A new version of the tax cut bill that will be the focus of next week’s special session of the House would further limit the growth of property tax revenues – a provision that has caused unrest and is touted by supporters as a compromise solution that could avoid a costly ballot fight.

At the request of Gov. Jared Polis, Colorado lawmakers will reconvene at 10 a.m. Monday to discuss a brokered deal to prevent two property tax cut initiatives that could save billions in state and local funds from coming to a vote. Instead, the Democratic governor is asking lawmakers to pass a bipartisan bill that would increase a recently passed $1.3 billion property tax cut to about $1.6 billion and, if enacted, would require supporters of Initiatives 50 and 108 to withdraw their efforts from the November ballot and refrain from introducing similar measures in the future.

The bill would further extend the tax relief passed in Senate Bill 233 by reducing annual growth caps on local government property tax revenues to 5.25% and establishing a 6% annual growth cap on the amount of such tax revenues that can be raised for schools. It would also extend tax relief for non-residential properties to state-assessed industrial properties as well as vacant and agricultural land and further reduce assessment rates for residential properties to 6.25% for local government funding and 7.05% for school funding.

How the bill would further limit property tax growth

However, Aurora Public Schools Chief Financial Officer Brett Johnson told property tax commission members during a meeting Friday that changing the language used to calculate annual caps on property tax revenue growth could have a big impact.

A proposal presented to the influential commission on Aug. 12 would have set a base rate from which each school district’s property tax revenues could increase by 6% annually — and would have allowed even greater increases after slow years, as long as the cumulative increases did not exceed the 6% annual base increase to which they could rise. But the final wording of the bill allows those revenues to grow no more than 6% annually — meaning that if they rose by just 1% in one year, they could only grow by 7% over a two-year period, rather than growing by a larger amount in the second year to reach a cap of 12% every two years.

Colorado needs more homes like these in a Westminster neighborhood, state leaders say.

The same lock-in effect could also occur on local government revenues if they fail to meet the 5.25 percent cap in a year, Johnson noted. And since SB 233 included a 5.5 percent annual cap on local government property tax revenue growth and no cap on school district growth, the new provisions begin to make the proposed compromise bill much more restrictive than what lawmakers passed in May, he argued.

If the proposed caps had been in place since 2012, school districts nationwide would have received 30 percent less property tax revenue during that period, Johnson said. And provisions that create a lock-in effect after years of economic weakness could have reduced revenue by another 25 percent, he added.

“These are significant changes that I believe will help lower the cap,” Johnson said.

One of many bills

Those concerns alone won’t kill the bill, whose main sponsors are Democratic House Speaker Julie McCluskie of Dillon and Republican House Minority Leader Rose Pugliese of Colorado Springs. But they add to a growing list of concerns that suggest the deal brokered by Polis may not be a sure-fire success, especially since members of his own party are voicing some of the strongest complaints.

Senator Chris Hansen, a Denver Democrat who chairs the tax commission and will co-sponsor the bill in the Senate, noted that 10 to 15 more bills are likely to be introduced during the special session, which is expected to last longer than the usual three days.

State Rep. Lisa Frizell (left) and Sen. Chris Hansen (right) listen to testimony during the Property Tax Commission meeting on Friday.

Some, such as efforts to distribute more of the residential property tax relief to lower-value homes and a proposal from Hansen that would require future property tax changes to be made at the local, rather than state, level, lend critiques to the main bill. And it’s unknown how many changes lawmakers can make to the negotiated bill or pass other legislation before the initiative’s backers withdraw their offer and try their luck on the ballot.

Special district and business leaders ask questions

Meanwhile, other groups of voters are expressing increasing reluctance to support the new property tax cut effort, believing the funding cuts in SB 233 are the most they can stomach. Ann Terry, executive director of the Special District Association, said Friday that the proposal would reduce assessed value in the fire, library and other districts she represents by $606 million in 2025 and $743 million next year, leading to staff cuts and a reduction in hours of county-funded services.

Loren Furman, president and CEO of the Colorado Chamber of Commerce, which helped draft SB 233, also questioned what business interests would get out of this new proposal after SB 233 cut commercial tax rates to 25% for the next two years. The beneficiaries of the new law are mostly owners of vacant land and state-assessed land — that is, land owned by public utilities — and even their tax breaks will be less significant than the reductions in commercial or agricultural land assessments through 2027.

Loren Furman, president and CEO of the Colorado Chamber of Commerce, asks questions during the Property Tax Commission meeting on Friday.

However, supporters of the bill pointed out that the new bill offers a deal that could be significantly better for property owners and local governments overall than the passage of Initiatives 50 and 108.

Initiative 50 would cap annual statewide increases in property tax revenues at 4% and require a statewide vote if governments want to keep higher revenues. Initiative 108 would cut the residential tax rate from 7.15% to 5.7% and the commercial and agricultural tax rate from 29% to 24% in 2025 and require the state to compensate local governments that experience revenue declines as a result of this measure.

A plea to remember the residents’ struggles over property taxes

The initiators of the initiatives, Advance Colorado and Colorado Concern, have repeatedly pointed out that these tax cuts are necessary after the tax burden on property owners across the state shot up by about 30 percent last year due to rising property values.

But state budget chiefs have said an offset provision in Initiative 108 could require the reallocation of $2 billion from the general fund to local governments to replace revenue lost to the measure — a sizable sum that the initiative’s backers dispute. And developers have warned that Initiative 50 could significantly slow housing construction if caps on property tax revenue limit the funds special districts can raise to pay back bond debt, especially since the formula for setting the caps does not provide explicit exceptions for new construction.

The bill calls for increased property tax revenue from new construction or rezoning of land for new development, as well as revenue specifically earmarked for bond repayment. And Elbert County Commissioner Chris Richardson reminded fellow tax commission members that Advance Colorado and Colorado Concern proposed their tax cuts because of public outcry that citizens are being hurt by rising property tax bills – the kind of outcry that would make passage of tax cut initiatives more likely on the ballot.

“I know there’s a lot of frustration among those in government. Yes, it’s hard to do more with less. But it’s also hard for taxpayers to do more with less,” Richardson said. “We all made a commitment to this on behalf of the people. We can’t keep looking back at people and asking them to give more.”