New property tax law could result in fewer tax breaks

By Jen Schumann | Contributor, Rocky Mountain Voice

House Bill 24B-1001 was the solution in a whirlwind, not-quite four-day special session of the Colorado Legislature, aimed at addressing escalating property taxes.

Now local governments are discovering how it may take away one of their tools in providing relief: tax credits. This could mean property owners and businesses will end up paying more in taxes.

Following the special session he called in late August, Gov. Polis signed this bill into law on Sept. 4. It will limit annual property tax increases. The goal is halting the surge in property taxes caused by factors including increased home prices, inflation, the Gallagher Amendment repeal, TABOR and politically-driven initiatives.

When it takes effect in 2025, its intention is to put a leash on runaway taxes while making sure local governments can still fund essential services like schools and fire departments.

Yet, the downside of the bill is bubbling to the surface. Local governments will lose a tool that’s empowered them to act in providing relief to residents. That tool: tax credits.

According to Ephram Glass, a board member of the Roxborough Village Metro District, the way the new law works makes it risky for local governments to use tax credits. Here’s why: if a special district, city or county implements a tax credit, the new law’s complicated property tax calculations lowers their revenue caps for, potentially, all future years. This effect on future years’ revenue turns what used to be a temporary tax credit into a permanent one, making it more difficult for local governments to cover future expenses.

“While my views are personal and not representative of any board or entity, I believe it’s important to express how HB24B-1001 impacts local control. The new law makes it too risky to offer tax credits because it could cut our future revenue,” Glass explained. “Unfortunately for many areas, this law will effectively result in higher taxes instead of lower taxes.”

Ann Terry, CEO of the Special District Association of Colorado, added, “The new law is causing confusion on a number of levels, such as the details of the application of the growth limit, the determination of the base year, and the loss of elections that taxpayers already allowed the district to DeBruce their revenues.”

In 2023, Douglas County decided to give tax refunds instead of credits.

“Issuing refunds helped us give money back without hurting our future budget,” said Douglas County Commissioner George Teal. “But we’ve lost a valuable tool in tax credits.”

While refunds are a temporary solution, they’re more expensive to implement. Glass mentioned that refunds come with administrative costs, including time and labor to calculate and properly issue refunds, printing costs and postage, which means people get less money back.

“For smaller local governments with a small tax base, when they issue a refund, the administrative costs might cost $25 per property owner. If the refund is only $50, people are left with half the amount,” Glass said. “With a tax credit, people get the full benefit without those extra costs.”

The Colorado Fiscal Institute pointed out that rural areas like Moffat and Dolores counties could be more affected by the new law. These areas haven’t seen the same growth in property values as bigger cities, which means the revenue they collect might decrease significantly under HB24B-1001. Without the same growth to cushion the impact, these counties might struggle to adjust to the changes in property tax rules.

There’s also concern about how the new law will affect schools. The law puts a cap on how much school districts can grow their revenue each year. This could mean schools won’t have enough money to keep up with the number of new students or rising costs.

HB24B-1001 was meant to help people deal with high property taxes, but for many local governments, it’s created new problems. Without tax credits, people may end up paying more in taxes. On top of that, critical services like schools, fire departments and public safety could struggle to get the money they need.

Local leaders are now hoping lawmakers will address these issues so that areas can keep helping their residents without worrying about losing too much revenue.