Amendment 3 to Legislative Council Draft

Amendment B: Repeal
Gallagher Amendment
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Amendment B proposes amending the Colorado Constitution to:
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repeal the Gallagher Amendment requiring residential and nonresidential
property tax revenues to make up the same portion of total statewide property
taxes as when the Gallagher Amendment was adopted in 1982, including the
requirement that sets the nonresidential assessment rate at 29 percent.

What Your Vote Means
A “yes” vote repeals
sections of the Colorado
Constitution that set a
fixed statewide ratio for residential and
nonresidential property tax revenue.
Assessment rates for all property types
will remain the same as they are now,
projected future decreases in the
residential assessment rate will not be
required, and any future increases in
assessment rates would require a vote of
the people.

A “no” vote leaves
constitutional provisions
related to property taxes in
place, maintaining current requirements
for setting the assessment rates used to
calculate property taxes. This is
expected to result in a decreasing
residential assessment rate over time
and in automatic local mill levy increases
in jurisdictions where required by law.

NO

YES

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Commented [AG1]: Replaces the two bullets with one
bullet, with the tracked changes below.

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Summary and Analysis for Amendment B
In Colorado, property taxes fund local government services, including services
provided by cities, counties, and special districts, such as local police and fire
protection, hospitals, transportation, and the local share of K-12 education. The
Gallagher Amendment sets statewide rules for property taxes funding these local
services. This analysis first summarizes what Amendment B does, then describes
how property taxes are calculated, and finally discusses how the measure affects
taxpayers and governments.
What does Amendment B do?

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Amendment B removes provisions related to the residential and nonresidential
assessment rates from the constitution, including the provisions commonly known as
the Gallagher Amendment.

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The Gallagher Amendment currently requires that residential and nonresidential
property make up constant portions of total statewide taxable property over time.
Since adoption in 1982, these provisions have required that the taxable value of
residential property make up about 45 percent, and the taxable value of
nonresidential property about 55 percent of statewide taxable property. Actual
property values have not matched the required ratios over time because residential
property values have generally grown faster than nonresidential property values.
Since the taxable portion of most nonresidential property values is fixed at 29
percent, the state legislature adjusts the residential assessment rate to maintain the
required ratio, as shown in Figure 1.

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Amendment B removes these provisions from the constitution, leaving the residential
and nonresidential assessment rates at their current rates in state statute. Under
current law, the residential assessment rate is expected to decrease in future years,
reducing the amount of property taxes paid by property owners and collected by local
governments. Amendment B would eliminate automatic tax increases adopted by
some local jurisdictions to offset revenue losses from the Gallagher Amendment. In
jurisdictions that have not adopted automatic tax increases, Amendment B eliminates
projected future decreases in the residential assessment rate and any increase in
nonresidential or residential assessment rates would require voter approval.

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Figure 1. Assessment Rate Adjustments Under Current Law
Actual Property Values*

Residential
80%
Nonresidential
20%

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x

Assessment Rates

=

7.15% Residential Rate*
The legislature adjusts the residential
assessment rate to achieve the
required ratio for taxable values.

Fixed 29% Nonresidential Rate**

Taxable Values

Residential
45%
Nonresidential
55%

*Actual property values are for 2019. The residential assessment rate is for 2019 and 2020. This
assessment rate has fallen over time to maintain the fixed ratio for taxable values of about 45 percent
residential and 55 percent nonresidential.
**Assessment rate for most nonresidential property.

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Commented [AG2]: The amendment switches the
order of the “What does Amendment B do” and “How
are property taxes calculated”. This document shows
them in the order that they would be if the amendment
is adopted.

 Amendment 3 to Legislative Council Draft
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Property taxes are paid by residential homeowners and nonresidential property
owners, including farmers, ranchers, oil and gas operators, and other businesses.
Property taxes are paid on a portion of a property’s actual value. The actual value of
property is determined by the county assessor or state property tax administrator.
The portion of the actual value on which taxes are paid is known as taxable value.
Taxable value is also known as assessed value.

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Taxable value is calculated by multiplying the actual value by an assessment rate.
The assessment rate is currently 7.15 percent for residential properties and is fixed
at 29 percent for most nonresidential properties. Mines and lands that produce oil
and gas are assessed at different rates than other nonresidential property.

