“And so,” said the Cat in the Hat, “So… so… so…
“I will show you another good game that I know…”
We all understand the endless pursuit of money, because we’re all doing it, or we’re watching people whom we care about doing it. We can feel especially passionate about our wallets when a flow of dollars to which we’ve grown accustomed slows to a trickle. Or, God forbid, ceases altogether.
Legislators — local, state, federal — are not immune to these passions. Even though they’re spending someone else’s money — our money, the taxpayers’ money — legislators can experience feelings of desperation when the revenue projections look bleak. And indeed, the revenue projections are looking rather bleak, for governments as well as for most American business owners and families, going into the summer of 2020.
For many of us, the COVID economy is dictating changes in our spending habits, and in our expectations. We’re not going to get that new truck we’ve been researching on CarMax.com. Looks like we’re going to be driving the old one for a couple more years. The annual vacation to Mexico? Not this year.
We’d be looking for a second job, if only we still had the first one.
Our elected representatives in Denver are likewise struggling with expectations during their extended 2020 session, and the struggle includes both painful cuts to state spending, and a quest for new tax infusions, from anywhere a few spare dollars might be found.
Maybe the taxpayers could repeal the Gallagher Amendment.
We could get rid of some unpleasant tax loopholes.
Our state legislators are currently in the second session of the 72nd Colorado General Assembly, during which both Houses are ‘controlled’ by members of the Democratic Party. Our Governor, Jared Polis, is also a Democrat. Some cynics, and some Republicans, would characterize the Democratic Party as a group of politicians eager to provide tax subsidies, whenever possible, to the working class — to ensure their re-election.
Other cynics, and some Democrats, would characterize the Republican Party as a group of politicians eager to provide tax subsidies, whenever possible, to businesses and to the very wealthy — to ensure their re-election.
I imagine there’s some truth to those accusations. But what happens when a General Assembly that passed a 2019 budget based on $12 billion in General Fund revenues, now finds itself looking at a $3 billion drop in revenue due to the COVID economy?
Well, among other things, you might pass a resolution to put a proposed repeal of the Gallagher Amendment on the November ballot. You can read the language of that legislation here. As of yesterday, it had been approved by the Senate, and was under consideration in the House.
The Gallagher Amendment, approved by Colorado voters in 1982, has provided ongoing tax relief to residential property owners — homeowners and landlords — by limiting residential property valuations to no more than 45% of the total property tax base statewide. Nonresidential property — commercial property, vacant land, and a few other property tax categories — are required to shoulder the remaining 55% share of the property tax burden. The amendment has delivered on that tax-relief promise, in spades. In 1982, the assessment rate on residential property was 21%. It has since fallen to 7.15% — making Colorado one of the most property-tax-friendly states in the US, in terms of home ownership.
Not so friendly to businesses, however, who pay a 29% rate on commercial property.
When residential property values are steadily increasing — as they did during the pre-Great Recession housing bubble — the Gallagher amendment adjusts the residential assessment rate downward, to keep the required 45%-55% balance. That’s not typically a big problem, because the lower assessment rate is compensated by the higher home values.
A bigger problem arises when there’s a precipitous drop in business values and oil-and-gas values. These commercial properties are valued partly by the amount of income they generate, which is “not much” during the current COVID crisis. When commercial properties drop in value, Gallagher requires a corresponding drop in the residential property rate, to keep things at 45%-55%.
A recent projection provided to the Colorado legislature predicts that the COVID crisis could result in Gallagher-generated 18% cut in residential property taxes, with could mean $491 million in cuts to schools and $204 million in cuts to county governments starting in July 2021. And Colorado’s TABOR amendment prevents local governments from increasing tax rates without voter approval, to compensate for an unexpected revenue downturn.
Because county governments, school districts, fire districts, and other local governments depend on property tax revenues, the projected Gallagher impacts will be felt locally — as well as at the state level, because state legislators will be under pressure to backfill any tax revenue losses to schools and local governments from the General Fund.
From a June 3 article by reporter Brian Eason in the Colorado Sun:
In a desperate attempt to stave off further budget calamity, state lawmakers are fast-tracking a landmark ballot measure that would ask voters to repeal the Gallagher Amendment — the property tax-limiting constitutional provision that has provided an estimated $35 billion in tax relief to Colorado homeowners since 1983.
The bipartisan proposal — which requires a legislative supermajority to pass — represents the nuclear option for tackling Gallagher, a sign that the growing economic crisis is upending long-held assumptions about what is politically feasible in tax-averse Colorado. It is also an indication of just how desperate state lawmakers have become as they face an economic abyss unlike any other in their lifetimes…
…“We’re in an unprecedented moment,” said Sen. Chris Hansen, a Democrat from Denver. “And when that happens, some of the business-as-usual hurdles often fall away.”
In this case, each side has been energized by different threats. For Democrats, it’s the prospect of deep cuts to local funding for public education, with no assurance there will be any state funding to fall back on. For Republicans, the lower property taxes from Gallagher means another round of cuts to fire and hospital services in the rural communities many of them represent…
The legislation in Denver moved surprisingly quickly, through the Senate Finance Committee and straight to the Senate floor.
So we’re looking at a curious situation. It appears the state legislature wants taxpayers to throw out the 1982 Gallagher amendment, but we’re not sure… what would that mean, exactly, in 2020?
Read Part Two, tomorrow…