Gallagher is a reckless policy that traps low-income communities in a downward spiral of higher business taxes and declining local services.
— Former Denver Mayor Wellington Webb, on YesOnAmendmentB.com
Colorado’s 2020 mail ballots have arrived in our boxes. In addition to numerous candidates for local, state and federal offices, the ballot will allow voters to cast a ‘Yes’ or ‘No’ vote on eleven measures: four proposed amendments to the Colorado Constitution, and seven Propositions that would create new statutes. Two of the proposed Constitutional amendments, and one of the Propositions were referred to the ballot by the Colorado legislature; the other eight measures were petitioned onto the ballot by citizen groups.
Three of the measures concern taxes.
Proposition 116, State Income Tax Rate Reduction, would cut the state’s income tax rate from 4.63% to 4.55% if approved. A person making $50,000 a year would see their tax burden fall by about $40. A person making $1 million a year would see their taxes drop by about $800 a year. A person making $12,000 a year would likely see no change at all, because they probably don’t owe any income tax.
Proposition EE would raise an estimated $168 million next fiscal year by creating a new tax on nicotine vaping products and raising existing taxes on tobacco products. The measure would also set the minimum price for cigarettes at $7 a pack, starting in January, 2021. Reportedly, this new minimum price would cause all cigarette brands to cost as much as the highest price brands such as Marlboro and Virginia Slims — and thus, threatens to eliminate competition among tobacco companies.
Did tobacco giant Phillip Morris help write Proposition EE in a back room deal? For more about the ‘minimum price’ controversy, see today’s press release from the Liggett Group.
But let’s look closely, this week, at the other tax measure on the ballot: Amendment B, a proposed Constitutional amendment that would change the way property taxes are assessed in Colorado. This measure was referred to the ballot by a bi-partisan vote in the legislature.
Property taxes, in Colorado, help fund school districts, county governments, fire districts, municipalities, library districts, water districts, and metro districts. Some of these districts rely almost completely on property tax; for others, property taxes are a minor source of tax revenue. For example, property taxes provide about 25% of the revenues for the Archuleta County government, while the Town of Pagosa Springs gets less than 1% of its revenues from property taxes. The Pagosa Fire Protection District, meanwhile, is funded almost entirely by local property tax revenues.
About 59% of our local property taxes flow to the Archuleta School District; the district also gets additional funding from the state and federal governments.
But we don’t all pay at the same rate.
We have interesting ideas about fairness, in Colorado, regarding our tax rates. Everyone pays the same basic state income tax rate on taxable income: 4.63%. A single mom with two kids, living in a broken down trailer, pays 4.63% on her income. A retired millionaire living in a 3,000-square-foot luxury home on 80 acres also pays 4.63%. Some may see that system as entirely “fair”. Others may see it as patently “unfair.”
The single mom, living in Pagosa Springs, also pays the same local sales tax rate — 7.9% — as the retired millionaire. Again, we might have different ideas about whether or not that’s “fair”.
But when it comes to property tax rates, Colorado definitely stacks the deck against certain property types.
Back in 1982, the Gallagher Amendment was referred to the voters by the legislature, as drafted by legislator Dennis Gallagher, and was approved by an overwhelming margin of voters: 66%. The amendment did several things. It simplified the factors used by county assessors in defining property values. It reduced the tax rate on various property types, setting the residential rate, for example, at 21%.
We will note that rate. 21%.
Over the past 38 years — because of Gallagher’s requirement that non-residential property pay 55% of the total property taxes — business, agricultural and vacant properties have continued to pay an assessment rate of 29%… while the residential rate has dropped to 7.15%. This steady decline in the residential rate was due to a huge increase in the number of residential homes in Colorado, and a spectacular increase in home prices — while the total value of businesses, vacant land, and farm property did not increase at the same rate.
The 1982 amendment treated residential property, basically, as a sacred cow, while allowing all other property taxes to continue rising higher and higher. In 1982, residential properties were valued at roughly $35 billion — about 53% of all the property value in the state. By 2019, Colorado’s residential properties had a total market value of $874 billion — nearly 80% of the property value in the state. That means local businesses, commercial properties, and farmers are paying 55% of the property taxes when they own, collectively, just 20% of the value.
If Amendment B does not pass, the next round of Gallagher ‘adjustments’ will likely reduce the rate on residential property to around 6%… maybe even less… while other property types will continue to pay 29%.
This formula has been especially problematic in smaller rural communities with agricultural economies and few urban businesses. Agricultural land, under Gallagher, is considered to be practically worthless. While vacant residential property is valued partly on its sale price and partly on the overall real estate market, agricultural land is valued by the amount of income generated by the land.
What might work for Denver and Colorado Springs, in terms of government funding, might be a disaster for a rural community like Pagosa Springs.
It’s a complicated issue. Supporters say the Gallagher Amendment has primarily benefited wealthy homeowners while hurting small businesses and local governments in rural and low-income areas. Amendment B wouldn’t allow governments to increase residential tax rates without a vote of the people, but it would prevent further decreases that are projected to be triggered by the Gallagher Amendment in the coming years. Without this freeze, supporters of Amendment B argue, Colorado’s tax code will continue to grow more imbalanced…
But every coin has two sides.