By: Harsha Sekar and K.C. Veio
In yesterday’s general election, Colorado voters passed Amendment B, which repeals a key section of Article X of the State’s Constitution, commonly known as the “Gallagher Amendment.” Adopted by Colorado voters in 1982, the Gallagher Amendment set residential and non-residential property tax assessment rates in the State. At the time of its adoption, property classified as “residential” comprised approximately 45% of State’s aggregate property value, with all other classes of property as well as public utilities comprising the remaining 55%. The Gallagher Amendment functioned to freeze this ratio of the State’s aggregate value of residential property (45%) to its aggregate value of non-residential property (55%) in perpetuity. As a result of the Gallagher Amendment’s mandate to maintain the 1982 ratio, since 1982 the State legislature has periodically reduced the property tax assessment rate on residential property (from 21% in 1982, all the way down to 7.15% in 2020). Along with Article X, Section 20 to the State constitution, known as the Taxpayer’s Bill of Rights (“TABOR”)—which, among other things, generally requires voter approval for all proposed taxation increases in the State—the Gallagher Amendment has been a pillar of Colorado property taxation law and has survived several ballot initiatives aimed at its repeal.
In repealing the Gallagher Amendment, Amendment B will have the following impact:
- The assessment rate for residential real property in Colorado will be frozen at the current rate, 7.15%, making the assessment rate a static ratio similar to that of every other property class in Colorado (all of which have historically been frozen at 29%). The State legislature will no longer be obligated to reduce periodically the residential assessment rate to maintain the 45% to 55% residential-to-non-residential ratio established in 1982.
- The Colorado Constitution will no longer reference the assessment rates of the other classes of non-residential property (e.g. commercial, agriculture, industrial, etc.), rendering all property tax assessment rates to be set forth solely via statute rather than in the State’s Constitution itself. This change will potentially enable the State legislature to reduce the residential assessment rate, or any of the assessment rates on non-residential classes of property described above, in the future without regard to the 45%-55% ratio previously codified by the Gallagher Amendment.
- Any increase in the assessment rate on any class of property in the State would still require voter approval under TABOR.
It is anticipated that the repeal of the Gallagher amendment may impact a variety of municipal debt issuances in Colorado, particularly those backed by a pledge of property tax revenues. For further information, please contact any member of our Public Finance Group.