Constas: Colorado’s property tax crisis, the partisan divide driving the state’s housing affordability crisis

By / / Rocky Mountain Voice, Approved, Commentary, State

By James Constas | Commentary, Rocky Mountain Voice

Homeowners across Colorado with mortgages are opening their annual escrow analyses and facing a shocking reality. I am one of them. 

To my dismay, I discovered my mortgage will increase by a staggering $1,000 per month. This 54% surge in my monthly payment was driven by soaring property taxes and an even more exorbitant rise in homeowner’s insurance premiums. Astonishingly, I now pay more towards taxes and insurance than towards the principal and interest on the property!

Outraged, I shared my escrow analysis on X (formerly known as Twitter), where it garnered 887 likes, 263 retweets, and over 24,000 views in just 24 hours, clearly striking a chord. The 72 comments came from fellow homeowners sharing their fiscal misery and a few misguided apologists underscores the budget-busting pain being experienced by Colorado homeowners, which will be passed on to renters eventually.

The crisis didn’t happen overnight, the factors driving the housing affordability crisis are complex and have accumulated to a tipping point that now threatens the American Dream of personal freedom and independence for all Coloradans. This article covers the combined failures of political will, partisanship, and miscalculations that have brought us to the edge. 

Property Tax Shell Game

The three factors driving property taxes are home values, the residential assessment rate, and local mill levies (the rate at which your county taxes the assessed value).  As reported by the Commonsense Institute, when county assessors released their property valuations for the 2023 and 2024 tax years, the median home value in the Denver metro had increased 40% between the 2020 valuation period and the 2022 valuation period—the basis for this year’s tax bills. The increase has been most extreme in Douglas County, where I live, where median home values rose by more than 48%.

Lawmakers at the Capitol rightly sensed that a statewide 40% increase in property taxes would precipitate political retribution at the ballot box to the politically-driven economic crisis, so they hatched a plan – Proposition HH. Governor Jared Polis and his party put Proposition HH on the 2023 ballot, which under greater scrutiny turned out to be something of a Faustian bargain. HH would have provided some small near-term property tax relief in exchange for lowering TABOR income tax refunds in the future. Instead of real relief, HH turned out to be a shell game and little more than a fiscal carnival trick. 

Governor Polis tried to sell the measure by bringing in his former mentor, noted Republican economist Arthur Laffer, inventor of the Laffer Curve studied by every undergraduate economics student, to provide a fig leaf of legitimacy to the scheme. Polis explained Proposition HH was the best Colorado property tax payers could expect to get when he told 9News in a televised debate, “There’s absolutely no way I would see you guys (the legislature) doing a $13 billion tax cut package.” Many observers yelled at their television screens asking – Why not? 

Voters saw through the ruse and soundly defeated Proposition HH 59% to 41% at the polls last November.

A Not-So-Special Session

With the defeat of Proposition HH, voters called the Governor’s bluff, forcing his hand. Polis called the legislature into a special session in November 2023 that delivered some minor tax relief with six bills that cut property taxes by $434 million and increased taxpayer refunds for most Coloradans by redistributing money that otherwise would’ve gone to higher earners. 

The Colorado Sun reported that thanks to the special session, “The average Colorado homeowner will save a little over $200 on their property tax bill due in April.” That apparent fiscal “generosity” amounts to $200 total, not per month, and property taxes were still going to rise by a record level while inflation burned our discretionary income. 

The special session was a stunning failure, leaving the property tax time bomb ticking. 

Gallagher Amendment

This current property tax kerfuffle isn’t Colorado’s first bout with property tax reform. The Gallagher Amendment — named after the former state lawmaker, Dennis Gallagher, who co-wrote it — was approved by voters in 1982, a time when homeowners nationwide were revolting against runaway property taxes. 

The Gallagher Amendment did two things. First, it shifted the property tax burden to businesses. Under Gallagher, homeowners can’t make up more than 45% of the overall tax base, with businesses picking up the slack with the remaining 55%. Second, Gallagher limited the amount of increase that residential taxes could increase, limiting short-term volatility and helping even out unexpected, temporary surges in property values. 

