* repeal the current voter-approved authority of local governments to keep property taxes above their constitutional limits;
* establish expiration dates for future voter-approved property tax increases;
* cut local property tax rates for public schools' operating expenses in half over ten years and replace this money with state funding each year;
* require publicly owned enterprises to pay property taxes and reduce local property tax rates to offset the new revenue; and
* provide new voting rights to certain property owners in Colorado and permit citizens to petition all local governments to reduce property taxes.
Summary and Analysis
Amendment 60 changes several aspects of Colorado's property tax system to reduce the amount of property taxes paid by individuals and businesses to school districts, counties, special districts, cities, and towns. The measure phases in a reduction in school district property taxes over ten years and requires that the reduced property taxes be replaced with state funding. Table 1 (summary link) shows the projected impact of the amendment in today's dollars on an average homeowner and commercial business, school districts, and state government, in both the first year and when the measure is fully implemented. The fully implemented impacts provide the best projections of the measure's final effects.
In the first year, property taxes for school districts are expected to fall by $337 million, which the measure requires the state to replace. This represents a property tax reduction of the same amount for individuals and businesses. An average homeowner's property tax bill is projected to fall by $87 and the property taxes for an average commercial business are estimated to fall by $1,181.
When the measure is fully implemented, the property tax reduction for school districts is estimated to increase the state's obligation for kindergarten through twelfth grade education (K-12) by $1.5 billion, which represents a property tax decrease of the same amount for individuals and businesses. An average homeowner will pay $376 less and an average commercial business will pay $5,106 less in property taxes annually. In future years, the actual amounts will differ as inflation and growth increase the size of the economy, but the comparable budget impacts on taxpayers and governments are expected to remain consistent over time. Cities, towns, counties, and special districts will also lose property taxes, but the amount will vary by locality.
Background and current law. Property taxes are based primarily on the value of land, houses, other buildings, and business equipment. Individuals and businesses pay property taxes to various local governments, such as cities, counties, school districts, and special districts, each of which imposes its own tax rate on property. School districts and counties receive approximately 77 percent of all property taxes collected. Publicly owned enterprises, such as city water and sewer systems, municipal airports, and most state universities, are exempt from paying property tax.
Property taxes are spent on a variety of local government services, including public education, police and fire services, roads and bridges, public water and sewer systems, parks and recreation facilities, hospitals, and libraries. The degree to which local governments rely on property taxes to pay for services varies. Some special districts, such as fire protection districts, get almost all of their revenue from property taxes, while many city governments get less than 5 percent of their funding from property taxes.
Constitutional limits on property taxes. The state constitution currently restricts both the amount of total revenue and property tax revenue that a local government can collect each year. Annual increases for each are capped at the rate of inflation plus a measure of local growth, such as student enrollment in the case of a school district. The constitution also requires voter approval for a local government to increase property tax rates or to keep and spend total revenue or property tax revenue above the government's constitutional limit.
How does Amendment 60 change how public schools are funded? Public schools in Colorado are funded from a combination of federal, state, and local sources. Voters in some school districts have approved additional
property taxes to repay loans used to build schools or other buildings. In these districts, there is a property tax for operating schools and a separate property tax to repay loans. Amendment 60 requires all districts to cut their 2011 property tax rates for operating schools in half by 2020. Property tax rates for repaying loans are unchanged. The required reduction in tax rates must be done in equal yearly amounts over ten years. Amendment 60 requires the local school district funding eliminated by this rate reduction to be replaced each year with state funding.
How does Amendment 60 affect the state budget? Currently, the state spends most of its general operating budget on: preschool through higher education; health care; prisons; the courts; and programs that help
low-income, elderly, and disabled people. K-12 education funding accounts for 46 percent of this budget, which is primarily funded by sales and income taxes. Because Amendment 60 requires that the reduction in local property tax revenue be replaced with state funding, the obligation for public schools will increase to an estimated 67 percent of the state's general operating budget, once the measure is fully implemented. To meet this increased obligation to schools, the state will have to decrease spending and services in other areas, increase fees for services, or some combination of both.
How does Amendment 60 affect property taxes for all local governments? Like school districts, cities, counties, and special districts are also funded from a combination of federal, state, and local sources. Under current law, taxpayers in many communities have voted to broadly exempt their local governments from the constitutional limit related to total revenue and spending. Currently, voters in 76 percent of municipalities, 81 percent of counties, and 98 percent of school districts have voted to allow government to keep and spend revenue above the constitutional limit, either temporarily or permanently. This measure would reimpose a property tax limit for those governments, leaving the broader revenue exemption unchanged.
Beginning in 2011, Amendment 60 repeals the current voter-approved authority of local governments to permanently keep property taxes above their constitutional limits. Local governments are not required to refund the property taxes that were retained in the past. However, local governments that collect property taxes above their property tax limit in the future will have to refund money. A new election must be held to allow a local government to keep future property taxes above its constitutional limit for up to four years at a time. The measure will also reduce the property tax collections of most local governments by reducing property tax rates, and limiting the duration of future property tax increases.
How does Amendment 60 affect publicly owned enterprises? Amendment 60 requires publicly owned enterprises to pay property taxes. Under current law, state enterprises, such as most public universities, do not pay property taxes on campus buildings or equipment. Similarly, local enterprises, such as Denver International Airport, pay no property taxes. The new property taxes collected from these publicly owned enterprises must be offset by lower property tax rates for homeowners, businesses, and other property taxpayers. For example, if the University of Colorado had to pay property taxes in Boulder County, its property tax bill is estimated to range from $11 million to $20 million per year, depending on how the property is valued. This new revenue would be offset by lower tax rates in Boulder County, providing property owners in the county with tax reductions of the same amount. The amendment prohibits publicly owned enterprises from charging either a mandatory fee or a tax on property.
