Property Tax Relief-The Government Shell Game

This week we move temporarily from the “Housing Crisis” to the “Property Tax Crisis” not because the housing crisis has abated, but because our 2023 Property Tax Notices of Valuation have been sent out to the previously sleeping public to make us aware that we are going to get hammered with property tax increases.  Property values differ throughout the State, but the increases range from 33% to 50%.

Taxes and how we don’t like them. 

Now taxes and the people’s desire to avoid them is a never-ending quest. Generally, the people think that a certain amount of taxation is all right to fund essential governmental purposes.  That is where the agreement ends, with there being an unresolved dispute over “essential government purposes” and who pays for them.  The more taxes that other people pay rather than us, the more lenient we are as to whether they are “essential governmental purposes”.

Tax disputes and the lengths that people go to avoid them go back a long way.  In Ireland, people were taxed on the amount of space which was covered by a roof.  This led to castles being built with rooms open to the sky.  In the Netherlands, people were taxed on the amount of building frontage that faced the street.  This led to tall skinny buildings.  In Hamburg, Germany, property was taxed based upon port frontage.  This led to businesses filling the port with dirt to avoid being on the port.  This shows that the ancients through the Middle Ages were just as good at exploiting tax loopholes as we are today.

The government fights back.

Governments, on the other hand, have been extremely adept at securing taxes from its subjects (that would be us) through a variety of schemes and artifices designed to coerce and fool the citizenry into parting with their hard-earned currency rather than engage in revolt.  These days, the government is better at “revenue enhancement” than the people are with controlling government spending and exercising tax loopholes.  For example, if the government spreads its taxes/fees over a number of sources and keeps the increases relatively small, it will likely be more able to keep and increase revenues whether for the latest palace improvements or for subsidies for its rich subjects to buy electric vehicles.

In this State, for example, we have the income tax, the sales tax, use tax, building materials tax, ownership tax, lodging tax, specific ownership tax,  tobacco tax,  mineral lease/severance tax, open space tax, RTD tax, arts tax, gas tax, road and bridge tax, marijuana tax, personal property tax, a variety of fees, and my favorite, the “occupational privilege tax” where workers and employers each kick in $2/mo. for the “privilege” of working in particular municipalities.

This doesn’t even count corporate and other indirect taxes that are collected by others and passed on to us in the price of goods and services.  The strategy of government is that by separating all of these taxes, as long as it can take in as much money as it can without anyone particularly noticing and rioting, they’ll do it.

But back to the property tax.  Property taxes are used to fund a variety of governmental institutions, some of which we like, some of which we don’t, and others of which we have no idea what they do. The entities that rely on property taxes include county governments, school districts, libraries, fire departments, business improvement districts, metropolitan improvement districts, special districts created by developers, sewage districts, water districts, flood districts and on and on.

A primer on how property taxes are calculated.

Look… If you are bored at this point or are reading this late at night and just want to get to the end, you may skip to the next section, but the this section contains really good stuff to learn, at least once.

Many assume that there is a simple formula that calculates the value of our real property, multiply it by a tax rate and there you go.  And you would be wrong.  The property valuation rules are set by Colorado statute. County Assessors execute the State law using their discretion and the number they come up with is an important component to the ultimate calculation of taxes due.  However, how the county assessors come up with valuations is as complex as the tax system itself and must be saved for an advanced essay on how we are being fleeced, perhaps to be discussed in a later essay depending on reader demand.

So, let’s pretend that we have an accurate value for our property.  At that point, there is another step called calculating the assessment rate.  The State legislature also determines by statutewhat the “assessment rate” is.  Currently commercial property is assessed at 29% of its “property valuation”.  (See above) That means that if you own an office building (lucky you), and it is valued (by the county assessor) at $2,000,000, your assessment rate for that property is $580,000 ($2 million x .29 or 29%).  If you own residential property and it is worth $2,000,000 (really lucky you), the value is assessed at 6.765% or $135,300. ($2 million x .6765 or 6.765%).  The reason for this and the subject of yet another treatise on tax policy and history is that in the 1980s, the people in Colorado got tired of high residential property taxes and imposed a constitutional amendment on government to reduce the share of taxes taken directly from residential homeowners and shifted the burden to commercial property owners. The Gallagher Amendment. (This deal went away in 2020, and we will soon see the adverse effects of what, in my view, was short sighted tax policy).

Now that we have an assessed value of property, it is time to carve up the pot amongst the various taxing entities that are providing critical government services (in their view) to come up with a total property tax bill.  Each taxing entity, counties, cities, districts etc. sets its mill levies (most of which are voted on by the people at least initially unless it hasn’t changed in 30 years) which is essentially a tax to fund its operations.  A mill is a number divided by 1000.  Look…it took me about 10 years to figure this out, and I still have to review constantly to remember it.  So, if the tax rate for your school district is 55 mills, this means that your tax for schools will be 55 divided by 1000, times your assessed value, $135,300 (see above) or $7441.50 which you pay for the schools whether you have any kids or not.  We go through the same process with the fire department, the library, the county, the flood control districts etc., Add them all up and that is your property tax bill which you pay to the County. The County then divvies up the proceeds to the various governmental entities.

Residential Property taxes take off!

When the recent property tax notices went out increasing valuations up to 50%, it conflicted with the government strategy of diversifying tax sources and not raising them too much at a time so they could raise revenues generally unnoticed.  It’s not that the government did it intentionally. It would have been more than happy to slip this one by us, but with inflation (which I also choose to blame on the government and its spending and monetary policies), it created a housing bubble with valuation rates skyrocketing far above our increases in income. 

