Have you ever wondered about the Gallagher Amendment and its impact on property taxes in Colorado? Fear not; we’ll break it down for you in simple terms!
When and Why Was the Gallagher Amendment Adopted?
The Gallagher Amendment came into effect in 1982 when Colorado voters approved it. Named after state senator Dennis Gallagher, one of its primary sponsors, the Amendment responded to a property tax revolt that began in the late 1970s. Concerned homeowners were troubled by skyrocketing residential property taxes and pressured the state legislature to find a solution.
To address the issue, Speaker of the House, Bev Bledsoe, assembled a panel of nine members from the General Assembly. Their efforts culminated in the Gallagher Amendment, which aimed to provide a workable solution to the rising residential property taxes.
What Does the Gallagher Amendment Do?
The Gallagher Amendment’s main objective is to divide the state’s total property tax burden between residential and nonresidential (commercial) properties. As per the Amendment, 45% of the state’s property tax revenue must come from residential properties, while 55% must come from commercial properties.
Additionally, the Amendment mandates that the assessment rate for commercial property remains fixed at 29% of its value, responsible for 55% of the total state property tax burden. In contrast, the residential assessment rate is annually adjusted to maintain the 45/55 split.
How Was the 45%-55% Split Determined?
In 1982, residential properties accounted for 45% of the state’s total property value, and commercial properties comprised 55%. The Gallagher Amendment’s authors believed that this Split should continue to shape the overall property tax burden. Thus, the 45/55 ratio was firmly established by adopting the Amendment.
How is Property Tax Calculated?
Property tax calculation is based on the formula: Property tax = (market value of property) X (assessment rate) X (mill levy).
For instance, to calculate the property tax on a $100,000 home, multiply the property’s market value by the residential assessment rate (e.g., 7.96% in 2003), then multiply that result by the mill levy rate (e.g., 100 mills). The final figure represents the total tax liability.
How is the Market Value of a Property Determined by Property Taxes?
The Gallagher Amendment requires properties to be reassessed every two years by the county assessor. Market values are determined based on recent sales of similar properties in the area.
What is the Assessment Rate?
The assessment rate, also known as the assessment ratio, is the percentage of a property’s assessed value subject to taxation. The Gallagher Amendment sets the assessment rate at 29% for non-residential properties. However, the residential assessment rate fluctuates yearly to maintain the 45/55 split, currently around 7%.
What is a Mill Levy?
A mill levy is a property tax rate expressed in dollars per thousand assessed valuation. For example, a mill levy of 50 means $50 of tax per $1,000 in estimated value. Each taxing district, such as a school district, must set a single mill levy that applies uniformly to all properties within the community.
Why has the Residential Assessment Rate Decreased Since 1982?
Due to the rapid escalation in residential property values and the growth boom in the 1990s, the 45% share of property tax collected from residential properties had to be distributed among more valuable homes. To maintain the 45/55 split, the residential assessment rate has fallen from 21% in 1982 to around 7.96% today.
Has the 45%-55% Split Between Residential and Commercial Property Value Changed?
Yes, over the last two decades, the proportion of residential property value has increased significantly and now accounts for 75% of the state’s total property value, whereas commercial property makes up 25%. However, due to the Gallagher Amendment, residential property remains responsible for 45% of the state’s total property tax burden, while commercial property still shoulders 55%.
What Services and Entities Do Property Taxes Fund?
Property taxes are the primary funding source for local Colorado governments, supporting various services, including police and fire protection and street repairs. Public schools heavily rely on property tax revenues, with 60% of every dollar collected in property tax revenue dedicated to K-12 education.
How Has the TABOR Amendment Affected Gallagher?
The TABOR Amendment has limited the flexibility of mill levies to counteract economic cycles, preventing them from increasing without voter approval. As a result, the interaction between TABOR and Gallagher has led to a structural decrease in funding for local governments.
What is the Interaction Between Gallagher and Amendment 23?
Historically, property taxes were Colorado’s primary funding source for K-12 education. Still, with Gallagher and TABOR causing a decrease in property tax revenue, the state has been required to provide increasing funding for schools. Amendment 23, which mandates increased state funding for schools, has compounded the challenge of finding sufficient state General Fund dollars for education.
Bottom Line
The Gallagher Amendment has significantly impacted property taxes in Colorado, dividing the tax burden between residential and commercial properties. While it aimed to address rising residential property taxes, its long-term effects and interactions with other amendments have shaped the state’s funding landscape, particularly in education and local government services.