5) TABOR has a “ratchet-down” effect on local property tax revenues by interacting with the “Gallagher Amendment” which we’ve also placed in our constitution.

by | Jan 15, 2018

TABOR’s constraints on our state’s ability to invest in public services is compounded by the way that it interacts with the “Gallagher Amendment” which Colorado voters adopted into our state constitution ten years prior to TABOR in 1982.

The Gallagher Amendment froze the ratio of the total valuation of “Residential” and “Non-Residential” property in the state so that Residential property would never constitute more than about 45% of all property value in Colorado. However, since its adoption in 1982, the valuation of Residential property has consistently outpaced the value of Non-Residential property such that Residential property now makes up about 80% of the valuation of all property in the state. 

Gallagher requires the legislature to reduce the rate at which Residential property is taxed in order to meet its requirement that the valuation of Residential property doesn’t constitute more than 45% of the total valuation of all property in the state.

Since 1982, Gallagher has forced the taxable value of residential property to decline from 30% to 7%, and this has subsequently eroded the property tax base that funds local services like fire protection districts.

TABOR complicates Gallagher in two ways:

1.

While the Gallagher Amendment requires that the Residential Assessment Rate be LOWERED during times when the growth in Residential valuation outpaces the growth in Non-Residential valuation, TABOR has been interpreted to prohibit the legislature from conversely abiding by Gallagher’s requirement that the Residential Assessment Rate be RAISED during times when the formula would support such an increase. This results in an irreversible ratcheting down of the Residential Assessment Rate.

2.

Because TABOR limits the amount of tax revenue which a taxing jurisdiction can collect without voter approval, it can force the mill levy to automatically be reduced when the growth in property values and the corresponding property tax revenues exceed TABOR’s revenue limit. Conversely, while mill levies were traditionally allowed to float upward when property values decreased in order to counteract economic cycles and help protect local governments’ primary revenue source, TABOR prevents the mill levies from increasing without a vote of the people. This collision between TABOR and Gallagher has in some cases led to a structural ratcheting down effect on the mill levy and the resulting funding for local governments.