Proposition HH has failed. Good policy doesn’t always make for a good ballot measure. You can overcome opposition from one front, but not two, even if their arguments completely conflict with each other.
On the one hand, conservatives attacked it for being a hidden tax increase by using TABOR surplus dollars for local backfill. On the other hand, local governments opposed the measure because they didn’t think there was enough funding in the measure to backfill local community needs. I’m quite sure neither group agrees on what an alternative to HH should be.
Regardless, Prop HH wasn’t good enough and now our elected leaders must figure out how to construct a property tax relief package that prioritizes low and middle-income homeowners, renters, and small business owners. Importantly, just like they did in the past, they must include a way to pay for this relief, making especially sure to protect school district funding.
Two policy questions loom large right now.
First, is there any way to further reduce property bills before they go out early next year?
Second, will the revenue that comes in over the TABOR limit be distributed more fairly? A flat rebate of $898 was a key selling point in Proposition HH, designed to help give added relief to lower income taxpayers. If nothing is done, rather than every taxpayer receiving $898, the top 7% of earners in the state will see nearly $1,800 in rebates. Meanwhile, the bottom 49% will see less than $800.
Our state now has three options:
Option One. Property taxes are local taxes. If HH fails, it may be time for the thousands of local districts across the state to step up and evaluate their own mill levies. Each of them has the authority to temporarily decrease mill levies. Final numbers need to be given to county treasurers no later than Dec. 15. For individual property owners, however, the results will be inconsistent and underwhelming. Remember, one property sits in many districts. If some of those districts lower their mills, but others don’t, there could be huge differences in property tax relief among property owners residing in the same area. There’s no backfill available in this scenario and taxpayers may also be surprised to learn that local districts are reluctant to lower their own rates.
Option Two. Convene a special legislative session. The legislature and governor must decide if they want to convene for a special session by the end of November. They will once again find themselves caught between two opposing forces: Republicans demanding that no TABOR surplus be touched, and local governments demanding more backfill than they were to receive in Prop HH. They will also find themselves under immense pressure to grapple with the needs of renters. Importantly, without a special session, two things are not possible – lower property tax bills in 2024 and a fairer TABOR rebate mechanism to help renters and lower-income homeowners.
Option Three. Address everything in 2024. Without action beforehand, the 2024 legislature will have to operate facing three realities. First, residents throughout the state will receive sticker-shock-inducing bills in late January, elevating the crisis that Prop HH was designed to head off in the first place. Second, they will not be able to use the over $3 Billion in our Fiscal Year 2022 TABOR surplus to pay for anything they come up with. Finally, they will have to work under the threat of a draconian ballot measure, already qualified for next year’s ballot.
Initiative 50, would have a devastating impact on the way local communities and the state funds the services we count on. If passed, any time the state’s property tax revenue goes above 4%, the entire state must hold a vote on whether any one of the thousands of districts across the state can keep its own revenue.
Twenty-six times in the last 40 years, Colorado’s total property tax revenue has been over that 4% cap. We’d be having statewide votes nearly every assessment cycle and if voters choose to bar local districts from keeping their own revenues in any given year, the effects on local communities and our state budget will be disastrous. Initiative 50 has all the hallmarks of bad policy, it’s impractical, arbitrary, would be fixed in the constitution, and it’s counting on sticker-shocked voters to pass. It’s precisely what our elected leaders need to steer clear of and what we need to defeat next year.
The one option that is not acceptable is doing nothing. Under our current rules, residential rates, despite being among the lowest in the country, will go up by too much, too fast. But we must acknowledge that the owner of a $50 million property does not need relief like the recent buyer of a $600,000 starter home does. Commercial rates are incredibly high, but it’s the owner of a small shop that needs a break, not Amazon headquarters. And renters, who make up 40% of the state, must get targeted relief. The only way to pay for any of this is to use our state’s TABOR backfill.
Prop HH was just one solution to the complex constellation of issues facing Coloradans. Now that voters have rejected it, Colorado policymakers have a small window of time in which they can equitably ease property tax increases in a responsible way. Let’s hope they have the wherewithal to push forward with solutions that deliver to those who need it most and avoid reckless policies that rely on panic to pass.
Scott Wasserman is the president of the Bell Policy Center.
