Gallagher Amendment shift property tax burden

Ken Brownlee

The Gallagher Amendment to the Colorado Constitution doesn’t prevent taxes from increasing. Limitations imposed under the Taxpayers Bill of Rights (TABOR) do. Gallagher instead transfers the property tax burden from homeowners to nonresidential taxpayers.

When Gallagher first passed, for a value at which a homeowner paid $1 in tax, a nonresidential taxpayer paid $1.38. Today, that nonresidential taxpayer pays more than $4. And if an initiative on the November election ballot doesn’t pass, that taxpayer will pay almost $5.

Gallagher transfers more and more of the property tax burden to nonresidential taxpayers and, in doing so, narrows the tax base. I do not and will not favor a tax increase. But neither do I favor a scheme to shift the tax burden onto someone else’s shoulders. The necessary funding of government should be fairly shared by all. What’s unnecessary shouldn’t be funded.

The Gallagher Amendment did many good things.

It established an annual audit of every assessor in the state; reconstituted the State Board of Equalization to ensure similar properties get similar treatment; and exempted certain categories of property from taxation, such as household furnishings; inventories held for business consumption, livestock and agricultural products, among others. However, the 45 percent to 55 percent relationship between residential and nonresidential property values wasn’t one of them. The ratio  was intended to reign in residential tax hikes. However, the drop in the residential assessment rate (RAR) from 21 percent to 7.15 percent was never expected. And when assessment rates went down, mill levies were expected to go up.

Property tax is calculated by multiplying the actual value, assessment rate and mill levy. The assessment rate is generally 29 percent for nonresidential property. When Gallagher was passed, the RAR was 21 percent. To maintain the 45 percent to 55 percent statewide target under Gallagher, the Colorado Legislature floated the RAR. As a result, the RAR  has dropped to 7.15 percent. If the ballot initiative doesn’t pass, the RAR could drop to 5.88 percent. Under Gallagher and without TABOR, if that drop resulted in lower tax, the mill levy increased to adjust the tax funding required by districts. This resulted in a disproportionate increase for nonresidential payers. Gallagher didn’t lower tax, it simply transferred the burden to nonresidential payers.

TABOR limited the tax rate, the mill levy rate and budget totals, not Gallagher. Specific districts set their mill levies to fund operations. Over the years, the RAR has dropped, but not consistently. Between 2005 and 2017, the RAR would have increased every year but one. Therefore, the residential share of the tax would have increased. However, TABOR prevented this increase. Again, TABOR did this, not Gallagher. Today, the RAR is 7.15 percent and a small drop in the rate becomes a large percentage change for a district. For example, a reduction from 7 percent to
6 percent represents a 14 percent change.

When districts require additional funding, they seek a mill levy increase, as the Clifton Fire District did in 2018. TABOR requires voter approval. The rate increase is four times higher on nonresidential taxpayers due to Gallagher.

The effect on urban areas with a high concentration of nonresidential property is minimal. But the effect for areas with fire, library and other districts more dependent on residential property taxes is far more significant. Central Orchard Mesa Fire District property tax funding is 93 percent residential.

As for lowering homeowners’ tax, Gallagher originally envisioned that if residential property assessed values statewide exceeded 45 percent, as it did between 2005 and 2017, the RAR would go up to increase residential tax. TABOR prevented that increase. When the change resulted in lower tax under Gallagher, the mill levy would go up and the change was disproportionate. Again, TABOR prevented this increase and still does.

It’s true that as the actual value increases on property, the tax can increase since tax is the result of actual value times the assessment rate times the mill levy. That’s because property tax in Colorado is ad valorem, according to value. Again, Gallagher doesn’t prevent a tax increase when the actual value increases, but does ensure the increase will be disproportionate. Once again, TABOR prevents or at least moderates this increase. Inflation results in higher property values as well as higher costs to provide the government services taxpayers demand. Again, TABOR provides protection based on inflation plus new construction.

There are better ways to fund government, but the Gallagher Amendment constitutes bad tax policy because it continues to shift more and more of the tax burden onto a minority of payers. 

The Mesa County School District 51 ballot initiative in 2017 increased the median homeowners tax about $110 a year, but increased the median business tax by $1,000. 

Governments picking winners and losers is never a good idea. This ballot initiative is an improvement. However, a much better way to reduce taxes is to vote for candidates who share a philosophy of funding only functions governments must do.

Ken Brownlee serves as Mesa County assessor. He’s a certified residential appraiser with 15 years experience. Reach him at ken.brownlee@mesacounty.us.