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Colorado’s historic run-up in property values led to a high-stakes showdown between political parties with just days to go before the end of the 2022 legislative session, resulting in a compromise that will reduce property taxes by $700M over the next two years, if it’s signed as expected by Gov. Jared Polis.
Senate Bill 238, co-sponsored by a bipartisan pair of state senators and passed in the waning days of the session, heads to the governor’s desk this week. The bill reduces the assessment rate on commercial property from 29.2% to 27.9% in 2023 and 2024 — and decreases their taxable value by $30K. Similarly, the bill shaves $10K off the taxable value of homes and drops their assessment rate from 6.95% to 6.77% in the next two years.
Property taxes, and the disparate rates at which different types of property owners pay them in Colorado, have been a subject of heated discussions for decades following the 1982 passage of the Gallagher Amendment, but rapidly increasing property values in the last 10 years made the subject even more fraught than usual.
In short, Gallagher capped the total amount of state property tax that could be collected from a residential property at 45%, leaving 55% to be paid by commercial property owners, and fixed the assessment rate for commercial property at 29%. That means that the residential assessment rate is adjusted to make up for changes in property values to maintain its 45% contribution, declining as property values rise.
This resulted in a declining tax base for some parts of Colorado, especially rural areas, where large commercial properties are fewer, which in turn meant less money for police, fire and public schools, among other services funded by property taxes.
In urban areas, on the other hand, commercial property owners felt the squeeze in recent years, watching their tax bills go up as property values increased by as much as 25% to 30% from one two-year assessment period to the next.
Voters repealed Gallagher in 2020. The ballot measure locked in the assessment rates as they stood at the time and left it up to the legislature to determine how to move forward from there, setting up a volley of competing property tax measures during the 2022 legislative session.
With the end of the session coming up on Wednesday, tensions ran high at the Capitol as policymakers and lobbyists sought solutions.
But, as SB 238 heads to Polis’ desk, it seems a satisfactory compromise was reached, allowing both sides to avoid the most drastic parts of each others’ plans. However, the plan is only effective for the next two years, precipitating the need for a new solution, which could come as early as next year’s legislative session, which kicks off in January 2023.
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