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Taxable value is then multiplied by the tax rate, called a mill levy, to determine the
property taxes owed. One mill equals $1 for each $1,000 dollars of taxable value.
For example, 100 mills is equal to a tax rate of 0.1 (100/1,000), or 10 percent. The
tax rate varies for each property based on the local taxing districts in which it is
located. Figure 2 provides an example of how property taxes are calculated.

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Example: Property valued at $300,000 and taxed at 100 mills

Figure 2. Property Tax Calculation
Taxable value = Property value x Assessment rate
Residential

$300,000

x

7.15%

= $21,450 taxable value

Nonresidential

$300,000

x

29%

= $87,000 taxable value

Property taxes = Taxable value x Tax rate (Mills/1000)

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Commented [AG3]: The amendment switches the
order of the “What does Amendment B do” and “How
are property taxes calculated”. This document shows
them in the order that they would be if the amendment
is adopted.

How are property taxes calculated?

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Residential

$21,450

x

0.100

= $2,145 owed

Nonresidential

$87,000

x

0.100

= $8,700 owed

How has the residential assessment rate changed over time?
In most years, residential property values have grown faster than nonresidential
values, causing the residential assessment rate to be lowered so that residential
properties continue to make up about 45 percent of statewide taxable value. As
shown in Figure 3, the residential assessment rate has been reduced from 21
percent when these provisions went into effect in 1983 to a current rate of 7.15
percent. With the fixed nonresidential assessment rate at 29 percent, and the
current 7.15 percent residential assessment rate, nonresidential property owners pay
an effective tax rate that is approximately four times higher than residential property
owners. The downward shift of the residential assessment rate is expected to
continue in future years.

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Deleted: ,

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 Amendment 3 to Legislative Council Draft
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Commented [AG4]: New graph. Replaces the previous
“Assessment Rates Since 1983”

Figure 3. Gap in Assessment Rates Since 1983

30%

Nonresidential
Assessment Rate

29%

25%

Gap Between Nonresidential and
Residential Assessment Rates

21.85%

20%
15%
10%

Residential
Assessment Rate
7.15%

5%

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0%

Tax Year

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When nonresidential property values grow faster than residential property values, the
residential assessment rate must increase to maintain the constant ratio; however,
other constitutional provisions require that voters approve such an increase. As a
result, the state legislature may decrease, hold flat, or ask voters to approve an
increase in the residential assessment rate. Since 1999, there have been
six instances when the residential assessment rate would have increased, but the
legislature did not refer a measure to voters and the rate instead stayed flat.
What factors impact property taxes?
Property taxes paid by a property owner are dependent on three components: actual
property value, the applicable assessment rate, and the mill levy. Changes to any of 28
these components impact the amount of property taxes paid, and thus, the amount of 29
revenue collected by a local government. Amendment B concerns only residential
and nonresidential assessment rates; however, other changes to property values or
tax rates also impact the amount of property taxes owed.
What are the automatic mill levy increases that some local governments have
adopted?
In response to the shift between residential and nonresidential assessment rates,
many local governments have adopted laws that automatically increase local mill
levies to offset the revenue losses from the Gallagher Amendment. These automatic
increases counteract the reduction in the residential assessment rate and result in a
net property tax increase for nonresidential property owners. These automatic mill
levy increases would not be triggered if Amendment B passes.
How does Amendment B affect residential property taxpayers?
Under Amendment B, the residential assessment rate will remain at the current
7.15 percent for residential property. Without the measure, the residential
assessment rate is projected to decrease in future years due to the relative growth of
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Deleted: tax rate (
Deleted: )

Commented [AG5]: New heading

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residential property values compared to nonresidential property values. As a result,
Amendment B is expected to eliminate projected future reductions in the residential
assessment rate, and thus, could result in higher property taxes paid by residential
taxpayers, if property values increase and if automatic mill levy increases do not
offset assessment rate reductions.
How does Amendment B affect nonresidential taxpayers?

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Under Amendment B, the assessment rate will remain in state law at 29 percent for
most nonresidential property. Amendment B will have no impact on the amount of
taxes paid by most nonresidential property owners.

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In the local governments that have approved automatic mill levy increases to offset
revenue reductions from the Gallagher Amendment, Amendment B will prevent
property tax increases for businesses, farmers, and other nonresidential property
owners, as the higher mill levies that would have been triggered by decreases in the
residential assessment rate under the Gallagher Amendment will no longer be
required.

