Voters in Colorado rejected a ballot measure that would have granted some property tax relief, although opponents successfully argued that it could have threatened a prized tax refund.
Proposition HH failed on Tuesday, the Associated Press reported Thursday evening. The question, also known as the Property Tax Changes and Revenue Change Measure, would have made several changes to state property tax levels and state revenue limits.
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The proposition, which was largely supported by Democrats, was designed amid an environment of rising property taxes in the Centennial State. Home values in Colorado have risen by a median of 40% statewide since they were last assessed in 2021, according to the Colorado Sun.
“Generally, whether it’s out in the West or other parts of the country, property tax valuations are problematic — we’ve seen a large spike in property tax valuations,” Manish Bhatt, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, told the Washington Examiner. “This is certainly one way that the state is trying to resolve it.”
Of note, the rejected ballot measure would not have lower property taxes for residents, rather, it would have slowed the rate of their increase through 2032.
For 2023, the residential assessment rate would have been cut to 6.7% from 6.765%. It would then stay at 6.7% through 2032. Given that the change failed, the residential assessment rate will be pegged at nearly 7% in 2024, for instance.
The measure also would have made it so homeowners were exempt from taxation on the first $50,000 of their home’s value in 2023, a number that goes down to $40,000 the following year.
For non-residential commercial properties, the assessment rate would have been slashed to 27.85% through 2026 from 27.9%.
But where Proposition HH became so controversial is through the way it proposed changing the state’s Taxpayer Bill of Rights amendment, known as TABOR, which was passed in 1992. TABOR basically caps how much the state can collect in tax revenues and mandates a statewide vote for every tax increase.
Crucially, TABOR says that revenue (without a vote) can only increase through the strictures of a formula consisting of the combined rate of population increase and inflation. If revenue grows faster than that formula, then it is returned back in the form of refunds.
The first refunds typically go back to local governments as part of a tax exemption that applies to qualifying homeowners over the age of 65. If the TABOR surplus goes beyond the senior tax exemption costs, Colorado then uses the remaining money to hand out to residents in the form of income-based sales tax refunds.
Opponents of Proposition HH successfully argued that passage of the measure could endanger the refunds that residents receive through TABOR. It would have raised the cap on TABOR in order to offset the revenue lost through the lower increases in property tax rates, something that critics said would cause refunds to dwindle or disappear.
“What it ends up doing is it increases the limit on state revenue and spending by 1%, and that appears to be compounding annually — year one it’s not a huge amount of money, but if you extrapolate out, say, 10 years, it’s an increase of 10% year-over-year on the amount the state itself can collect and spend,” Bhatt said.
He said that 10% increase would have had a direct effect on the refunds. Opponents, he said, feared that the proposition would undermine the TABOR system and even effectively eliminate refunds.
The proposition would have also disproportionately benefited homeowners. Some 768,000 households in Colorado, or 33% of all households in the state, rent instead of own, according to the Common Sense Institute. Because renters wouldn’t have received the property tax relief that homeowners would have (and would have faced lower tax refunds through TABOR), the change was not a welcome one.
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Proponents of the initiative, though, argued that there is a big TABOR surplus and that the property tax relief is much needed amid the towering increases. Colorado Gov. Jared Polis, a Democrat, said Proposition HH would be a boon for the state and taxpayers.
“Because of the very strong economy and very strong TABOR surplus, we are able to do both: We are able to not jeopardize or cut funding for our schools and provide important property tax relief today,” the governor said.