How does Amendment 60 change property tax elections? Amendment 60 proposes changing several aspects of the way property tax issues are addressed in local elections. Under current law, a property owner who is a registered Colorado voter may vote on ballot questions in his or her primary place of residence and in special district elections wherever he or she owns property in Colorado. Amendment 60 allows Colorado property owners to vote on city, county, and school district property tax issues in any Colorado location where they own property, regardless of their primary place of residence in the state.
Under current law, citizens may petition cities to increase or decrease property taxes, but may not petition counties, schools, or special districts. Under this measure, all local governments must permit petitions to lower
Typically, when a local community has voted to permanently exempt its local government from the constitutional limit on property tax collections, that voter-approved decision is not automatically repealed at a future date. Under Amendment 60, any future vote to allow a local government to retain revenue above its constitutional limit is repealed within four years after passage. Any future vote to increase property tax rates is repealed within ten years. Any extension of an expiring property tax is considered to be a tax increase under the measure, and as such, must be presented as a tax increase on the ballot.
Currently, a single ballot question may ask voters if a local government may borrow money, and if property tax rates may be increased to repay that loan. Under this measure, ballot questions that allow a government to
borrow money must be separate from ballot questions that raise property taxes.
How is Amendment 60 enforced? The amendment requires the state to annually audit all cities, counties, school districts, and other types of local governments to ensure compliance with all requirements of the amendment. Citizens are also allowed to file lawsuits to enforce compliance.
How does Amendment 60 interact with two other measures on the ballot? Amendment 60 along with Amendment 61 and Proposition 101 contain provisions that affect state and local government finances by decreasing taxes paid by households and businesses and restricting government borrowing. How these measures work together may require clarification from the state legislature or the courts.
Amendment 60 reduces local property taxes, while requiring state expenditures for K-12 education to increase by an amount that offsets the property tax loss for school districts. Amendment 61 requires state and local governments to decrease tax rates when debt is repaid, which is assumed in this analysis to apply to the existing debt of state and local governments, and it prohibits any borrowing by state government. Proposition 101 reduces state and local government taxes and fees.
Since portions of these measures are phased in over time, the actual impacts to taxpayers and governments will be less in the initial years of implementation and grow over time. Assuming that all three measures are approved by voters, the first-year impact will be to reduce state taxes and fees by $744 million and increase state spending for K-12 education by $385 million. Once fully implemented, the measures are estimated to reduce state taxes and fees by $2.1 billion and increase state spending for K-12 education by $1.6 billion in today's dollars. This would commit almost all of the state's general operating budget to paying for the constitutional and statutory requirements of K-12 education, leaving little for other government services. In addition, the prohibition on borrowing will increase budget pressures for the state if it chooses to pay for capital projects from its general operating budget. This would further reduce the amount of money available for other government services.
Tax and fee collections for local governments are expected to fall by at least $966 million in the first year of implementation and by $3.4 billion when the measures are fully implemented. However, after the state reimburses school districts, the net impact on local government budgets would be at least $581 million in the first year and $1.8 billion when fully implemented.
Total taxes and fees paid by households and businesses are estimated to decrease by $1.7 billion in the first year and $5.5 billion per year in today's dollars when the measures are fully implemented. The measures reduce the taxes and fees owed by an average household making $55,000 per year that owns a $295,000 house by an estimated $400 in the first year and $1,360 per year when fully implemented.
Estimate of Fiscal Impact
Local revenue. Amendment 60 reduces property taxes for individuals and businesses in several ways. This reduces the amount of tax revenue that cities, counties, school districts, and special districts will receive. The measure phases in a reduction in school district property taxes over ten years. In the first year, school district property taxes are projected to fall by $337 million, reducing property taxes paid by an average homeowner and an average business owner by $87 and $1,181, respectively. Once the measure is fully implemented, property taxes are estimated to fall by $1.5 billion annually in today's dollars, reducing property taxes paid by an average homeowner and an average business owner by approximately $376 per year and $5,106 per year, respectively. Additionally, local governments currently authorized to keep property tax revenue in excess of the constitutional limit, will have their property tax revenue reduced by an indeterminate amount.
State expenditures. By reducing the amount of local property taxes collected for school districts, statewide expenditures for public schools will increase by an estimated $337 million in the first year of implementation and by $1.5 billion per year in today's dollars once the measure is fully implemented. To meet this increased obligation to schools, the state will have to decrease spending and services in other areas, increase fees for services, or enact some combination of both.
The state must make a yearly audit of compliance with the property tax provisions and strictly enforce all requirements in the amendment. The Office of the State Auditor is responsible for reporting the financial and operational performance of agencies of state government; however, the office does not have a process for auditing local government compliance with property tax laws. Amendment 60 expands the obligations of the State Auditor's Office. It is estimated that this provision will require the addition of 1.5 new staff to coordinate year-round auditing of local government and to manage contracting with independent certified public accounting (CPA) firms. The cost for these new staff and CPA contracts is estimated to be $800,000 each year.
Shall there be an amendment to the Colorado constitution concerning government charges on property, and, in connection therewith, allowing petitions in all districts for elections to lower property taxes; specifying requirements for property tax elections; requiring enterprises and authorities to pay property taxes but offsetting the revenues with lower tax rates; prohibiting enterprises and unelected boards from levying fees or taxes on property; setting expiration dates for certain tax rate and revenue increases; requiring school districts to reduce property tax rates and replacing the revenue with state aid; and eliminating property taxes that exceed the dollar amount included in an approved ballot question, that exceed state property tax laws, policies, and limits existing in 1992 that have been violated, changed, or weakened without state voter approval, or that were not approved by voters without certain ballot language?