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Deleted: tax rate (mill levy)

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How does Amendment B impact local government revenue?
Under the current system, the decline in the residential assessment rate has
constrained property tax revenue to local governments. The impact varies across
the state, with the largest impacts occurring in areas without much nonresidential
property or with only slow growth in home prices. These areas are generally small
and rural; however, metropolitan areas with slow growth in home values are also
impacted. Amendment B prevents further decreases in the residential assessment
rate, resulting in more property tax revenue to local governments than would
otherwise be received.
How does Amendment B impact state government spending for schools?
Schools are funded through a combination of state and local revenue, with the state
making up the difference between an amount of school district funding identified
through a formula in state law and the amount of local tax revenue generated. By
preventing future decreases in the residential assessment rate, Amendment B
increases local property tax collections for school districts and reduces the amount
the state must pay to make up the difference.
If Amendment B passes, can the state legislature change the assessment rates?
Under Amendment B, the state legislature may decrease the assessment rates, but
cannot increase them without voter approval. Currently, assessment rates are set in
state law at 7.15 percent for residential property and 29 percent for most
nonresidential property.
For information on those issue committees that support or oppose the
measures on the ballot at the November 3, 2020, election, go to the
Colorado Secretary of State’s elections center web site hyperlink for ballot
and initiative information:

http://www.sos.state.co.us/pubs/elections/Initiatives/InitiativesHome.html

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 Amendment 3 to Legislative Council Draft
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Arguments For Amendment B

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1) The Gallagher Amendment is outdated and full of unintended consequences. If
the Gallagher Amendment is not repealed, owners of high-end homes in
Denver’s wealthiest neighborhoods would get a tax cut next year, while small
businesses and farmers would pay a larger share of property taxes. The
Gallagher Amendment causes small businesses to be taxed at a rate four times
higher than residential property owners, and penalizes rural and low income
communities that lack a significant commercial tax base.

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2) Colorado has some of the lowest residential property taxes in the nation, and
Amendment B fixes property tax assessment rates at their current levels.
Amendment B is not a tax increase. Under Amendment B, the property tax rates
homeowners and businesses pay could only be increased by a vote of the
people.

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3) Amendment B will prevent deep cuts to schools, hospitals, fire protection, and
other local services in many areas of the state. Declines in the residential
assessment rate caused by the Gallagher Amendment have resulted in
significant reductions in vital services provided by local governments, particularly
in rural and low income communities. Amendment B allows local governments to
continue providing services that their communities expect.

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Arguments Against Amendment B

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1) Amendment B results in higher property taxes for homeowners by preventing
future drops in the residential assessment rate. Increasing home values have
already resulted in higher property taxes for many homeowners. Higher taxes
mean that homeowners will have less money to spend or save, and landlords
may increase rents, at a time when many are already struggling to make ends
meet.

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2) The property tax system is working as it was intended. It keeps residential
property taxes low, and prevents special interests from obtaining tax breaks at
the expense of homeowners. Amendment B removes an important protection for
homeowners from the Constitution. Without these protections, homeowners may
end up paying an increasing share of property taxes.

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3) There are better alternatives to amending the constitution. Local governments
can instead ask their voters to raise tax rates or seek other solutions to provide
services such as fire protection, schools, and libraries. These alternatives would
allow voters in each local jurisdiction to decide for themselves how to best fund
services for their community.

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Estimate of Fiscal Impact for Amendment B

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Local revenue and spending. For many local governments, including counties,
cities, school districts, and special districts, Amendment B will result in increased
property tax revenue. The amount of any increase will depend on what the
residential assessment rate would have been in the future without the measure, as
well as whether voters have already approved local tax increases to counteract
future potential decreases in the residential assessment rate.

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State spending. To the extent that Amendment B increases property tax revenue to
school districts, additional funding will be available for the local share of the state’s
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Commented [AG6]: Replace current Arguments For
with the arguments written below.

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system of school finance, reducing the amount the state must pay to make up the
difference between local revenue and the school district funding amount identified
through a formula in state law.
Taxpayer impacts. Maintaining the current residential assessment rate results in
higher property taxes for many residential property owners compared to what they
would owe if residential assessment rates were lowered in the future. The impact on
property owners from holding the residential assessment rate constant in the future
will vary based on several factors, including what future decreases in the residential
assessment rate would have been required without the measure, the actual value of
the property, and the tax rates of the local taxing districts. The measure does not
impact the assessment rate for most nonresidential taxpayers.

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