Colorado’s Gallagher Amendment to the state constitution is a good example of how a too-rigid mandate, which at the time seems an ideal solution to a problem, can cause significant trouble in the future when conditions change.
In 1982, in the face of climbing residential tax bills, the legislature referred to voters the very tempting guarantee that residential property taxes would not exceed 45 percent of the taxes collected on non-residential properties, such as commercial, agricultural and energy.
The ballot question, which also better standardized property values and thus taxation from county to county and which ended some minor categories of taxation such as on retail merchandise inventories and personal property, passed two to one. Of course.
The result was a boon to homeowners through three decades, but made for an increasing strain on state revenues.
Where once K-12 education was funded two-thirds by local property taxes and one-third by the state, the lower increase on residential values and higher increase on non-residential reversed those percentages. That has made it difficult for the state to fund statewide needs, such as its share of K-12 funding, Medicaid, higher education and prisons.
Now, with a boom in new home construction and an increase in residential prices largely along the Front Range, and a decrease in energy taxes on gas and oil extraction, the 45–55 percent ratio set statewide is reducing the percent of valuation subject to tax. What is a 7.96 percent of valuation (it was 29 percent in 1982) is estimated to be something like 6.56 percent, or lower, in the next budget year.
In the large metro counties where there are additional new homes and significantly rising prices, that reduced percentage can be absorbed in school and local district budgets. In counties where there is less of a residential boom, or no boom, the coming fiscal year’s loss of perhaps 1.4 percent applied to valuation will severely impact budgets. Reductions will occur in school, law enforcement and special district revenues.
In Montezuma County in 2015, oil and gas accounted for 62 percent of county revenue. In 2016 that dropped to 54 percent. The Gallagher squeeze is coming alongside a decline in taxes on assessed valuation from carbon dioxide extraction and oil and gas prices nationwide, resulting in reduced tax revenue from those sources as well.
With energy development, homeowners in Montezuma County have been spared the responsibility of supporting a good portion of local services, and Gallagher has pushed public school costs onto the state.
The fix – returning to a more realistic level of residential valuation – will not be popular, but it must be done.