Colorado lawmakers gather for special session to respond to spiking property taxes, rising cost of living

Colorado lawmakers are set to gavel in Friday morning for a pre-Thanksgiving feast of tax policy as they try to tamp down the worst of spiking property taxes.

Much more will be on the agenda during the special session, which begins at 9 a.m. and is expected to last at least three days. The Democratic-majority General Assembly has outlined proposals to reduce elements of the property tax formula to provide relief, to flatten tax refunds due under the Taxpayer’s Bill of Rights so that all taxpayers receive an equal amount, to increase tax credits for low-income households and to provide more money for the state’s emergency rental assistance program.

This story will be updated throughout the day.

Property tax bills due early next year will reflect increases driven by a median 40% rise in property values across the state. Gov. Jared Polis called the special session late last week in response to voters’ overwhelming rejection of Proposition HH in the Nov. 7 election, charging lawmakers with approving tax reforms and programs that will apply only for a year.

Among the highlights of plans outlined by legislative leaders:

• Proposed cuts in the formula used to determine residential property taxes, with the deduction from a property’s value for tax purposes rising from $15,000 to $50,o00. The assessment rate, which is applied to determine the assessed value, or what’s taxable, would be reduced from 6.765% to 6.7%.
• Increasing the maximum value of the homestead exemption granted to seniors, disabled veterans and surviving spouses of disabled veterans.
• Sending out equal tax refunds to all Colorado taxpayers, a temporary change — also implemented last year — from the normal income-based system in which higher-income Coloradans receive more money back. The amount each taxpayer will receive is unclear, but earlier the state estimate under the now-defunct Prop. HH was $898.
• Doubling the state’s 25% matching credit provided to recipients of the federal Earned Income Tax Credit. The EITC sends money directly to low-income taxpayers, with more going to those with dependents.
• Adding $30 million to the state’s emergency rental assistance program to help renters who are at risk of eviction — with the caveat that it must be spent by June 30, when the state’s fiscal year ends.

Why does much of this sound familiar?

The property tax relief proposed by Democratic lawmakers is largely copied from Proposition HH, including the figures for the changes to the property value deduction and the assessment rate.

Unlike Prop. HH, the legislative proposal does not address commercial property rates. Prop HH would have lowered their assessment rates by .05 percentage points this year.

What does this mean for homeowners?

The aid likely won’t scale back the entire property tax increase facing many homeowners, and the effect will vary somewhat because of the formula changes. Each bill also will depend on mill levies that local governments control — the tax rates — and how much money a property is worth.

Lopping off a chunk of property value for tax purposes will have a bigger effect for lower-value properties.

According to an analysis by the liberal Colorado Fiscal Institute ahead of the fall election, without any changes, the owners of a $300,000 home whose value had increased to $405,000 from 2022 to 2023 would see their property taxes rise by about $415 next year. With the proposed formula changes under HH — identical to what’s proposed now — the bill would increase by about $100 instead.

How would this affect local governments?

The big changes in the new legislative package compared to Proposition HH are that its provisions would kick in only for a year, and there is less money to hand out as compensation to local governments that rely on property taxes to fund local services.

Any cuts to property tax collections will affect the budgets of local governments — though critics of the Democrats’ approach argue that they should make do with what in many cases will simply be a smaller increase in revenue.

The Democrats’ proposal would funnel state money to school districts and fire districts to make sure they get all the money that would be due to them if property tax rates were left unchanged. Lower-growth areas, which haven’t seen surging property values, also would receive state money to make up for the revenue loss caused by rate cuts.

Counties that experienced growth in property values of 13.5% or more — and thus will see the greatest potential boost in their property tax base — would be left out of the “backfill.”

How do lawmakers propose to pay for this?

Legislative leaders are looking to lean on $200 million set aside already in the general fund for property tax relief.

Gov. Jared Polis said Thursday morning that he’d also be willing to draw down the state’s 15% reserve by up to 1 percentage point, which amounts to about $150 million.

It’s unclear if that will happen. Legislative Democrats have lambasted Republicans’ proposal to tap into reserves to pay for property tax relief as irresponsible, but they didn’t answer when asked if it was completely off the table.

Lawmakers can also tap into the state’s budget surplus, or tax money collected over the cap set by the Taxpayer’s Bill of Rights. In a call with reporters Thursday afternoon, Democratic leaders said they were looking at the surplus for some direct tax credits primarily, such as the EITC credit match increase.

Those potentially would be in the $150 million range, which they predicted would have a minimal impact on total direct TABOR refunds that are estimated to top $3.2 billion. The roughly nearly $900-per-taxpayer refund estimate would hold if the surplus is left relatively untouched.

What’s the Republican alternative?

Republicans have launched their own plan to cut property taxes rates even more deeper, but with less money provided local governments to compensate for the effect on their revenue — and without touching the TABOR surplus.

The GOP lawmakers have aimed instead to use money from the state’s reserves. But the party is at a historic low point of representation in the Capitol, limiting its members’ influence.

Stay up-to-date with Colorado Politics by signing up for our weekly newsletter, The Spot.