Although Gallagher protected homeowners by design, Colorado businesses took it on the chin. After more than twenty years of Gallagher, some business owners, many small enterprises run by families, complained about massive property tax hikes amid the pandemic as they struggled to survive. Under Gallagher, tax cuts can be made by the legislature or local governments, but any increase has to be approved by voters, per the Taxpayers Bill of Rights (TABOR). Colorado voters have a long history of rejecting tax hikes at the ballot, so lawmakers had to approve a ballot measure to eliminate Gallagher and allow residential property taxes to rise, easing the burden on businesses.

Amid this political landscape, Governor Jared Polis and some Republicans sent Amendment B to the voters in 2020, which gutted Gallagher’s safeguards against rapid property tax hikes for homeowners to give some relief to businesses. The measure passed. To help sell the initiative, Democrats promised to replace Gallagher. 

Only they never did, setting the stage for the massive property tax hike we just got hit with.

Partisan Approaches to Bi-Partisan Issues

The fact is that Proposition HH was a Democrat-led initiative. Democrats hold majorities in both houses of the Colorado Assembly, and they alone control the agenda. It says a lot about their priorities that they didn’t propose a clean reduction in the assessment rate or put a cap on the rate of property tax increases.

The affordability crisis, however, shouldn’t be a partisan issue because every property owner regardless of political affiliation, including the 49% of Coloradans who choose to be Unaffiliated, pay property taxes either directly as a property owner or indirectly as a renter. Given the current Democrat dominance of state government and their inability to accept commonsense ideas from the right, however, the debate has taken on very partisan tones. 

Inflationary Insurance Boost

But wait, there’s more! Sure, my property taxes increased 33%, but my homeowner’s insurance increased by a whopping 117%. Of the $1,000 monthly increase in my house payment, 65% of the boost came from higher insurance premiums. Apparently, I’m one of the “lucky” ones, because my agent told me she saw worse this year. 

The record setting inflation that began in 2020 has impacted the price of everything, including replacement costs for common home repairs like roofs from hail damage, water damage from frozen water pipes bursting, and other common residential ailments in Colorado. This has helped drive record increases in all types of property coverage.

The primary driver of that inflation has been a massive increase in government spending. Any Economics undergraduate knows (I have a minor in Economics) that you can’t throw trillions of dollars into the economy in a very short time without it having a massive inflationary effect, but that’s exactly what happened. 

The American Rescue Plan and the ineptly named Inflation Reduction Act (IRA) of 2022 authorized $891 billion in new federal spending for climate spending and tax reform. The consulting firm McKinsey reported that the IRA was the third of three major federal spending bills passed since November 2021, including the Bipartisan Infrastructure Bill and the CHIPS and Science Act, which are expected to inject a combined $2 trillion to the US economy. Given its inevitable inflationary effects, it was reported that even Joe Biden regrets calling the IRA, one of his signature legislative achievements, the Inflation “Reduction” Act. 

That’s two Trillion dollars. Most people don’t know how much a trillion really is. It is such a large number that it becomes an abstract concept, almost meaningless. To put it in perspective, if $1 million was deposited into your bank account EVERY DAY from the birth of Christ until the time of this writing, you still wouldn’t be close to having even one trillion dollars. Throwing $2 trillion into the economy in just a few short years caused far too many dollars to chase the same amount of goods and services, resulting in record setting inflation that only a Fed-induced recession appears to be able to stem. 

But – Aren’t You Enjoying Your Higher Net Worth? 

One commenter to my X Post sarcastically asked if I was enjoying the higher net worth from my residence’s inflated assessed value. Yes, higher home values have increased the net worth of Colorado property owners, but only on paper. The Tax Man requires payment in full and in cash today, but nobody is cutting me a check for the increased value in my house to make up the difference. I only get that if I sell the house to realize the capital appreciation, and that appreciation could decline in the future. Even if I wanted to sell, who would amid high interest rates, designed to tamp down inflation?

