DENVER — After nearly four decades of determining how property taxes in the state of Colorado work, on Nov. 3, voters will have an opportunity to decide whether they want to repeal the Gallagher Amendment with Amendment B.
The Gallagher Amendment, which was passed in 1982, was meant to be a way to keep residential property tax rates lower than the rates paid by non-residential property owners, like businesses.
The share of the state’s overall property tax would be split, with residential properties paying 45% of the share while non-residential properties paid 55% of the share.
For a reminder of what the Gallagher Amendment is and how it works, read our previous reporting. For full video explainers of the initiative, look for them in the player at the top of this story or in the players embedded below.
The case for repealing the Gallagher Amendment
While the original intent of the Gallagher Amendment was meant to help homeowners, Tony Gagliari from the National Federation of Independent Business Colorado says the law’s creators didn’t think about its effects 30 or 40 years down the line or anticipate Colorado’s massive growth.
Over the years, the residential assessment rate has dropped from 21% to 7.15%, and it is set to drop again to 5.88%, while the business assessment rate has remained steady at 29%.
That makes Colorado one of the states with the lowest residential property tax rates in the nation.
The law has resulted in roughly $35 billion worth of savings for homeowners since 1982.
“It’s no longer an issue of making businesses pay their fair share. Businesses are paying far more than their share,” Gagliardi said. “Well, let’s turn the table. When you look at the $35 billion that homeowners have received in reduction in property taxes, residential property owners haven’t been paying their fair share since 1982 when Gallagher was passed.”
According to the Colorado Fiscal Institute, a gas boom in recent years meant the value of non-residential property was growing faster than homes, so to maintain the 45/55 split, the assessment rates on homes should have gone up. In 2013, for instance, the residential property assessment rate was 7.96% but should have been 9.13%.
However, the Taxpayer Bill of Rights (TABOR) prohibits the property tax assessment rates from increasing without voter approval.
“It’s made it disfavorable to business. Businesses today pay 300 times more than residential,” Gagliardi said.
He believes the property taxes are causing some businesses to move or close down permanently — like Racine’s, which closed its doors permanently earlier this year and cited its $78,000 in property taxes as a factor in that decision.
Gagliardi argues repealing the Gallagher Amendment would allow businesses to stay in Colorado, encourage more to come and provide predictability so that they can plan for the future.
He insists this is not a tax increase and that it will help the overall Colorado economy adapt to changes and growth.
The Case Against Repealing the Gallagher Amendment
For opponents of Amendment B, this is a raw deal for homeowners. Dennis Gallagher is the former state lawmaker that the amendment was named after. Nearly 40 years later, he’s still defending the law he helped craft.
“This is not the time to be putting doubt in people’s minds as far as property taxes are concerned,” Gallagher said.
Between the pandemic and the recession, Gallagher says homeowners in the state are already in a tough financial position.
Recently, Jefferson County reported that 11,000 people were delinquent on their property tax payments. Gallagher is worried this proposition will exacerbate those problems.
Even if the assessment rate stays the same, as property values go up in the state, so will the taxes.
The last time a repeal of the amendment was attempted, the idea was overwhelmingly struck down by voters.
“The tax increase for homes won’t be immediate, but down the line that’s what to watch out for,” he said.
Gallagher admits that there are some issues with his namesake amendment, particularly its effect on rural communities but he doesn’t believe Amendment B is the right answer.
Kathleen Chandler, a homeowner and the foundations and coalitions manager for the Independence Institute, also has her doubts about the move to repeal the law.
“That’s not to say that we don’t need to deal with Gallagher for sure, because I’m not sure that ratio is very fair," she said. "But let’s not do it in the middle of a pandemic. Let’s do it when we have more time to think about it. It was rushed through the legislature. I just don’t think it’s the right solution."
She’s worried about the effects passage of Amendment B could have on low-income families or seniors on a fixed budget and believes both could be priced out of their homes if the repeal passes.
Beyond that, Chandler says this repeal might not help businesses as much as some anticipate.
“It doesn’t necessarily mean that business taxes would go down, it just means that our taxes would go up,” Chandler said.
