Is the American Dream of homeownership still a dream come property tax time? Rhetorical question, maybe.

Colorado Proposition HH, at its simplest, would limit property tax assessment rates in Colorado (for the next 10 years), create tax exemptions for parts of the value of properties, increase the state’s TABOR revenue retention cap, use several types of state revenue to defray the cost of property tax revenue losses due to tax rate reductions for local governments or districts, and devote new revenue to public schools and rental assistance programs. Prop HH is a statutory measure, not a Constitutional amendment, and would pass with a simple majority vote.

OK, I get it – that’s not really simple. Carry on…

Framing the Issue

There’s at least one double-edged sword to recent skyrocketing property values in Colorado. On one edge, property owners might enjoy significant property value appreciation over time, and might have something worth a great deal of money to sell when the time comes. On the other edge, while the property value you’d see on Zillow isn’t necessarily perfectly reflective of the taxable assessed value, owners of property with increased values are typically receiving or expecting increased property tax bills.

Some property owners can handle tax increases without a major problem, but it can get a lot tougher if the owner is income-limited and the increases exceed what they can get from programs like the state’s Homestead Exemption. Property taxes may also pose a burden to businesses operating on narrow profit margins, and commercial property is taxed at rates about four times higher than residential property.

For those who say “Colorado’s property taxes are nothing like (pick a state),” that’s probably accurate although Colorado has other forms of taxation. The Tax Foundation recently ranked Colorado as 47th in the nation for property taxes paid as a percentage of homeowner value. Nonetheless, many Coloradans are now getting or likely to get new property tax bills that might pose financial challenges at some level.

Meanwhile, many public entities in Colorado are very dependent on property tax revenue to function. This includes public schools, county governments, services provided through county governments, and special districts. Cutting property tax rates without finding other sources of revenue could in turn force local governments and districts to cut services.

In 2023, state legislators passed Senate Bill 23-303, which was signed into law, and this bill is the basis for the legislatively-referred Proposition HH. Fair warning, the fiscal note for SB303 is much easier to read than the bill itself. The bill was formally introduced on May 1, 2023, of course after planning and stakeholder discussions, and it passed after a week of hearings on the last day of the legislative session (May 8). It passed on largely but not perfectly partisan lines, with most Democrats in favor and most Republicans opposed. In fact, House Republicans walked off the floor in protest before the third reading vote on May 8, but there were still enough votes to approve the bill.

One note before getting a little technical – since the state’s Gallagher Amendment was repealed via the voter-approved Amendment B in 2020, the Colorado General Assembly has proposed several bills that would or would have adjusted property tax rates or exemptions. This is a gross oversimplification, but under Gallagher raw property tax rates and the ratio between residential and commercial properties were sort of on auto-pilot, for better or for worse.

What Prop HH Does

Property Tax Rates: The first major thing Prop HH would do, among the things I believe would be most relevant to most readers, is to reduce or limit property tax rates relative to where they’re at now. There would be adjustments to both residential properties (top chart) and nonresidential properties (second chart). It’s probably easier and quicker for readers to just look at the charts to understand the raw percentages and the timeframes in which they’re effective.

Also, please note the information about reductions in taxable values, which may be extremely relevant for property owners at tax time.

For those who think they’ll live beyond 2032, it may also be important to know the General Assembly might be able to extend rates and structures found in Prop HH beyond 2032, though there’s no telling how a General Assembly might generally vote looking that far into the future.

TABOR Cap: The second major thing Prop HH would do is increase the state’s TABOR revenue retention cap by one percent each year – beyond its current formula (next paragraph) – until 2032.

For the world’s shortest history of the TABOR cap – when TABOR passed in 1992, it allowed the state’s retention of revenue subject to TABOR to increase only by the rate of inflation and population growth, relative to the previous year. However, there was an inherent “ratchet effect” in TABOR that meant a recession or bad economic year would re-set the base to a lower figure, potentially meaning the state would not be able to catch up to pre-recession revenue retention levels for several years. In 2005, voters passed Referendum C which eliminated the ratchet effect and increased the TABOR cap formula to where it stands today.

Prop HH would again increase the TABOR cap, like Ref C did in 2005. Again, it’s probably easiest to look at the chart at right to get the picture. This would mean the state would be able to retain and spend more revenue without issuing TABOR refunds or making tax adjustments, compared to revenue retention levels if Prop HH doesn’t pass.

