New homes in the Railyard Neighborhood in Leadville, seen here on August 7, 2023. (Hugh Carey, The Colorado Sun)

Colorado lawmakers are returning to the state Capitol this week for an emergency special session.

They will consider a plan to cut property tax rates. If they succeed, a group of business and conservative politicians could abandon their efforts to push through an even bigger tax cut through two referendums in November.

This is a highly unusual political maneuver. Parliament rarely meets in special sessions, especially not so few months before an important election, and especially considering that a new property tax law was passed only this spring.

Why are you talking about a compromise now?

Both sides are trying to avoid a confrontation during the voting process.

On the one hand, the compromise proposal is attractive to the business-conservative alliance. They could abandon their referendum campaign, saving a lot of money and effort, and still claim victory. If the referendum does go ahead, the fight could be dirty and expensive, as the drastic tax cuts raise concerns among members of both parties and housing developers.

“We get two-thirds of what we want without having to run an expensive campaign afterwards where you don’t know exactly what the end result will be,” said Michael Fields, who runs the voting campaigns with the group Advance Colorado.

On the other hand, lawmakers would not have to worry about passing ballot bills that could have significant impacts on state and local budgets. Governor Jared Polis has said that passing a compromise proposal would reduce electoral risk. It would also allow elected officials to focus on their own elections rather than campaigning against tax cuts.

So, in theory, both sides in this fight could trade uncertainty and cost for a guaranteed outcome – although there are certainly concerns and complaints about this last-minute process and who it benefits.

But what exactly does this big deal entail?

Contrary to their apocalyptic descriptions of the two ballot bills, the legislative compromise was described as “insignificant,” “small,” and “a minor change” by members of the bipartisan property tax commission working on the issue.

Based on CPR’s review of a draft earlier this month, these are fairly reasonable descriptions. The fiscal impact would be a fraction of the proposed ballot measure. It would even be less than some of the other property tax measures passed in recent years.

In the first years, the interest rate cuts amounted to:

The changes, if approved, would take effect for the 2025 property tax year, which is due in 2026. The reductions come on top of larger tax cuts that state lawmakers approved earlier this year.

“I think we did most of the work (with the previous bill) during the session. And these small changes we’re looking at now will round out the work and make sure we don’t have to fight this out of the ballot,” said state Sen. Chris Hansen, a Democrat who is at the center of the negotiations.

The proposal would work primarily by reducing a component of the property tax formula, the so-called “assessment rate.”

If that rate goes down, property owners across the state will get a discount because they will only have to pay taxes on a smaller portion of their property’s value. (The changes would have no impact on local tax levies, a tax variable that can vary significantly from city to city.)

Overall, the changes are expected to save taxpayers about $270 million in fiscal year 2025. That money will stay in taxpayers’ bank accounts and not go to local services and schools, although the state will absorb some of the impact on schools. That’s in addition to the more than $1 billion in rebates from the cuts passed in May.

Despite the changes, homeowners’ tax bills will still increase in tax year 2025 compared to the current tax year. That’s because homeowners already receive a temporary discount on their property taxes.

While the compromise will result in lower permanent tax rates, it is not as generous to homeowners as the current temporary tax rates, which expire after this tax year.

The compromise proposal also includes some rules designed to prevent sudden increases in future property tax bills. If existing property values ​​rise too quickly, automatic caps would temporarily reduce tax rates.

The most recent tax law set a similar cap on the share of the tax burden that goes to local governments, but the new proposal expands that to include school funding and tightens the cap on local governments. The proposed new cap would kick in for local governments if values ​​rise faster than 5.25 percent per year, while the cap for schools would be 6 percent or more, depending on inflation and enrollment numbers.

The proposal also includes some nationwide brakes on tax growth.

What would happen if voters approved the ballot measures instead?

In contrast, the tax cuts proposed for the November elections would be far more drastic.

Initiative 108 would reduce property taxes on a typical home by about 15% in the coming tax year, a discount of more than $400 from the status quo, a change so large that tax payments would actually decrease compared to this year.

For commercial real estate, the impact would be even greater.

Meanwhile, a constitutional amendment called Initiative 50 would impose a statewide cap on property tax revenues, requiring tax cuts across the state if revenues increase by more than 4% each year.

According to state analysts, the tax cuts would amount to nearly $2 billion per year compared to current legislation.

Local and state officials from both parties have warned that the cuts would leave needed money missing for schools and services, especially in rural areas where property tax revenues have declined. The cuts would also strain the state budget, requiring state government to divert hundreds of millions of dollars or more from other areas to offset some of the impacts on schools and local services.

“To balance this out, the budget stabilization factor would have to be reinstated, significant cuts to higher education and Medicaid providers would be required, and local funding would be impacted,” the Office of State Planning and Budgeting warned in a presentation. The budget stabilization factor is the state’s euphemism for putting less money into schools than is required by law.

Developers also warned that Initiative 50’s statewide cap could lead to funding bottlenecks for new housing.

Supporters of the cuts argue that local districts should be able to absorb a tax cut after the recent sharp increase in property values. And they argue that the state can still find further savings in its own budget.

But for now, it seems that tax cut supporters are willing to settle for much less – assuming the plan survives the debates and negotiations during the special session next week.

The special session could bring to light numerous conflicting priorities, including whether lawmakers should also do more to help renters. On the other hand, some conservatives want stronger limits on tax growth, like Natalie Menten, a candidate for Jefferson County commissioner.

“The framework presented still has serious deficiencies, gaps and holes,” she said.

The special session is scheduled to end in three days. The MPs only have a small window of time, as September 6 is the last day on which they can withdraw an initiative before the ballot papers go to the printer.

For more stories from Colorado Public Radio, visit www.cpr.org..

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