House Speaker KC Becker uses her gavel as she leads lawmakers through the returning session. Colorado lawmakers return to the state Capitol on May 26, 2020 in Denver, Colorado. Legislators have returned after a 10-week pause due to fears from the spread of the coronavirus.

Speaker of the House KC Becker of Boulder has achieved a somewhat dubious honor, with the passage Tuesday of the School Finance Act: she's the sponsor of the most partisan school finance act this century.

The School Finance Act, House Bill 1418, has frequently had bipartisan sponsorship, but this year, only one Republican — Rep. Richard Holtorf of Akron — voted in favor. In previous recession years, the bill would get near-unanimous support, even the year that they put a $1.15 billion debt on K-12 education, then known as the negative factor. But even Republicans who have been traditional allies on school finance have walked away from this one, and it’s primarily because of one issue: mill levy equalization.

Proponents say the equalization, which would require most school districts to be at the same mill levy rate — which is what the local share of property taxes for K-12 education is based on — rights a decades-old wrong over how the Colorado Department of Education reduced the rates. However, opponents fear the equalization will result in much higher property taxes, and claim that the increase requires a vote by taxpayers, as required by the Taxpayer's Bill of Rights.   

Mill levy equalization has been a discussion point among lawmakers on both sides of the aisle for the last several years, including Sen. Bob Rankin, a Carbondale Republican who is the most senior member of the Joint Budget Committee.

The Gallagher issue

The mill levy issue is tied up in another issue lawmakers are attempting to resolve this session: the Gallagher Amendment.

Gallagher requires the property tax base to be split 45/55 between residential and commercial properties.

A white paper from the CU-Colorado Springs Center for Colorado Policy Studies explained that the “mix of residential, business, and other assessment categories may mean [local governments] must use a much higher mill levy to raise $1,000 than a neighboring government with a different mix of property types. This makes it harder to fund schools or other locally-based activities in some districts than in others.”

That’s especially true in rural communities that have more homes than commercial businesses. As home values increase, the residential assessment rate, which is based on a statewide average, is reduced to maintain that 45/55 ratio. That happens every two years. And it’s resulted in high mill levy overrides in some rural communities that help keep the school doors open.

And then there's TABOR

Becker explained Monday that the School Finance Act is intended to correct an error by the Colorado Department of Education. Back in 1994, the CDE began ordering mills to be reduced. This was in response to TABOR, according to the Colorado Supreme Court ruling in Mesa County Commissioners v. Ritter

Around that time, mills were at 37 statewide, the ruling said.* But school districts were beginning to bump up against the TABOR revenue limits, so CDE advised districts to reduce those mills. That continued until 1995, when districts began asking voters if they could de-Bruce.*

Currently, according to the CDE, the range for total program mills, which is what’s dealt with in the School Finance Act, is 1.68 to 27. That 1.68 is for the 200-student Primero School District in Weston, just west of Trinidad. There are 39 districts already at 27 mills: mostly rural, but the group includes Greeley and Pueblo. 

A short primer on funding

Total program funding, according to CDE, is based on the pupil count, multiplied by a per-pupil funding amount, with additional dollars for concurrent enrollment and at-risk students.

The budget stabilization factor is applied to each district’s total program after that calculation is done.

The School Finance Act proposes raising the total program mill levy to 27 mills to correct this CDE “mistake.” That applies to districts where the mills are below 27. If a district is fully funded at a lower mill levy, meaning it doesn’t need state dollars, that wouldn’t change under the bill.

In the first year, 2020-21, property owners would not see a tax increase, even if their districts are well below the 27 mills, because the bill requires school districts to offset those increases with tax credits.

Where do those tax credits come from? Total program funding.

A check on the history of school districts offering this type of tax credit found only once where this happened in recent memory. The Denver Public Schools offered tax credits to property owners to avoid exceeding its TABOR revenue cap. District voters later allowed the district to de-Bruce to keep those excess revenues, so that’s no longer an issue.

The second year of the bill is another story.