The commenter suggested “HELOC,” or a Home Equity Line of Credit, to extract the value of my newfound “wealth.” His solution was to take on more debt, however, increasing my indebtedness secured by my home only serves to decrease my overall net worth, mitigating the rise in home value. Worse, increasing my monthly payments even above the $1,000 hike further escalates my financial risk at a time when housing values might decline. No thank you. 

Colorado’s Property Taxes are Among the Lowest, So What’s the Big Deal?

Other apologists noted that Colorado’s property taxes are among the lowest in the U.S., so I should just get over it. As it turns out, they aren’t wrong and even Arthur Laffer pointed this out in his ineffectual appeal to voters during a televised debate to support Governor Jared Polis’ signature solution to the crisis – Proposition HH. 

The Colorado Sun ran the numbers and compared the property taxes on a $550,000 home in Denver, the median value, to other regions. The median tax bill for that home in Denver would be $2,860, which compares to $10,867 in Los Angeles, $4,030 in Dallas and $3,064 in Salt Lake City, the next lowest region. Keep in mind, Texas doesn’t have a state income tax.

As Colorado state Senator Chris Hansen, a Democrat from Denver, who chairs the study committee on how to provide property tax relief, which was authorized in the 2023 special session, explained, “I think you get the rapid rate of change and it makes it look like it’s — in quotes — ‘out of control.’” 

You don’t need to be an Economics professor to figure out that a 40%+ increase in property taxes forces families to cut spending in other areas, like dining out, eating less protein, purchasing fewer back-to-school clothes, deferring the replacement of a high-mileage vehicle, vacationing, etc. Unfortunately, given the lack of Republican representation in the state Assembly, it is unlikely that the commission will find a solution that provides property tax relief to all Coloradans. 

Some Signs of Hope – Send It To The People 

With only three days to spare in the 2024 legislative session, some Republicans and even some Democrats came together to pass Senate Bill 233, which holds both residential and commercial property taxes steady this year and backfills local education out of state reserves set aside for services in the event of an economic recession. SB-233 will save the average homeowner a few hundred dollars a year in taxes, which is better than nothing, but it does not protect them from future tax volatility. 

There is some hope at the ballot. Taxpayers seeking long-term reform may have the opportunity to vote on two ballot initiatives this year sponsored by Advance Colorado. Initiative 50 would cap increases in statewide property taxes by 4% annually, unless voters agreed to let the state keep more, and Initiative 108 would reduce property tax rates to near-2022 levels and require state government to reimburse local school districts for any loss of funds from current levels. 

Initiatives 50 and 108 apparently caught the attention of both lawmakers and Governor Polis. On August 15th, the Governor officially called for yet another special legislative session to tackle property taxes. But compassion for Colorado families isn’t the motivating factor behind the new special session, it’s the threat of a taxpayer revolt on the ballot.  

Colorado Politics recently reported that Michael Fields, President of Advance Colorado, has offered to retract the ballot measures in exchange for the special session to address property tax reform. Given the highly partisan political environment and the Democrat’s broken promise to replace the Gallagher Amendment, Governor Polis’ offer to negotiate lower taxes could just be another ploy to delay real change. I encourage Mr. Fields to keep the initiatives on the ballot until the special session delivers a signed bill providing meaningful tax relief to all Coloradans. 

Property Taxes Are a Bipartisan Issue

It is unfortunate that property taxes and respect for people’s hard-earned money is not a bipartisan issue, relegated to deceptions like Proposition HH, last minute half-measures like SB-233, and the threat of ballot Initiatives 50 and 108. 

The only way for Colorado families to get substantive, lasting property tax reform and end inflationary spending policies is to change the composition of state government and vote in more pro-taxpayer lawmakers to the Colorado Assembly and the Governor’s Mansion. Until then, get your checkbooks out and pay up.  

Editor’s note: Opinions expressed in commentary pieces are those of the author and do not necessarily reflect the opinions of the management of the Rocky Mountain Voice, but even so we support the constitutional right of the author to express those opinions.