Has Gallagher Amendment outlived its usefulness?
The idea behind Colorado’s Gallagher Amendment is simple. In practice, the measure is strangling special districts in rural areas. Voters this fall will be asked to repeal that amendment.
The amendment, passed in 1982, mandates that residential property makes up no more than 45% of all property tax collections. Commercial property must pay the rest.
But maintaining that ratio requires residential property tax rates to continually decline as the number of homes grows in Colorado. When Gallagher was passed, commercial property was taxed at 29% of its assessed value. Residential property was taxed at 21% of assessed value. The commercial rate is locked in, but residential rates have to fall to maintain the 45-55 ratio.
Today, residential property is taxed at 7.15%. The next statewide reassessment is expected to require a drop to 5.88%.
In densely-populated areas, the growth of commercial property can make up for the loss in residential tax revenue. The story is much different in rural areas.
Chris Stiffler, an economist with the Colorado Fiscal Institute, noted that the value of his Denver-area home increased 30% in the state’s most recent biannaual assessment of property values. In that case, a 10% cut in the tax rate won’t have much of an impact.
But the Gallagher amendment applies to the entire state. If values in a rural area increase only 2% in a two-year period, a 10% cut in the tax rate is potentially devastating.
Commercial property hit hard
Conversely, there’s a disproportionate hit to owners of commercial property.
The next Gallagher-mandated drop in residential property tax rates will push the rate from 7.15% to 5.88%.
“If you’re a fire district that’s all homes, that’s an 18% decrease,” Stiffler said.
Dylan Roberts, who represents Eagle and Routt counties in the Colorado House of Representatives, said the impact to rural areas was a driving force in the Colorado Legislature putting a Gallagher repeal on the November ballot.
While special districts in the area have often gone to voters asking for either mill levy increases or permission to leave tax rates where they are, Roberts said that isn’t sustainable. Roberts said he’s heard often from special district directors and board members saying “Gallagher is crushing us; we can’t keep going back to the voters.”
Roberts was a co-sponsor of the Gallagher repeal bill. That bill had to pass both the Colorado House and the Colorado Senate with two-thirds majorities. That meant both Democrats and Republicans had to vote for it.
In addition to sending the repeal measure to voters, Roberts noted the Legislature passed companion legislation freezing current property tax rates for four years. That gives the Legislature time to either come up with a new formula, or go to what Roberts called a “market-based” system seen in most other states.
Not a tax hike
And, Roberts added, property tax rates still can’t be raised without voter approval, thanks to a 1992 amendment called the Taxpayers Bill of Rights, or TABOR.
Chris Montera, executive director of Eagle County Paramedic Services, noted that the clash between TABOR and Gallagher has made the state’s property tax imbalance worse over the years. Districts can’t easily recover coming back from bad times due to the amendment’s limits on revenue growth, he said.
The valley’s ambulance district in 2018 asked voters to remove that district from Gallagher-required tax rate cuts. Voters approved that request.
The Eagle-based Greater Eagle Fire Protection District in 2018 received similar relief from voters.
Greater Eagle Chief Doug Cupp said Gallagher-mandated cuts are especially difficult for public-safety districts.
“If they reduce funding because the assessment rate went down, we still have to provide the same level of service,” Cupp said, adding that Gallagher’s requirements make long-term planning difficult.
The repeal effort is “a really big deal, especially for mountain communities,” Cupp said.
Montera was in Colorado when the Gallagher Amendment passed all those years ago. It was a good idea at the time, he said. But times change.
“As you look at now, and then layer that with TABOR, it’s just a mixture for disaster,” he said.
Vail Daily Business Editor Scott Miller can be reached at email@example.com.
On Tuesday, Oct. 10, 2023, from 5-7 p.m., Berklee College of Music / Berklee City Music and Jazz Aspen Snowmass (JAS) will host a workshop for middle and high school students focused on pursuing a college education and careers in music and the music industry.