Chandler also admits that the law is having disproportionate effects on rural areas that have fewer businesses, so she thinks there may be an option to move into a more regional approach rather than a one-size-fits-all policy. She just doesn’t think this is the solution to move in that direction.
The Case of Denver Book Binding
Since 1929, the Denver Book Binding Company has been a staple of the business community. As more books move into the digital realm, book binding has become more of a niche profession; Denver Book Binding is now the only company in a nine-state area that offers the services it does all under one roof.
“We get things that are worth nothing on paper but worth a lot in a family,” said the company’s co-owner, Gail Lindley.
For 51 years, the company was located at a building in the 2700 block of 17th Street.
But in 2013, Lindley says they were forced out of the area due to rising property taxes.
“When the city and county of Denver presented us a tax bill of $50,000, we couldn’t do it,” said Lindley.
The company had six months to pack up its machinery, some of which is more than 100 years old, and move to a new location on West 47th Ave.
Now, the company is getting ready to pack up and move once again due to property taxes.
“Seven years ago, taxes started off at 13,000 a year. And currently, the tax bill is $54,000,” Lindley said. “Taxes went up $12,000 just between last year and this year. Who can absorb that cost?”
In order to make ends meet, Denver Book Binding has cut its staff to the smallest employee base it has had since 1972. Prices have also gone up because material, labor and shipping costs have increased. The company used to have 35 people working one-and-a-half shifts and now, there are just nine employees.
The family-owned-and-operated business is now considering moving out of Denver altogether to be able to keep their doors open. The Denver Doll Museum took a similar step last year.
“I just think it’s a shame that something that has a Denver name on it can’t stay in Denver because the costs are so outrageous,” Lindley said. “We’re not Amazon; we’re not Walmart. We’re Denver Book Binding and we want to stay.”
Lindley is hoping voters will decide to repeal the Gallagher Amendment on Nov. 3 and provide tax relief to businesses.
“I don’t know all of the ins and outs for what happens at the statehouse, I just know what the result is and right now, the result is devastating,” Lindley said. “It’s hard. We’re taking a nickel and we’re trying to turn it into six cents.”
The impact on fire districts
For fire districts across Colorado, 2020 has been a difficult year, with the dry, hot conditions. Multiple large wildfires across the state have drained resources over the summer significantly.
West Metro Fire Chief Don Lombardi says the Gallagher Amendment is also taking a toll on special districts like his since they rely on property taxes for funding.
“We’ve had to cut budgets, we’ve had to cut people, we’ve had to cut equipment — all of those things to make a bare-bones type of an effort,” Lombardi said. “We run on fairly razor-thin budgets and we provide the services that we can. So, when we say things are bad, they’re past bad.”
Some rural districts are having to cut back on services, which Lombardi says can affect the response times in the case of an emergency. Others are not able to help their neighboring districts as much with things like wildfires due to budget constraints.
Unlike schools, fire districts do not receive funding from the state to make up the difference when the residential assessment rate decreases. They also don’t have the ability to raise fees. They are, however, able to ask for mill levy increases during an election.
“If they do a mill levy election and say, 'Well, we’re going to raise our mill levies to combat this,' every time the residential assessment rate goes down, it erodes what the voters have approved from a mill levy perspective,” Lombardi said.
He also argues that tax increases are unpopular among voters and difficult to pass.
In an effort to stop the effects the law is having on its staff, in 2018, West Metro and others went to the voters with a different idea and asked to "de-Gallagherize" on a local level for the fire district only.
Voters overwhelmingly approved of the idea, allowing the district to adjust its mill levy rate to compensate for reductions in the residential assessment rate. Now, by Lombardi’s count, another 20 districts are trying to do the same.
Lombardi says the districts don’t want to wait to see whether the state repeal passes, so some have chosen to add a local repeal just in case.
“It’s really to not get more money, it’s to stabilize the money that they’re getting today,” Lombardi said.
However, it only applies to their districts, so library, hospital districts, water districts and more would each have to go to the voters with their own proposal if they’d like to do the same.
That means voters could see two or more Gallagher repeal amendments on their ballots.
Running these elections, however, can be costly.
