Thirty-six hours after Colorado voters rejected his marquee property tax relief ballot proposal, Gov. Jared Polis on Thursday called the state legislature back for a special session to come up with a replacement plan to deal with tax hikes that are just months away.
“If we do nothing, Colorado homeowners are facing a record property tax increase,” he said. “The crisis is not urban or rural, Denver or the state. It is universal across our state — truly a Colorado crisis.”
The pre-Thanksgiving special session will begin at 9 a.m. on Nov. 17, Polis announced during a morning news conference at the Governor’s Residence in Denver. The Friday convening is likely to continue through that weekend.
In Tuesday’s election, about 59% of voters rejected Proposition HH, according to the latest results. It was Polis and Democratic leaders’ proposal to dial back the property tax increases expected early next year, at least partially, while also providing financial assistance to local governments, along with significantly more money for education for years to come. It would have paid for much of that by dipping into future state tax refunds required under the Taxpayer’s Bill of Rights.
Polis and other Democrats had brushed off questions ahead of the election about their Plan B if the ballot measure failed. But they have regrouped quickly since Tuesday night.
“I’m disappointed with the failure of Proposition HH,” Speaker of the House Julie McCluskie, a Dillon Democrat, said Thursday afternoon. “But putting that aside, I believe it is our responsibility as leaders in state government to still do all we can for the people we serve.”
Legislators will be tasked with addressing the imminent surge in property taxes due to rising home valuations across the state, with median value increases running at about 40%, and much higher in some communities.
Polis began his announcement by donning goggles, picking up a baseball bat and whacking at a repurposed fire extinguisher case labeled “In case of no Prop HH break glass.” He pulled out a scroll from inside. The pane was knocked aside, but didn’t shatter, leading Polis to quip about the strength of modern safety glass.
Time for relief is running short
It’s the first time a Colorado governor has recalled legislators early since the first year of the pandemic, nearly three years ago.
Lawmakers are set to convene for the regular session in early January, but fiscal experts have said that by then, it would be too late for the legislature to make adjustments that would affect property tax bills or to change how state tax refunds are distributed to income tax filers, one potential form of relief.
Polis said timing was of the essence. Local governments are in the process now of setting their tax rates and budgets for next year, including setting the mill levies used to determine local property taxes and deciding whether those should be cut or remain the same to capture money from growing property valuations. That means lawmakers have only weeks left to tinker.
“The only time the General Assembly can get out the $200 million reserved for property tax cuts, and other money we can find for property tax cuts, is now, and that is not an opportunity that we want to miss,” Polis said, referring to money lawmakers had already earmarked to help with property taxes as part of an HH companion bill.
As they look for options to cobble together money to offset the cost of tax relief measures, lawmakers also have the option under state law of dipping into the TABOR refund pool.
Polis said he wants lawmakers to focus on both of the big tools at their disposal to cut property taxes: lowering the assessment rate, or the percentage used to determine the assessed value of a property; and adjusting the actual value of the home, where lawmakers can grant a flat deduction.
The latter is seen as a more progressive approach. Lopping, say, $50,000 from the valuation — to use the figure proposed by Proposition HH — would be more impactful on a $200,000 property than a $2 million property.
“I think you want to do both in some way, shape or form, but you want to make that package progressive in the sense that … lower-income homeowners would get more benefit than high-income homeowners,” Polis said.
Democratic legislative leaders also said they want the special session’s relief bills to be intentional in how they help lower-income Coloradans and renters, whether by expanding the earned income tax credit or offering some kind of rental assistance program.
McCluskie and Senate President Steve Fenberg, a Boulder Democrat, each said equal TABOR refunds — something that would have happened for one year under HH — had high interest in their caucus. The default six-tier system gives higher refunds to Coloradans who report higher incomes, on the basis that they paid more in taxes.
“Lots of conversations we still need to have”
The special session likely will result in the formation of a “blue ribbon committee” to examine long-term solutions to the year-by-year uncertainty of property taxes, Polis said. Some of that has been caused by state leaders’ failure to overhaul the tax system after voters in 2020 repealed the Gallagher Amendment, which for a long time had shifted more of the property tax burden onto commercial property owners.
But legislators’ prime focus will be on the shocks looming in the immediate future. In particular: How to cut the projected spikes in property taxes without hamstringing the local governments, many of them facing growing pains, that rely on the revenue for county services or special districts, such as libraries and fire protection services.
“There are lots of conversations we still need to have to figure out what the legislature and stakeholders are most comfortable with,” Fenberg said. “At the end of the day, it depends on how big of a cut and how much of a backfill we can afford to provide.”
Scott Wasserman, president of the progressive Bell Policy Center, said the special session will have failed if it doesn’t include equal TABOR rebates for all Coloradans. He also called for putting more emphasis on property value deductions for homes that on tapping down the assessment rate.
Some progressive Democrats criticized Prop. HH for too little focus on lower-income Coloradans and renters, who have weathered their own sharp increases in housing costs and general cost of living in recent years.
“It’s the people whose homes are on the lower scale who are going to be hurting the most as a result of the property taxes going up,” said Rep. Javier Mabrey, a Denver Democrat. “And when our schools are underfunded and essential social services are underfunded in our state, I don’t know that we need to be giving John Elway a tax cut on his home in Cherry Hills.”
How long the session will last is unclear, but it takes at least three days for a bill to pass both chambers of the General Assembly. Fenberg, during a bipartisan meeting of legislative leaders Thursday to sketch out the timeline of the special session, said three days was his goal, but there’s no guarantee. Any stall can quickly add days.
In an interview after Polis’ announcement, House Minority Leader Mike Lynch, a Wellington Republican, said he’s hopeful his caucus will have a voice in the discussion. He noted that the party had already drafted several bills for their pre-election calls for a special session.
“Real simply, we’ve been calling for (a special session) because we knew HH wasn’t the solution,” Lynch, a Wellington Republican, said. “This isn’t political. It isn’t an ideological fight. It’s property taxes.”
GOP lawmakers tend to favor more direct solutions that reduce assessment rates or increase exemptions and deductions, without providing aid to local governments or tampering with TABOR refunds.
“The people want actual property tax relief,” Senate Minority Leader Paul Lundeen said. “Not us paying them with their own refunds.”
Fenberg and McCluskie said their own lines in the sand include making sure school districts don’t lose out on money they’re otherwise due from rising property valuations. Given Democrats’ majority control of both chambers, that priority is likely to control some of the debate to come.
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