TABOR refunds: If Prop HH passes and the TABOR cap increases, the total money potentially available for TABOR refunds would decrease. This could mean smaller TABOR refunds, or even no TABOR refunds if the state collects less revenue in a given year than the TABOR cap.

The General Assembly can currently pass legislation to determine “how” TABOR refunds or tax adjustments are implemented, but without a Constitutional amendment it can’t just use revenue collected in excess of the TABOR cap. The original TABOR initiative does allow proposing ballot measures that ask voters if the state can retain additional revenue or increase taxes. Prop HH is therefore asking voters to grant the state authority to retain and spend revenue up to the new HH cap.

In recent years, the General Assembly has taken what some might call an economically “progressive” approach to refunds – setting refunds at equal or close to equal dollar amounts among different income categories. If Prop HH passes, passage of a separate state bill this year (HB 23-1311) means TABOR refunds will be identical in dollar amounts across income categories for the 2023 tax year. Look at the chart at right to see a projection of how refunds would be disbursed in 2024 and 2025.

The state’s Blue Book ballot analysis does not show in great detail what might happen beyond 2025, and even the sheer availability of refunds might depend on the state’s future economic performance. However, readers might find this linked story from Colorado Public Radio interesting because it includes pre-HH refund estimates stretching out until 2027.

Readers should notice that the “progressive” approach to TABOR refunds means higher-income Coloradans will “lose” TABOR refund money at higher dollar amounts compared to what they’d get under current law, while lower-income Coloradans might “lose” less or even gain a little bit of refund money relative to current law. This has drawn the ire of pundits and organizations who tend to stand up for wealthier interests, but on the other hand larger TABOR refunds have been quite helpful for lower-income Coloradans who could benefit from a few hundred dollars for bills or useful items.

State Backfill For Local Services: The State of Colorado does not directly collect property taxes, and instead property tax revenue largely goes to local governments or special districts. The local governments and districts then use this revenue to provide services – think county human services departments, public school districts, or fire/flood control districts for a few examples.

Obviously, cutting property tax collections could seriously impact local governments or districts that are dependent on property taxes. Passing Prop HH would provide for state money to be used to “backfill” these local revenues, in efforts to ensure that local governments and districts won’t need to cut vital services in the interest of property tax relief.

Under Prop HH, the state would use revenue available under the increased TABOR cap but above the old Ref C cap for backfilling local governments and districts. Passing the ballot measure would also establish and devote $128 million to a Local Government Reimbursement Cash Fund, and this title accurately describes the intended use of the funds.

But as I said at the start of this post, this part of HH is not necessarily that simple. The Colorado Municipal League (CML) has opposed HH, in part because “once a municipality reaches an increase of 20% or more in the assessed value of real property from the 2022 property tax year, it will no longer be eligible for backfill.” Meanwhile, the Bell Policy Center supports HH, and notes that the 1% yearly increase in state revenue retention is cumulative, so the amount of money available for local backfills to localities that don’t exceed 20% increases in assessed values should also increase over time.

This might not be CML’s most important point, but it concluded one summary of HH by saying “the measure’s impact is dependent on many economic factors that are constantly in flux.” For one editorial comment in this fairly geeky section, I would say policymakers and especially budget analysts should keep close track on how the HH formulas play out into the future if HH passes, and be ready to propose adjustments if they seem necessary.

What If I’m a Renter?: The relationship between renters’ monthly rent expenses and property tax expenses for landlords has not always been well-defined, but it’s probably fair to assume the cost of property tax is passed on to renters in many cases. When it comes to Prop HH, questions arose as to whether renters would actually benefit from property tax limitations, especially given that Prop HH reduces the TABOR cap so there could be less money available for their refunds into the future.

Passing Prop HH would enact a transfer of 5 percent of the amount retained under Proposition HH or $20 million, whichever is smaller, to the state’s Housing Development Grant Fund. This money would be used in rental assistance programs, though the generally conservative Common Sense Institute claims that rental assistance would typically only help a small percentage of renters.

Benefits to Schools: Prop HH includes mechanisms to backfill revenue that local school districts wouldn’t collect due to property tax limitations, and these backfills are not subject to the same 20% limitations on assessed property values other local governments might face. HH also transfers $78 million into the State Education Fund for 2023, and the fiscal note for SB303 anticipates this to increase to $124.9 million in 2024 and $269.0 million in 2025. A visit to the Prop HH proponents’ website https://www.yesonhh.org/endorsements will show that the state’s larger education associations and advocacy groups have endorsed the measure.

