When home values rise, the state constitution requires cuts to residential tax rates that severely impact less-developed areas.
A new report shows that, once again, a collision of two tax mandates in the Colorado state constitution will further reduce the funding available to rural districts for schools, fire departments, and other services.
Brian Eason of the The Denver Post quotes one lawmaker who, after hearing the latest forecast commented, “Thank you for this very disturbing analysis.”
The first issue at hand is the 1982 Gallagher Amendment, which mandates that residential property taxes can comprise only 45 percent of statewide property tax revenue, with commercial and industrial property making up the remaining 45 percent. (In 1982, Colorado homeowners paid significantly more in property taxes than did businesses.)
The second is the 1992 Taxpayer Bill of Rights, which requires voter approval of any increase in property taxes.
As a result of Colorado’s rapid development over the last decades, residential property values soared, and in order to maintain the ratio determined by Gallagher, tax rates on those properties have fallen. (Meanwhile, the tax rate on commercial properties has remained the same.)
The most significant problem, at the moment, is that “The Gallagher cuts have disparate effects in different parts of the state.”
Because residential property values in areas like the Front Range have soared over the last decades, those areas are still seeing an increase in revenue, but in rural areas, where property values are rising at much slower rates, revenues are way down. (The Colorado Fiscal Institute produced a very helpful video that makes sense of the whole thing.)
The already pronounced “urban-rural divide” will only be exacerbated by the next round of statewide property tax cuts in 2019.
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