Giving Thought: Gallagher Amendment issue could modernize Colorado’s tax code

Tamara Tormohlen
Giving Thought
Tamara Tormohlen
Steve Mundinger

Back in 1982, Colorado was still a predominantly rural state and Matt Gianneschi, who grew up on the Front Range, remembers how easy it was to get around.

“We were still able to drive up to A-Basin, ski, and then make it home to watch the Denver Broncos game,” he said.

Those days, as we all know, are long gone. The weekend traffic on Interstate 70, the state’s most important east-west thoroughfare, is notoriously slow on the Eastern Slope, and Sunday afternoons may be the worst time of all, as thousands of metro Denver residents routinely return home from playing in the mountains.

Over the past 38 years, Colorado’s population has skyrocketed, from 3.1 million to roughly 5.8 million. Most of those people have occupied new homes on the urbanized Front Range. Second-home owners have also flocked to Colorado’s mountain resort towns, helping to drive real estate prices upward across the state.

In the ’80s, property values were relatively balanced statewide, with residential property representing about 45%b of total value, and commercial property 55%. Since then, however, the number and value of Colorado homes has upended the state’s real estate profile. Residential property now accounts for 80% of the total.

“You’re seeing an explosion on the residential side, and the commercial just pales in comparison,” said Gianneschi, now the chief operating officer for Colorado Mountain College.

Why take this dive into Colorado’s property tax base? Because, in 1982, voters in that bygone state of Colorado passed a constitutional amendment that remains law today. The Gallagher Amendment decrees that residential property will never account for more than 45% of the state’s property tax revenue, and the commercial side will pick up 55%. This has had numerous effects, one of which is lowering homeowners’ property tax bills. But the result is that tax collections on residences drop, and commercial property owners shoulder a disproportionate burden.

“The Constitution has this fixed formula that just doesn’t fit reality,” Gianneschi said.

Under Gallagher, in order to maintain the 45-55 split in a dynamic economic environment, the tax rate for residential property has dropped over time to a mere 7%, while commercial property is taxed at 29%. This unforeseen imbalance has led to all sorts of unexpected and unequal impacts across the state, including reduced income for fire departments, water and sewer districts, health clinics, schools, and other services in rural Colorado.

Here’s another unintended consequence. The K-12 education budget is the single biggest item in the state budget. Because the Colorado General Assembly is required to “backfill” whatever portion of the K-12 budget that local jurisdictions cannot afford, legislators have been forced for years to “rob Peter to pay Paul” — eroding items like higher education or state highways in order to fund public schools.

Recognizing how this outdated amendment is skewing tax collections statewide, lawmakers placed a measure on the Nov. 3 ballot to repeal Gallagher. The four sponsors of the ballot question — changes to the state constitution must be approved by voters — included two Republicans and two Democrats, and the bill passed with broad bipartisan support. The measure is named Amendment B.

If passed, Amendment B will lift the 45-55 formula that has artificially lowered residential tax rates, but both the residential and commercial tax rates will stay where they are now. Yes, if the assessed value of your home goes up, then you will pay more property tax. On the other hand, you’ll also receive the “benefit” of a lower bill if your assessed value drops. As Gianneschi puts it, “that’s just a cost of doing business” as a homeowner.

Furthermore, it is doubly unfair to expect Colorado businesses, already suffering from a recession wrought by a worldwide pandemic, to continue paying a disproportionate share of the state’s property taxes.

To provide the needed support for our schools, our emergency responders, our transportation infrastructure, Colorado needs a fair and rational taxation system that fits our 21st-century reality. So maybe it’s time to reconsider those policies that once made sense but now may be hindering our progress.

Tamara Tormohlen is executive director of Aspen Community Foundation.