In 2021-22, the tax credits would be paid for by the General Assembly. But as Becker said Monday, lawmakers in the 2021 session will have the unpleasant task of finding an extra $1 billion to fund public schools, including the money for those tax credits.

Possibility of a TABOR lawsuit

If the recession extends into a second year and lawmakers can’t find those dollars, the mill levy increases would go into effect for property owners, and it could be a big bite for districts with low mill levies. And that would be done without a vote on those tax increases, as required by TABOR.

That could get the state sued, warned Wilson during Saturday’s hearing. Hence, Republican refusal to support the bill.

Becker, both in committee testimony Saturday and on Monday, said they could make those changes without a vote based on a 2009 state Supreme Court decision.

In 2007, the General Assembly approved an amendment to the School Finance Act, dubbed the Mill Levy Stabilization Act, which capped total program mills at 27.

That meant an end at that time to the trend of lowering mills in the state’s 178 school districts. Opponents, including the Mesa County Board of County Commissioners, cried “tax increase” and sued. But the Colorado Supreme Court ruled in favor of the General Assembly, stating that since voters in 174 of the state’s 178 school districts had already voted to de-Bruce, the stabilization of mill levies could not be considered a tax increase.

Becker hopes that same logic applies to the 2020 School Finance Act.

She told Colorado Politics on Monday that the bill has to pass, and she hopes the mill levy provision stays in the measure. Next year, because of an anticipated decrease in residential property taxes and the end of one-time money from the CARES Act, “school finance will be in a world of pain, more than a billion dollars,” she said.

“Nothing changes” in the bill’s first year, she said. In her district, Gilpin is levied at four mills; where Boulder is at 25. That means Gilpin contributes very little to its school budgets, leaving the state to pick up the rest. Clear Creek can fully fund its district at 12 mills, although that’s dependent on severance taxes from mining.

“All we’re doing is correcting a mistake that CDE made, after everyone de-Bruced. They kept lowering the mills. That doesn’t make any sense.”

This doesn’t increase taxes, she said, adding that this is not a TABOR issue. “If a future legislature wants to take action, it can. We have a huge disparity” in mill levies, she explained.

The School Finance Act also doesn’t take another property tax into account, and that’s mill levy overrides. Districts that have seen dwindling support from mill levies have gone to voters for overrides that pay for a wide variety of needs, such as new schools, reduced class sizes, and other items. Many districts, according to CDE data, have higher mill levy overrides than the mill levies themselves.

Take, for example, Manitou Springs District 14. In 2019-20, the district’s mill levy was 22.816. But it has a mill levy override of 30.843.

The School Finance Act sets different provisions on mill levy overrides for the four districts that haven’t de-Bruced, which includes D-11 in Colorado Springs, the Harrison district in El Paso County, Cherry Creek and Steamboat Springs. Under the bill, the mills for those districts would be set at the lesser of 27 mills, the number of mills levied in the preceding property tax year, or a mill levy that doesn’t result in revenues that exceed the TABOR limit.

A "bloodbath" awaits

In the past two years, Wilson, a former school district superintendent who was a reliable go-to for Democrats on education issues. He also was a sponsor of the bill last year that required the state to pay for the full cost of all-day kindergarten. But mill levy equalization was a bridge too far for Wilson, as he explained to Colorado Politics on Monday.

Wilson told Colorado Politics on Monday that the bill is favored by school executives. “Why not? It will generate more money,” he said. But for his district, where the mill is just under 15, a jump to 27 is a TABOR vote. “Two years from now, my taxes will double” under this bill.

“What say do the districts have in this?” Wilson asked.

But he also said this problem should have been taken care of years ago, so that the pain today wouldn’t be as bad. The bigger pain, though, is having to find a billion dollars for K-12 next year. “That will be a bloodbath, and one of the few reasons I’m glad I won’t be here next year.”

Wilson is term-limited.

The bill now heads to the state Senate.

The 2020 session is scheduled to end on Friday.

Correction: an earlier version incorrectly stated the year the Colorado Department of Education began advising districts to reduce mills. That advice was tied to TABOR. 

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