Democrats are set to unveil their Colorado property tax relief plan this week. Here’s what’s in it.

Democrats in the Colorado legislature are preparing this week to introduce a measure that would overhaul the state’s property tax system to limit future spikes in businesses’ and homeowners’ tax bills, with an eye toward providing more relief to people who own lower-value homes. 

The legislation would let people exempt 10% of their primary residence’s value from taxation, up to $75,000. In most communities, that would represent a maximum savings of around $450 a year, though tax bills can vary greatly depending on local mill levy rates.

Sen. Chris Hansen, a Denver Democrat and main sponsor of the measure, said the new homestead exemption would effectively lower the property assessment rate for most homeowners to 6.4% for taxes owed next year from 7.06%, though the actual rate, a key factor in determining property tax bills, won’t go down.

“We’re not going to crush local districts in Prowers County and we’re not going to have a huge amount of tax relief for high value homes,” Hansen said.

Meanwhile, the measure would spread out property value increases over several years to prevent big year-over-year jumps in the taxes homeowners and businesses pay. For last tax year, residential values skyrocketed an average of 40% across the state. 

Hansen said the bill, which will be introduced as soon as Tuesday and comes as the legislature has just 15 days left in its 2024 term, was drafted using recommendations from a bipartisan property tax commission formed after voters in November overwhelmingly rejected Proposition HH, a 10-year property tax relief and state spending plan from Democrats.

The commission has struggled for months to come up with a proposal that reduces taxes enough to win over conservative support without cutting so much that it jeopardizes local government services, such as firefighting districts, or K-12 school funding, which also relies heavily on property taxes.

“The overarching idea is to take the recommendations from the commission and turn them into good legislation,” said Hansen, who was chair of the panel.

But the proposal also comes against the backdrop of conservative groups pushing for larger property tax cuts through ballot initiatives. One such proposal, Initiative 50, which has already made the ballot, would set a statewide 4% annual cap on property tax revenue. Other proposed measures, which still require massive signature-gathering efforts to make the ballot, would enact across-the-board tax cuts that would be close to twice as deep as the targeted cuts proposed by legislative Democrats.

Republicans in the legislature, who are in a superminority in the House and a near superminority in the Senate, are also likely to pan the Democratic proposal as being too weak. There were GOP members of the property tax commission, but Hansen said his bill doesn’t have any Republican sponsors. 

Gov. Jared Polis is another key player in the conversation. He hasn’t backed a specific solution, but said he is “hopeful that legislators will come together to provide additional property tax relief.”

“My priority is providing property tax relief,” he told The Colorado Sun earlier this month. “I would encourage everybody to show openness to different ways to do that, just as I showed openness to Proposition HH, openness to different ballot initiatives, openness to legislative action. The bottom line is: Will it save people money on property taxes?”’

Reimbursement for local governments and other major provisions in the bill

The push to cut property taxes has pitted two legislative priorities against each other.

Lawmakers in both parties say the state’s high cost of living is a major problem, and have promised relief. But the legislative has also relied heavily on rising property taxes to fully fund K-12 education next school year — the first time since the Great Recession that Colorado has met spending levels required under the state constitution.

Hansen said his bill would completely reimburse schools for any revenue reductions the measure will cause, and likely first responders, like fire and ambulance districts, too. Other local governments may get limited reimbursement.

The senator said it’s not clear yet exactly how much money that will be, though it’s likely hundreds of millions of dollars. 

As for where the reimbursement money will come from, that remains up in the air, as well.

“We’re looking at several different options,” Hansen said.

That includes the state’s Taxpayer’s Bill of Rights surpluses, which is made up of money collected over the TABOR cap — determined by annual increases in population and inflation — that would otherwise be refunded to Coloradans. Other options include the state’s general fund reserve, which is meant to pad the budget during economic downturns, as well as the State Education Fund.

The State Education Fund has a large balance today of over $1 billion, but revenue projections show it is at risk of being depleted within a matter of years.

Finally, Hansen said some of the money could come from cutting or reducing property tax reimbursement dollars set aside for local governments in bills making cuts that were passed in previous years. 

“It’s part of the negotiation,” he said.

Among the other big components of the Democratic proposal: 

• A five-year reduction in the commercial property tax assessment rate, which last year was 27.9% and is set to rise to 29%. The rate would go down for taxes owed next year to 27.5%. It would then decrease by 0.5 percentage points each year until it reaches 25.5%. The reduction is not temporary. 
• Local governments, excluding schools, would have to vote to keep any annual increases in property tax revenue that are above 5.5%. That’s a much softer cap than what’s proposed by Initiative 50, which would require statewide voter approval to exceed.
• An increase in the threshold at which homeowners can defer their property tax increases. Right now, homeowners can defer payment on any annual increase in their property tax bill that’s above 4%, though they would have to pay interest on the deferral. The measure would reduce that threshold to 0%.
• Giving taxpayers the option to pay their property taxes in a lump sum, or in two or 12 payments. The change would only affect people who don’t pay their property taxes through their mortgage. 
• Splitting up the property tax assessment rate between schools and local governments, with the promise that the local government rate wouldn’t be changed by the state. Hansen said that will have the effect of letting local governments determine whether to raise or lower their taxes through mills. But it’s also an acknowledgement that the state will stop backfilling their losses on property tax changes made by the legislature. “It just gets the state out of the backfill game for locals,” he said. 

Hansen said details are still being worked out on how the property value averaging will work. He said it will likely be over four or six years. People would still have to pay more in property taxes as the value of their home or business increases, but just not all at once. 

The measure is also notable in how it doesn’t provide a property tax break for people’s second or subsequent homes. There would be no value exemption or rate reduction for those vacation or investment properties.

That decision comes after two measures in the legislature this year aimed at increasing property taxes on some homes offered as short-term rentals failed. A provision in Proposition HH, the 2023 ballot measure rejected by voters, also limited the property tax relief on people’s second and subsequent properties. 

The 2024 legislative session ends May 8.