Editor’s note: This represents the opinion of The Denver Post editorial board, which is separate from the paper’s news operation.
The Denver Post is supporting Proposition HH this November as a critical compromise.
The ballot question will provide significant relief from the unsustainable property tax increases driven by the skyrocketing inflation in home values while also assuring that our public schools, predominately funded by local property tax, still receive the anticipated and much-needed boost in local revenue.
Opponents of Proposition HH have sent out fliers incorrectly claiming that the measure will eliminate TABOR refunds (income tax returns mandated by the Taxpayer’s Bill of Rights).
In reality, economic forecasts say the ballot measure will reduce TABOR refunds by a small margin, meaning taxpayers will still get back some of what they pay toward Colorado’s (comparatively low) flat-income tax rate of 4.4%. The TABOR refund dollars retained by the state will be used to back-fill school districts, cities, counties, and special districts for some of the money they lose from the massive state-wide property tax cut provided in Proposition HH.
The trade-off made in Proposition HH — a small income tax increase for a larger break in property taxes — is not simple but it is essential.
Looking at the measure holistically, we have found – without question – that the significant reduction in the pending property tax increases, which are due in March, outweighs the slight increase in income taxes that will occur when the state retains an additional 1% of the revenue collected through income taxes every year under the TABOR formula.
Proposition HH will reduce property taxes paid in 2024 by about $400 million, while the increase in income tax revenue will only be $133 million for fiscal year 2023-24. The property tax reduction will grow in 2025 to almost $1 billion and the increase in income taxes collected by the state will be $444 million in fiscal year 2024-25.
“There’s also targeted relief for those who need it most. If your property taxes are going up 40% that is because the value of your home increased. For a lot of people, that is good news. They can stomach the property tax increase. They are happy their value went up. They are now a wealthier person,” Senate President Steve Fenberg told us alongside Gov. Jared Polis in an interview with The Post about the effects of HH. “But if you’re a senior on a fixed income, if you’re a working family going paycheck to paycheck, that increase is devastating.”
Fenberg said the legislation they passed does provide relief to all property owners, but more modest homes will see a larger reduction in their property taxes (as a percent of the value) than more expensive homes. Seniors get an extra reduction with an increase in the Senior Homestead Exemption which will also be made portable (meaning seniors won’t be penalized for downsizing their home).
The complex formula regrettably does create winners and losers, as we noted in May when Democrats had finished crafting the legislation behind closed doors and unveiled the measure to the public with only a few days remaining in the legislative session.
The clear winners will be lower-income property owners (especially seniors) in high-property tax areas. This group will see the largest reduction in their forecasted property tax bill while also getting a small increase in TABOR refunds under Proposition HH in the first year, and then likely smaller refunds in future years.
The clear losers will be high-income renters who will lose out on property tax savings and see a substantial reduction in income tax refunds, especially in the first year and less so in future years.
TABOR tax refunds will be paid out in the first year on a per-capita basis equally (about $800 per taxpayer) rather than based on the amount of taxes paid, continuing the Colorado Cashback model that helps make Colorado’s flat income tax less regressive. In subsequent years it will be paid out using a complex tiered formula that aims to be proportional to the amount of taxes paid.
But Proposition HH also creates a $20 million fund to assist low-income renters who are facing eviction or financial hardships that result in missed rent payments. We would hope if voters approve HH, during the next legislative session, the state would prioritize finding money from the general fund to increase that investment in housing stabilization for renters.
The ballot initiative is complex because it must strike a delicate balance between blunting the impact of Colorado’s housing inflation while recognizing that our schools have been underfunded for decades and local property taxes supply the majority of their funding.
Schools are particularly sensitive to housing inflation as the majority of their budget goes to hiring teachers and other school staff – employees that become more difficult to hire if wages don’t keep pace with the increased cost of living in a community. A Denver teacher cannot afford to live alone, even outside the city, on the district’s starting salary. Without increased funding, districts have no option but to keep wages lower than the living standard.
Fortunately, Proposition HH will significantly increase local school funding while also investing in the state’s rainy day fund for schools to protect districts from an economic downturn like what hit in 2008.
Here’s what voters need to know as they weigh whether lawmakers struck the right balance in crafting Proposition HH:
• All Colorado property owners – whether they own commercial, industrial, agricultural or residential property — are facing a sharp increase in property taxes. Every two years, county assessors consider how the value of property has changed. Across the state, assessors determined that values had increased at an unprecedented rate.
• Denver home values increased by a median of 33% while Douglas County home values jumped by 47%, with most counties falling somewhere between the two extremely high increases (a few outliers in the resort towns saw even larger increases).
• Proposition HH reduces property taxes in two ways. First, assessed values are reduced by $50,000 and then the state-wide assessment rate is reduced from 6.765% to 6.7%. The assessed value is multiplied by the rate to come up with the taxable amount of a home’s value. That value is then multiplied by the mill levy rate assessed by each local taxing jurisdiction. This combination of reduction types ensures that more modest homes receive a larger tax break proportionally than more expensive homes. In future years, second homes will not receive as large of a set reduction in value.
• Proposition HH caps the amount that property taxes can increase for some cities, counties, and special districts going forward. The cap of the increase will be the rate of inflation using the Denver-Aurora-Lakewood Consumer Price Index. Local governments can vote to override the cap but must do so annually and in a public meeting.
Local governments oppose this measure because they are facing a cap and also because, unlike schools, the state is not promising to backfill 100% of the reduction in revenue from Proposition HH. However, if all taxing districts had faced the impending tax hike responsibly then lawmakers wouldn’t have had to find a state-wide solution.
Lawmakers had to act.
In Colorado, voters trusted that elected officials would respond appropriately to the lifting of the Gallagher Amendment, which kept residential property values artificially low while hammering commercial and industrial property owners with an increased portion of the taxation pie. Voters wisely lifted the unworkable equation in Gallagher, trusting that some solution to regulate the increases in residential property taxes would be found.
The good news is that Proposition HH presents an eloquent solution to a thorny fiscal balance in this booming state with an irregular tax structure.
Voters would be wise to support Proposition HH and lawmakers would be wise to give renters additional support in 2024.
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