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Property tax cuts not as deep as expected

Locations: News Published

By John Colson
Sopris Sun Staff Writer

As area governments begin to put together their budgets for 2018, officials are breathing a little easier thanks to news that changes in state property tax rates for commercial and residential property will not be as financially troublesome as once anticipated.

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State and local officials have been told that a recalculation of state property-tax rates, as governed by the Gallagher Amendment to the state constitution, will result in a 2018 tax cut, already planned due to constitutional requirements, that is likely to be roughly half as deep as once predicted.

The upshot of this news will not be precisely known for weeks, due to the fact that budget talks have only recently begun in the halls of local government and detailed property valuation information from county assessors across Colorado are not due out until late August.

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The changes to the tax rates, at the state level, are due to the combined influences of the Gallagher Amendment to the state constitution, passed by voters in 1982, and the Taxpayer Bill of Rights (TABOR) amendment passed in 1992.

Gallagher is supposed to keep residential and commercial property tax revenues roughly equivalent in terms of dollar amounts (55 percent from commercial, 45 percent from residential), with commercial rates permanently set at 29 percent and residential rates fluctuating (usually declining in response to rising commercial property values) in order to maintain the desired ratio.

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TABOR, meanwhile, established strict limits on how much tax revenue state and local governments can keep from year to year, and prohibits government from enacting tax hikes without voter approval.

Gallagher normally is recalculated periodically, whenever residential and commercial tax revenues drift out of the ratio mandated by the state, and early this year state officials were estimating a massive increase in commercial property valuations, particular in the oil and gas industry.

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As a result, state officials moved to offset the surge in commercial values, and called for a much steeper cut in residential tax rates than ultimately was needed, when for various reasons that surge in commercial property values did not materialize.

But when the first estimates were released, all indications early this year were that the tax-rate changes might drastically affect revenues in special districts that depend heavily on property taxes for their operations.

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As of January of this year, some special districts around the state were bracing for revenue losses estimated to be as high as 10 percent, according to a Denver Post report.

In April, however, as state tax managers realized they had overestimated commercial property valuations, the Gallagher-based tax adjustment was reexamined. In the end, the residential property tax rate dropped from 7.96 percent to 7.2 percent (instead of the 6.5-percent rate initially predicted).

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According to officials with three special districts in Roaring Fork Valley area — the Garfield County Library District, Colorado Mountain College and the Carbondale & Rural Fire Protection District — fears of significant revenue losses due to the changes prompted by the Gallagher amendment have been greatly alleviated, at least for the present.

CMC sighs in relief

According to Matt Gianneschi, Chief Operating Officer for Colorado Mountain College, the six-county district’s board of directors last week approved a 2017-2018 budget of $65.5 million that reflects a revenue shortfall of only $79,000 due to the Gallagher Amendment adjustments, instead of the $4-million revenue hit the district had expected earlier in the year.

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According to budgetary data sent by CMC, the Gallagher-related rate changes cut CMC’s projected income by 9.5 percent.

“We felt like we dodged a bullet in some ways,” said Gianneschi in a telephone interview, explaining that commercial growth on the heavily populated Front Range region of Colorado was the primary cause for the adjustment.

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The problem for many Western Slope counties, he said, is that residential property values generally largely outweigh commercial values due to a disproportionate amount of residential development in the region.

So commercial tax revenues often are a smaller portion of district income than the residential taxes, and in fact officials in several districts in this area had at one time been expecting budget increases due to increased residential assessed valuations in recent years.

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But, when residential rates were chopped statewide to accommodate Front Range commercial growth, Western Slope districts can see their overall revenues plummet.

But while the revenue drop was not as severe as expected this time, Gianneschi warned that already the state is predicting another Gallagher adjustment in two years, perhaps bringing residential tax rates as low as 6.2 percent of residential assessed valuations.

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That rate decrease in 2019 will be much more significant than this year’s drop from 7.9 percent to 7.2 percent, he said, with a much larger revenue hit to be expected by smaller special districts.

According to the CMC budget data, dropping the residential tax rate to 6.2 percent would mean a cut of  nearly $6 million, or approximately 10 percent of the college district’s entire current income, which would equate roughly to half of the district’s tuition income, or about the same as the amount needed to fund the Vail Valley campus in Edwards or the Summit and Breckenridge campuses combined.

“This is something we (on the Western Slope) do not control,” Gianneschi said, adding that the western part of the state is “particularly vulnerable to things like the Gallagher Amendment.”

Carbondale Fire

The Carbondale & Rural Fire Protection District has been worried about the Gallagher-related revenue issue, conceded Chief Ron Leach, but at this point the concern has lessened considerably with the news that the rate change will be less onerous than originally expected.

In fact, Leach said, residential property values have risen by about 12.8 percent in the fire district (which covers parts of Garfield, Gunnison and Pitkin counties), recovering from the slump brought by the recent recession. The increased property values will partially offset the effect of the Gallagher-prompted tax-rate change, although the final numbers have yet to be determined, Leach said.

Of more immediate concern to the district’s finances, Leach said, is the expiration this year of a two-year tax hike approved by voters in 2015 (see related story).

GarCo Libraries

According to library district director Jesse Henning, the Gallagher amendment tax-rate change would result in a loss of $46,000 to the district’s expected budget for next year, which is still being worked out.

The library district’s budget for 2017, according to a chart forwarded by Henning to the Sopris Sun, comes to about $4.95 million, compared to approximately $5.9 million in 2015 and 2016.

Part of that budget shortfall, Henning pointed out, was due to property-tax repayments to the oil and gas industry, due to prior years’ overpayment of taxes by the industry, and about $100,000 in decreases in property taxes paid by the industry for 2016 and 2017.