on by commercial property owners, she explained. 

Her bill would attempt to hold counties harmless, by allowing up to a 5% increase in home values upon which property taxes would be assessed. That should allow counties to continue to offer the services expected by their citizens, she said. 

The bill has the added benefit of freeing up both the $200 million proposed by Polis and the funds set aside to cover the property tax increases in 2023 and 2024. 

The second idea is the first step toward a long-term solution, one that will draw in the experts on property taxes from local government. A second bill, to be sponsored by Pelton and Pugliese, will seek a task force, modeled after the one that came up with recommendations on behavioral health in 2021. 

That task force, in addition to lawmakers and state agency representatives, included a subcommittee of local government, community and non-profit representatives in the behavioral health space. Pelton had been a member of that subcommittee.

"We need time in order to have these conversations," Pugliese said. 

Pelton said the task force would bring in representatives of local governments, the Colorado Municipal League, county commissioners, the state property tax administrator, and folks from school, metro and special districts, all which rely on property taxes. 

"I want to make sure rural Colorado is protected," Pelton said. That was one of the problems with Gallagher; according to a 2020 Legislative Council memo, Gallagher caused substantial reductions in the tax base in rural communities where property values did not increase as significantly as they did in urban areas.

"We have to have something to replace Gallagher," Pelton added, and one that is a bipartisan solution.

So far, the lawmakers have had one conversation with the governor's staff on the two proposals, and additional conversations with Senate Democratic leadership. Senate Majority Leader Dominick Moreno, D-Commerce City, commented Tuesday that the desire is to come up with something "Gallagher-esque" to modify the growth in property taxes. He's also hoping the solution will forestall any effort to put a measure on the ballot, which could happen as soon as November. "The desire is to move beyond creating policy in response to the ballot" and come up with something more permanent, Moreno said. 

House Bill 1054 has been assigned to the House Finance Committee; a hearing date has not yet been announced.

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