Of the ballot questions Coloradans will vote on in November, Constitutional Amendment B might be the most confusing. So, to help us navigate the complex world of the 1992 Taxpayer’s Bill of Rights (TABOR) and the 1982 Gallagher Amendment, Colorado Edition turned to Phyllis Resnick, executive director and lead economist of the Colorado Futures Center at Colorado State University.
Resnick explained that the Gallagher Amendment, which is this ballot question's main target, requires the state of Colorado to only tax a portion of people’s property and to reevaluate that portion every other year. Amendment B, if passed, would detach these requirements from the state constitution, and allow the legislature to decide when and if it wants to adjust the portion of citizens’ property that is subject to property tax.
But then there’s TABOR, which barred the legislature from increasing the share of property that can be taxed without putting to voters in the form of a ballot question first. They can only decrease it, Resnick said. Even if Amendment B passes, this limiter would remain in place.
Now property owners have to decide, she said, whether a potential increase in property tax payments are worth the extra funding to various state and local services, like public schools and fire protection districts.
Interview Highlights
These interview highlights have been lightly edited for length and clarity.
Erin O’Toole: Give us the basics first. What is the Gallagher Amendment? Why was it made part of the state constitution?
Phyllis Resnick: The Gallagher Amendment effectively serves to limit the share of residential property that is subject to the property tax. It has served over the years to essentially control, to some extent, the rate of increases in residential property taxes. It doesn't exactly control the rate — it's a fairly complex mechanism that controls what share of your property is subject to the tax rate.
So what I mean by that is instead of taxing your property at the total value that the assessor tells you it's worth, we tax your property against just a portion of that value. And that portion over the years has declined, which has served to reduce the rate of growth in property taxes that you pay as the valuation of your property increases.
What exactly are we voting on in November, then?
If we are successful at the ballot in passing Amendment B, that share will be set in state law, but the requirement that that share be reassessed or reconsidered every other year will be eliminated. When Gallagher first passed that share was 21%, so 21% of the value of your home would be subject to the property tax. It has now fallen to 7.15%. And that has to do with the dynamics of the relationship between how fast residential properties values have grown and non-residential properties have grown.
It's a fairly complicated formula, but if we pass Amendment B, that 7.15% will be fixed — not in the constitution, but in state law — with no requirement going forward that the state legislature reexamine whether that's the correct ratio. It also takes out of the constitution the requirement that most non-residential property is taxed at 29% of its value. And it fixes that in state law as well. So essentially what this amendment does immediately is just take what is currently in the constitution and puts it into state law. In the future, what that means though, is that the legislature can change that law without having to ask the voters again for permission to do so.
One of our listeners, John, had a few questions about the Gallagher Amendment and he asked: “What's the interplay between TABOR and Gallagher?”
TABOR is the Taxpayer Bill of Rights, which puts limits on the taxes Colorado can retain and spend.
So the TABOR Amendment — which came around about a decade after Gallagher —essentially said that, that assessment rate we're talking about, the 7.15%, TABOR sets into the constitution that that assessment rate cannot be increased without a vote of the people. So, the original authors of the Gallagher Amendment imagined that rate floating. So, what I mean by that is that rate is determined by the ratio of the valuation of residential and non-residential property in the state.
And if the circumstance of that ratio would have allowed for the residential assessment rate to increase, it could float and do that without any action at the ballot box. TABOR came in and said we're no longer going to allow that rate to float up. We're only going to allow that rate to float down.
In simple terms, what would happen to property taxes if this measure passes?
In year one, nothing will happen. You would have the same tax bill that you would have had if Amendment B weren't to pass. However, into the future it becomes a little bit of an open question because the history in Colorado has been that the value of our homes has almost always year-over-year increased.
There may be some years during extreme recessions where we've stayed flat or in some areas of the state had some decreases. And what has happened since the Gallagher Amendment is that value of your house has increased the reset of the residential assessment rate, which again dictates the portion of that value that's subject to the tax, has essentially dampened. Without that automatic mechanism as required by the constitution, if the law were to leave the rate at 7.15% as the value of your house increases, and if nothing changes with the local mill levies you pay, over time your property taxes will certainly start to increase.
John also asked, “What will it change? Will defeat cause hardships on those municipal services funded by property taxes?”
Most city services in Colorado are paid for largely with the sales tax. While the property tax is not necessarily negligible, the majority of their revenue comes from the sales tax. Now when we think about those property tax-funded services, what we're finding in our work on this issue is that over time, we have areas of this state that are thriving economically and then we have some areas of the state off of those corridors where there's been more of an economic struggle. And that divergence has increased over time.
I think what you would find is the answer to John's question is: it depends upon where you live. If you live in an area where there has been sufficient property valuation growth to support the decline in the rate and the protection for homeowners against large increases in their property taxes, many of those districts are still generating revenue with regular rates of increase that should support services.
If you're in a part of the state where the valuation increases have not supported that, and then you are forced to reduce that share that’s subject to the property tax, we do see parts of the state where county services — particularly special district services, like the fire services — are truly struggling to generate enough revenue to support the level of service that the citizens expect.
This conversation is from KUNC’s Colorado Edition from Sep. 28. You can find the full episode here.
