Courier reporter

SAN LUIS VALLEY — Voters in Colorado are being asked to repeal Amendment B, also known as the Gallagher Amendment.  At its core, Gallagher is about property taxes…and a whole lot more.

If voters pass Amendment B and repeal Gallagher, future cuts to residential property taxes will be prevented.  The assessment rate for residential property will be locked in at its current level, and funding for local governments and schools will be preserved.    

If Gallagher stays in place, a statewide significant tax cut for residential property will kick in, and the government – already facing a potential $2.6 billion loss of revenue from the pandemic – will lose out on hundreds of millions of dollars. Roughly $500 million will be kept out of the school system.  And rural areas – still recovering from the Great Recession – will be hit especially hard and facing a difficult time of even funding emergency services.

Passed in 1982, Gallagher amended the state constitution to put a limit on increases in residential property taxes that homeowners felt, at that time, were escalating at an unreasonable rate. It was also designed to shift some of the tax burden from homeowners to businesses in an effort to make sure that commercial property owners paid their fair share.

In its simplest terms, the Gallagher Amendment dictates that, if the entirety of the statewide property tax base is contained within a single pie, residential property can make up no more than 45% of the tax base pie, with the remaining 55% coming from non-residential property, such as commercial buildings, factories, farms, ranches, even undeveloped land.

If the value of homes rises faster than the value of commercial property and causes residential property to exceed that 45% limit, the state constitution automatically triggers a statewide tax cut in the residential property tax assessment rate to bring the total (statewide) portion of the tax base back to no more than that 45% of the total. 

Gallagher also dictates that the non-residential tax assessment rate be set at 29% while the residential tax rate was initially set at 21%.

Back in 1982, this sounded to voters like a good deal.  Who wouldn’t want a ceiling on how much a homeowner would pay in property taxes?  And, at the time, it was thought that, should tax revenues drop too much, mill levies could be shifted to accommodate lost revenues and preserve funding for much needed resources like hospitals and firefighting.  But the passage of the TABOR Act in 1992 changed that by requiring voter approval for any tax increases.

In the 38 years since Gallagher passed, the amendment has certainly done its job.  It’s estimated that Colorado homeowners have saved around $35 billion in property taxes, a savings some view as an important counter to the increased cost of living.

But a closer look at the numbers gives a better picture of the cost that’s paid down the road when the reduced residential tax assessment rate is triggered.  And it starts with something no one, not even Dennis Gallagher who authored the amendment, could have predicted.

In 1982, there were roughly 3 million people living in Colorado.  By 2019, 5.7 million people were living in Colorado with most of the population growth found along the Front Range.  It took a while for housing prices to skyrocket, but even going back as recently as the period from 2007 to 2017, houses along the Front Range increased in value by 42% in the suburbs to the south of Denver to 69% in Denver County to 86% in Commerce City. Even more stunning, according to the Denver Metro Association of Realtors, the highest average price of a home in Denver prior to the Great Recession in 2008 was $288,900. The average closing price for a house in Denver in July was $601,000, even in the middle of the pandemic.

Also, over the last fifteen years, a surge in oil and gas development also played a significant role in an increased tax base for ten counties in the state. 

In the early 1980s when Gallagher was first passed, homeowners were being assessed on about 20% of the market value of their house.  But with the market value of houses skyrocketing along the Front Range, that 20% of market value has been cut again and again and again to the current rate of 7.15% to keep the residential tax base below 45%.  It could be said that property taxes in the SLV aren’t driven by factors in the SLV but by factors in the Front Range.

Meanwhile, rural counties -- like those in the San Luis Valley and elsewhere --  that haven’t seen skyrocketing house values or an abundance of oil and gas development within their borders have seen their property tax base diminish and tax revenues along with it.  And with a business economy that’s struggling in a pandemic while shouldering a Gallagher dictated tax assessment rate of 29%, the entirety of rural communities are suffering even more. 

Opponents to repealing Gallagher contend that the amendment is doing its job and legislators should find smaller, less sweeping measures to help offset the economic impact of Gallagher. But the potential for that is not great given that legislators – from both parties – were the ones who sent the ballot measure to the voters, asking it to just be eliminated.

In 2021, the tax rate is scheduled to reset.  If Gallagher is not repealed, that 7.15% assessment rate will be cut to 5.88%, reducing the tax revenue by roughly a fifth when counties are already struggling to function. And a cut to 5.88% may trigger the worst kind of cuts, from services people have grown to rely on to jobs people work to provide for themselves and their families. 

What happens next is up to the majority of voters to decide.