Opinion: Proposition HH would only make our property tax mess worse

I’ve spent weeks trying to decipher the effects of the Proposition HH ballot measure. I’ve read the state Blue Book, much of the legislation and multiple articles (CPR.org has one of the best). Here are my observations to date, though the principles underlying its structure elude me.

The stimulus for Prop HH was the rapid increase in property taxes in high-demand areas over the last few years. This bump was mostly due to the shift to remote work stimulated by the pandemic, resulting in people moving to desirable locations, like Colorado’s Front Range and resort areas, thus pushing real estate prices up rapidly.

For context, per WalletHub.com, 2019 (pre-pandemic) Colorado was ranked the 11th best state for low-income people in tax burden as a percentage of income, 10th best for middle-income people and 14th best for high-income. Apparently, Colorado was not overtaxing people. In 2023, for overall tax burden, Colorado ranked 24th best state of 50. So, our governments’ taxes are now in the middle of the pack, but not excessive.

In addition to lowering property taxes somewhat, Prop HH also attempts to maintain funding for most governments and districts to compensate for its lowered property tax rates by raising the TABOR/Referendum C revenue limit. This allows the state to keep revenues that it would otherwise have to refund. So refunds will be smaller and may not happen at all.

HH specifies that up to 20% of retained tax revenues will be used to reimburse local governments and non-school districts for lost property taxes. A tiny $20 million per year (0.05% of the state budget) is for “rental assistance.” The rest reimburses school districts for lost tax revenues and pays for educational programs.

Basically, HH lowers property taxes by lowering the assessment rates (the percentage of a property’s real value that is subject to property taxes). So, these savings are proportional to properties’ values. But it also provides lump sum property value reductions, which benefits lower-value properties more. And HH’s refunds are based on rules that apparently change multiple times, none of which really made any sense to me.

Competing analyses focus on very different parts of HH’s effects. The Colorado Fiscal Institute (liberal) says property tax relief would be $1.0-$1.6 billion every year (per the state’s analysis) through 2032. The Common Sense Institute (conservative) states that, if the Legislature extends HH through 2040 (HH allows the Legislature to do a 20-year extension without a popular vote), then overall tax revenue will increase by $42.38 billion and property taxes will decrease by $21.49 billion, yielding a net tax increase of $20.89 billion.

This huge increase happens mostly because HH raises the TABOR/Referendum C tax revenue limit by 1% per year above that current limit, which is set at inflation (around 2% per year if the Fed succeeds) plus population growth (likely around 0.5%, given the last 2 years of 0.55% per year.) So HH’s 1% per year increase is on top of this already allowed 2.5% per year. That calculates out as a 40% increase, compounded! Not OK.

The Big Question: If the real issue is the recent property value bump and the resulting increase in taxes, why didn’t the Legislature simply focus on that, since it’s easily solved without a ballot measure by just reducing taxes?

Here’s how it could work: Lower assessment rates substantially to return property tax revenues to, say, 2018 or 2019 pre-pandemic levels to remove the pandemic bump. Then slightly raise those lowered rates to catch up to general inflation, so revenues are still adequate to maintain current service levels. Allow adjustments to meet new obligations, like bonds issued after 2018.

Do this county-by-county to account for the huge locational differences in property value bumps. Reinstate the original TABOR rule limiting revenue increases to population plus general inflation, but don’t allow HH’s extra 1% per year increase. Refund future excess revenues in proportion to taxes paid, equitably just lowering taxpayers’ net payments. Allow tax rate increases to be voted on, but do not allow votes to eliminate these TABOR revenue limits; they help prevent future bumps.

These TABOR-type population-plus-inflation limits will keep revenues roughly matching operating costs, so they will maintain levels of service as the population increases, assuming no dis-economies of scale. But allow governments and districts to impose development impact fees necessary to cover the extra cost of capital improvements needed to maintain levels of service because of growth, like new schools, etc.

This single-purpose legislation would be easy to write. Property taxes would be significantly reduced relative to now, but service levels would be appropriately maintained.

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