Calculators: How Would Prop HH Affect Me?

All this wonky junk probably isn’t helping everybody understand what’s almost certainly most important to most readers – what will Prop HH do to “my” taxes as a property owner or “my” TABOR refunds? Well, you’re in luck – just click on one or both of the links below to find a “calculator” that can tell you the near-term impacts, relative to your income level and property value. Disclaimer though – Prop HH would last until at least 2032, and the calculators below don’t look that far into the future.

PROP HH PRO:

  • Prop HH would limit property tax rates during a time of skyrocketing Colorado property values, plus provide tax exemptions for part of the value of a property.
  • Since commercial property is taxed at about four times the rate of residential, limiting tax rates could benefit businesses or make it less likely they’ll need to pass increased costs onto consumers.
  • By increasing the TABOR cap, the state might have more funding available for general programs and services, notably in education (depending on the economy and other state funding needs).
  • Also by increasing the TABOR cap, the state would be able to make sure local governments and districts aren’t hindered by revenue losses due to property tax limitations.

PROP HH CON:

  • The increased TABOR cap would mean reductions in TABOR refunds, which people can use to spend on what they see fit.
  • For some property owners in some tax years, TABOR refunds might be more valuable than property tax limitations.
  • A significant percentage of renters, who don’t directly pay property taxes, might lose TABOR refund money without getting real benefits from rental assistance.
  • Property tax bills might still increase even though rates would be limited, partially because property tax values seem likely to continue increasing.

Proponent Organizations:

Opponent Organizations:

Richard’s Take

I’ll lean toward voting in favor of Prop HH, but there’s a lot of nuance and pros/cons on this one. I try very hard whenever there’s a ballot measure like this to consider both “what’s in it for me” and “what’s in it for society,” and I hope readers will at least try to consider the same.

As to “what’s in it for me,” the limitations on property tax rates seem likely to be good for me into the future and to some extent good for at least a large portion of society, since so many individuals own residential or commercial property. This is less about “me” and more about people with more expensive property – but increases in property tax bills and property valuations have been shocking to a lot of Coloradans.

Of course, many property owners might also enjoy the rapid value appreciation when it comes time to sell their properties, but I’m especially concerned about people who might own a property of significant value but have fixed or limited income with which to pay their tax bill. Prop HH includes both tax rate limitations and tax exemptions for some portion of assessed property values, both of which could be especially helpful for people struggling to meet expenses.

Just about any ballot measure relating to money or fiscal policy runs into TABOR at some point, whether it’s a specious connection or a valid point. But one thing I think is clear about TABOR is it allows supporters to ask the voters if they want to alter fiscally-related things – tax rates, total tax retention, or new taxes among them. For that point alone, I sort of don’t want to hear that Prop HH somehow is an affront to TABOR, because HH is doing exactly what TABOR allows it to do, and voting “no” is a legitimate choice.

Some of the most vehement opposition to Prop HH is because it very clearly increases the state’s TABOR revenue retention cap, therefore probably reducing the amount of TABOR refunds taxpayers will receive, and in some years potentially eliminating refunds. That’s a thing, to be sure. Some people will certainly perceive that reductions in TABOR refunds could overshadow their property tax limitation benefits, and it might be rational for them to oppose Prop HH – but I’ll recommend readers use the calculators in the sections above to see if “this means you.”

Very broadly about the rest of society – Prop HH is designed to keep entities dependent on property tax revenue “whole,” so they won’t have to cut services as a result of property tax limitations – though as noted earlier CML would almost certainly quibble with this point. Backfilling local governments that might lose property tax revenue is one of the big reasons why Prop HH increases the TABOR cap, and the higher cap also makes possible devoting a significant amount of extra funding to education, and lesser but potentially helpful amounts to renters who need assistance.

If I had one major criticism of Prop HH, it might be the renters’ component. Property owners should enjoy tangible reductions in property tax bills, or at least limitations in increases. It’s said that landlords pass property tax costs onto renters, but I’ve yet to hear anyone say that they’ll reduce rent if they get a tax break (please prove me wrong here, folks). Since Prop HH is statutory, I’d like to hope that the legislature might take another crack at helping renters who might not benefit that much from this ballot measure, and improvements might not need to be within the statutory structure HH would enact.

But all in all, Prop HH seems to me to be a strong, comprehensive plan that considered lots of eventualities. I’ll probably support it, but I recommend taking some time to check out the many components and see if the whole thing works for you and for society.