Proposition 120 sparks a debate over property tax cuts. Here's why it's complicated by a recent bill

KUNC | By Scott Franz

Published October 8, 2021 at 7:00 AM MDT

Colorado lawmakers passed a law more than a decade ago calling on the government to maintain an online checkbook that was updated every five days. After years of neglect and sporadic updates, a new software upgrade has turbocharged the checkbook, which lets residents monitor government spending.

With home values skyrocketing, many Colorado voters have a chance to significantly lower their property tax bills this November.

But Proposition 120 is more complex than it seems.

Even Chris Brown, a non-partisan researcher who has spent many hours examining the economic effects of Proposition 120, jokes it would take more than a single beer to explain all the nuances of the initiative to the average voter.

It’s touted as a permanent, 9% property tax cut for businesses and homeowners. But a state law passed by the legislature last spring is complicating the picture.

“There might be the case of what voters see on their ballot and what they vote on is not the final outcome in terms of the impact of their tax bill,” said Brown, who works at the Common Sense Institute in Greenwood Village. “Very intentionally, the state legislature this year passed Senate Bill 293, which intentionally changed and altered some of the property tax classifications.”

This resulted in a temporary lowering of property taxes. But knowing that Proposition 120 was in the works, the bill also had a side effect: limiting who would actually get another tax break if the ballot measure passed.

Republicans – including Sen. Ray Scott of Grand Junction – expressed concern that lawmakers were trying to water down a tax cut being pursued by voters. They called SB 293 a “poison pill” against the ballot measure.

“If taxpayers — single-family homeowners in particular — approve it, only multifamily property owners get a 9% break,” Scott said at a hearing for the legislation in June.

But Sen. Chris Hansen, a Denver Democrat, defended the legislation, saying single-family homeowners should be treated differently because governments tend to spend more money providing services to them, from trash collection to firefighters.

Hansen says studies also show governments do not have to spend as much on infrastructure, including water and sewer, for higher-density developments, such as apartment complexes.

This legislative back-and-forth is why Brown says the battle over Proposition 120 may not end on Election Day.

“If voters approve this, it will likely be the final impact will be determined in courts through different legal arguments,” Brown said.

And this is already on the mind of conservative activist Michael Fields. As the author of Proposition 120, he says he would probably be the one suing the legislature if it passes.

“This is money that is not in people's pockets, then they're spending on taxes,” he said. “What other things do they struggle with when government has bounced back quicker than anybody expected?”

Fields says property values have gone up rapidly during the pandemic and lawmakers did not go far enough with their tax cuts. But others — including local governments, fire departments and school boards — stand to lose millions of dollars if voters agree to the ballot question.

Studies suggest tax cuts would hurt the most in resort counties like Pitkin and Eagle. And educators are concerned it would have different impacts for schools around the state.

“It just exacerbates the inequities that exist within our communities,” said Amie Baca-Oehlert, the head of the Colorado Education Association. “There are those communities that have been able to go to their voters and to ask for voters to raise their taxes, to support their local school districts. And even when that happens in some communities, because they have a lower property tax base, it's not the same as that happening in, say, maybe the neighboring community.”

But many people are struggling because of the pandemic, and supporters of the ballot measure like Fields say they need relief now.

“I think about people on fixed incomes, seniors, people that are living paycheck to paycheck,” he said. “A big increase in property taxes can have a big impact in them keeping their houses over the long-term.”

If Proposition 120 is approved and courts do not overturn SB 293, researcher Chris Brown says the immediate impact of Proposition 120 would shrink dramatically from as much as $1 billion to around $150 million.

Read Brown's full study on the impact of Proposition 120 here.

And only commercial, multi-family and lodging properties would get tax breaks.

Regardless, Brown says school districts would be shielded somewhat by the billions in federal coronavirus relief money they’ve been getting.

“Now it’s not a perfect one-to-one match in terms of being able to use those COVID dollars in the same way,” he said. “However, a lot of that money can be used to fill priorities and needs.”

Opponents of Proposition 120 counter that permanent tax cuts could reduce the state’s ability to respond to wildfires that are larger due to ongoing drought. To cushion the blow, supporters included a provision letting the state keep up to $25 million annually that it otherwise could not spend because of the Taxpayer Bill of Rights, or TABOR Amendment, that was approved by voters in 1992.