Now the property tax as opposed to other taxes are particularly pernicious.  The income tax takes a hunk out of our income, but the taxes are more only if we make more.  Sales taxes are due only when we buy things and gas taxes only when we get gas.  We can to some extent control the damage to our economic lives caused by these taxes.  With property taxes, there is a current demand for cash from our wallets now with no corresponding increase in cash for us to pay them.  If you are living in a house and the value of your house increases by 50%, it may amuse you as you enjoy your potential wealth on paper, but there is no additional money to pay the increase in taxes that are levied on your property.  We can’t eat or warm ourselves in the winter with the appreciation of the value of our homes.  We can sell our houses to pay the taxes and live in a tent, but that option is not particularly optimal, in my humble opinion.

The Governor’s Property Tax Relief Plan.

This leads us to the current Colorado Property Tax “Relief” initiative that was proposed by our Governor at the end of the legislative session a few weeks ago.  Hey…despite the complexity of calculation of property taxes, it’s not as if those who pay the least bit of attention to this stuff didn’t know that there was going to be a big problem coming.  Despite the realization that property values were increasing rapidly and that property taxes were going to increase dramatically as well, creating a crisis, the Governor waited until the final week of the legislative session to propose his “solution”. And that solution was to cravenly raise taxes hoping that we wouldn’t notice.

A step back to TABOR

I apologize for yet another diversion, but to straighten out the tangle tax web that has been woven, we have to go back again to the history of the people of Colorado trying to keep the government’s hands out of our pockets.  In 1992, the people passed a State constitutional amendment called the Taxpayer Bill of Rights. (TABOR).  Back in the day, the people were frustrated by the legislature’s inability to control itself and spending by the State and other governmental entities. We passed a constitutional amendment that put the government on an allowance.  The Amendment decreed that if the government wanted to raise taxes, it had to ask first through a vote.  The legislature just couldn’t raise taxes by itself anymore.  While historically this was aimed at “tax and spend” Democrats, Republicans were not completely immune to the lures of spending other people’s money.  In reality, the legislature could not be trusted.

To allow for growth in the economy and a resultant growth in government, the State was allowed to keep the current amount of revenue in 1992 plus increases each year for population growth and inflation.  So, the people essentially told the State and local governments that they had a certain amount of money that we were comfortable with giving them, and they had to make good decisions where the limited funds were going to be spent.  Imagine that!  If the government collected more money than it was entitled to over a fiscal year, it had to give it back to the people. (TABOR refunds).

This began a 30-year game where State and local governing officials attempted to get around these fiscal handcuffs.  The legislature has been flopping like a fish on dry land trying to kill, amend, avoid, restructure, litigate or do whatever it could to get relief from TABOR. We have endured a redefinition of what a “tax” is, by merely renaming some taxes “fees.” The Government has created “enterprises” like little governmental businesses that it kept from being considered “taxes”.  We have had State Referenda C and D, Propositions 110, 123, CC , and FF and innumerable other state and local TABOR elections that one cannot even remember where the people have either denied or eased up on government and let them increase taxes or keep excess revenues.

If the folks trying to subvert and avoid TABOR had spent half that energy and intellectual ability on other matters they probably could have cured cancer or invented the Warp drive.

But back to the Governor’s Property Tax Relief Initiative or as I call it the “How Stupid do you think we are Plan”?

In this “Plan”, entitled Proposition HH, the measure sent to the people for a vote next November claims to provide “property tax” relief. The Governor has proposed a scheme that would lower a portion of the property tax increases this year in exchange for the people’s permission to keep all the excess taxes that the state will receive over the TABOR limit and would otherwise have to give back.  I am going to let that sink in a bit…      …      …

It’s like the government taking money out of your right pocket (tax refunds) and putting it into your left pocket (to pay for part of your property tax increase that it caused), and then wanting to be thanked for its efforts.

One explanation of the scheme is that the State government will take the money from what it owes us to “backfill” the money “lost” by local governments and districts. First of all, local governments and districts haven’t “lost” anything.  This is an increase and it’s not their money.  It’s ours.  Secondly there is no discussion as to which governmental entity “needs” a 50% increase next year.  Really, …we love libraries but does the library need a 50% kicker from 2023 to 2024?  Does Urban Drainage and Flood (South Platte) need a 50% increase in revenues?

In addition, the Governor slipped in a change to the TABOR formula to increase the amount of money that the State can keep such that after a few years, it will never have to give back any TABOR refunds ever again.

Among the shiny baubles that are in the proposal to distract us from this governmental theft is a proposed reduction in the assessment rate from 6.765% to 6.7% (big whoop) and letting seniors keep a minor tax reduction if they change homes in order to claim they are providing tax relief, which they are not. It is clear that stripped down by those who spend the time to look at the details of this stuff, this proposition HH, is not one for property tax relief but for an overall tax increase of what some estimate to be $4.5 billion.

Of course, the Governor and the legislature is not sending this to a vote of the people because they love us or want our opinion.  It is because they are proposing a tax increase, and they have to hope that we won’t find out about their legislative sleight of hand until it is too late.  The rise of property taxes is not an exclusive Colorado problem.  Other states facing this issue are simply lowering property taxes because such large increases based on recent inflation are simply unfair.  Our State could do that but instead is using this ‘crisis’ to squeeze more from us to waste on whatever programs they have to rule society.

It is said that a fool and his money are soon parted. The real question on the ballot is not “property tax relief” but “how stupid are we”, and in November we will have an answer.