“West Metro, when we did our vote, it cost us well over $250,000 to do our vote. Even in a coordinated election, that’s a lot of taxpayer dollars to do a vote,” he said.
If the statewide repeal goes through, West Metro isn’t quite sure yet how or whether it would affect them. Still, he’s encouraging people to vote for the repeal.
“This is going to stabilize revenues and allows us to then plan for the future. It allows us to provide sustainability and be responsible on how we do things,” he said.
The Impact on Schools
Various school groups are also supporting the idea of a repeal. Cheri Wrench is the executive director of the Colorado Association for School Board and says the law has created a system of funding where the local share has declined dramatically.
When the residential assessment rates drop on homes and school funding goes down, the state backfills the loss.
In the 1990s, local taxes made up the majority of the funding for schools in the state. These days, the state makes up roughly 63% of school funding.
“Right now, the state doesn’t have the resources to fully fund the schools,” Wrench said. “So even though the state is required to backfill that loss in the local share, there’s really a state shortfall right now of over $1 billion in the current school year.”
With the projected drop in residential assessment rates, Wrench says there’s going to be an eve-more-significant strain on schools.
Like fire districts, some school districts have also taken to asking voters for mill levy increases to make up the difference. Wrench says those asks can result in voter fatigue, with people feeling like they are constantly being asked to raise taxes.
Beyond that, she believes this is affecting communities differently and creating inequities.
“Some of them just don’t have the capacity to raise any more taxes, and so it’s really creating huge gaps and inequities amongst communities across the state. And that, ultimately, is impacting our kids and our schools’ future,” she said.
Wrench believes the Gallagher Amendment is an antiquated policy that needs to be changed on a state level, so she’s asking for a yes vote on Amendment B.
“Our schools do so much more than people realize. They’re feeding kids, they’re feeding families. They are providing social emotional support, there’s provided support for mental health, and all of those things are critical especially in a pandemic,” Wrench said. “We need to make sure that we’re not decimating our local budgets.”
An appeal from former lawmakers
Even before the ballots made it to voters, Amendment B faced some controversy, or rather did the Blue Book analysis of the proposal.
A group of homeowners and former lawmakers sued the council that put the Blue Book together for what they claimed were unfair changes to the election guide at the last minute.
However, a Denver judge threw out the lawsuit, ruling he didn’t have the ability to rule in the matter.
The plaintiffs in the case say the Blue Book doesn’t paint the full picture of what this will do to homeowners.
“If Amendment B passes and Gallagher goes away, it will cost the residential homeowners property owners of the state $203.7 million in the first year alone,” said Clay Vigoda, the campaign manager for Protect Our Homes Colorado.
Over a five-year period of time, his group anticipates that number will go up to roughly $1.02 billion more than residential property owners would have paid otherwise.
Former Colorado House Speaker Dickey Lee Hullinghorst believes this could negatively impact affordable housing and put people out of their homes.
“Gallagher has been good for Colorado. It has kept residential home rates at reasonable levels, it’s avoided the kind of significant property tax that we have seen in other states across the country,” said Ron Stewart, a former state lawmaker and the co-author of the law.
They argue a repeal could open the floodgates for special interests to come in and work with legislators to reduce taxes for their clients.
Opponents also say residential values go up much more quickly than commercial or industrial values, so a repeal would affect homeowners more.
As for the problems posed by the law to fire and school districts, the group doesn’t buy the argument that this will solve all of the funding challenges.
“Gallagher has become the sort of bogeyman on all that ails the state and being able to find what they need to. It’s become an easy whipping boy for the legislature to try to talk about, but it’s not about Gallagher,” Vigoda said.
The opponents would, however, be supportive of an overall tax system overhaul or changes to the current law that don’t include a full repeal.
“Going after the only tax break that residential property orders have in the state is not the way to do it,” Vigoda said.
The Final Say
The Gallagher Amendment is a complicated law to understand, but its impacts are felt by just about everyone in the state.
For some, the four-decade-old law has been an important lifeline. For others, the law has caused significant financial hardships.
In November, voters will have the final say whether the law should be done away with for good.
Click here for more on all 11 statewide issues on the November ballot.
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