Businesses in Colorado were billed $1.7 billion in increased property taxes since 1987, as the combined impact of two key tax amendments produced a surprise double-whammy for corporate checkbooks and government and school-district budgets.
In Larimer and Weld counties in 1994 alone, businesses had to pay an additional $25.9 million in increased property taxes over what they would have paid before the property-tax reapportionment.
The corporate tax tab represents a direct shift in who pays the lion’s share of running government and schools in Colorado, with residential property taxpayers enjoying a tax cut of exactly the same amount.
“It’s a big windfall for residential property owners, no doubt about it,´ said Sandra Hagen Potter, a lobbyist with the Northern Colorado Legislative Alliance. “For business owners, it’s another matter. I’ve talked with at least two businesses in Greeley that say they are hesitant about expansion because of the tax climate.”
The windfall-cum-tax bite came in the form of decreasing residential property tax rates, a decline that began in 1987, dictated by the 1982 Gallagher Amendment to the state constitution. That constitutional amendment is now working in concert with the 1992 Tabor Amendment ­ also known as Amendment 1 ­ which prevents governments from increasing mil levys to make up revenue shortfalls unless voters approve.
While governments in Northern Colorado have seen growth in most tax revenues due to a strong economy, officials say the increases have not kept pace with demands for services.
And the revenue increases have come disproportionately at the expense of businesses, as opposed to residential property owners, particularly new residents who have fueled most of the demands for services, say both government and corporate critics of the state’s new tax structure.
“The $1.7 billion was a direct transfer from residential to commercial property owners,´ said Mary Huddleston, property-tax administrator for Colorado. “It’s not hypothetical. Those are real dollars that we’ve tracked based on property-tax revenue,” she said.
“The irony is that residential property owners require more in government services than do commercial property owners, but it’s exactly what the supporters of the two amendments intended,´ said Ed Stoner, president of Foxfire Property Management, Inc. in Fort Collins. Stoner is a former mayor of Fort Collins and was executive director of Fort Collins Inc., from 1989-93.
“Businesses have had a tax increase of 193 percent since the Gallagher Amendment went into effect,´ said John Knezovich, a Fort Collins accountant and former city council member and mayor.
Knezovich said that he was told recently by an Anheuser-Busch executive that, “the word from St. Louis is that they won’t be expanding in Colorado anymore due to the tax climate.”
Anheuser-Busch executives denied having made that statement.
“Please remember that this company also went through a tough legal dispute with Larimer County concerning property taxes for two years. It’s settled now, but that may well affect our overall position on Colorado’s tax climate,´ said Pete Webb, a media-relations spokesman for the brewing company.
“We base expansion plans on a number of factors, including growth in volume demand for beer and the brewery’s operating costs. Taxes are one important element in those costs,´ said Steve McDaniel, plant manager for Anheuser-Busch Inc. in Fort Collins.
“We have no expansion plans for Fort Collins,” he said.
The statewide $1.7 billion tax shift, calculated in a study completed by the Colorado Departmentof Local Affairs’ Division of Property Taxation earlier this fall, is based on residential property-tax rates that have declined from a high of 21 percent in 1986 to 12.86 percent in 1994. Commercial and industrial property-tax rates stayed constant at 29 percent during the same period.
Perhaps the most significant twist to the tax impact is that the Gallagher Amendment has combined with the Tabor Amendment, which prevents state and local governments from raising taxes beyond the rate of inflation plus economic growth factors, unless approved by voters.
Since Colorado’s residential development growth has far outstripped business growth since 1992, many local governments have faced level or declining tax revenues at the same time that demands for their services have increased.
“It’s only going to get worse,” Knezovich said. “In two years, residential tax rates will drop to 9.5 percent when the next assessment takes place. Then businesses’ share of the property-tax burden will rise to 305 percent of what it was in the mid-1980s.”
“The tax bite just keeps growing for companies, especially in the high-tech arena when they have to buy new equipment frequently,´ said Don Warden, director of finance and administration for Weld County.
“You can sometimes help a new company by getting them to locate in an enterprise zone, which will provide some tax relief. But the biggest effect is probably with existing companies, who no longer have the negotiating leverage. It’s a real turnoff for companies, but it will probably take the loss of a major employer to get voters’ attention,” Stoner said.
Gallagher requires that residential property taxes comprise no more than 45 percent of the total property tax revenues collected in the state. The property-tax reduction ratio was introduced gradually beginning in 1987. Meanwhile, Tabor prevents local governments from increasing mil levys to make up for revenue shortfalls.
“The supporters of both of these amendments said, RDon’t worry. Taxes can increase with growth rates.’But that’s not what has happened,´ said Sam Mamet associate director and lobbyist for the Colorado Municipal League.
Further complicating the issue has been the trend for some rural areas’ assessed property values to drop at the same time that demands for increased government-provided services have gone up, Mamet said.
Both amendments have been the focus of lobbying efforts by government and business groups for the past three years and will be again in the 1996 session of the Colorado General Assembly.
Though legislators have devised a handful of possible ways to circumvent or modify the two restrictions, none of the proposed strategies has yet to make it out of committee discussions, much less be put to a statewide referendum.”This issue is among the toughest nuts to crack in the legislature,” Mamet said. “Changing means asking the voters to amend a major tax break for homeowners. And its hard to find a group of politicians who are willing to do that, given the current attitudes of voters toward any types of taxes.”
Opinions vary as to the intent of the framers of the amendments, and the Tabor Amendment in particular.
“I don’t think the tax-limitation advocates fully recognized that there is a business class of taxpayers in this state that provides a lot of economic well-being and is now expected to shoulder a disproportionate share of the tax load,” Potter said.
But Tabor Amendment author Douglas Bruce has gone on record as saying that he fully intended the two constitutional amendments to butt heads. “If it works right, (the Tabor Amendment) will make the Gallagher Amendment unnecessary,” he said in a recent interview. “Businesses shouldn’t complain, because they got what they asked for in Gallagher, and that was a tax ceiling.”But critics note that Bruce campaigned for his amendment with the assurance that localities would be able to raise tax rates to keep pace with cost-of-living increases.
“That isn’t happening in many places,especially in eastern Colorado where you have rural counties with low populations and no true growth of any kind,´ said Rudy Andras, an analyst with Dain Bosworth, Denver, who tracks local government-financing issues.
“Tabor was not adequately debated,” he said. “Lower property valuations, especially in rural counties, is driving revenues down, and there is nothing there to offset the shortfalls, often not even growth. Counties and school districts in particular are finding that the claims made by Tabor proponents over two years ago that revenues would be allowed to keep pace with inflation and growth simply aren’t true,” Andras said.
While elected politicans have so far deferred the issue, Mamet and Potter both predict that devising strategies to remedy the revenue shortfalls will be an especially hot topic in the next session of the General Assembly.
“Rep. Tim Foster, R-Grand Junction, wants to offer the voters a homestead provision in return for repealing or replacing Gallagher,” Mamet said. “This would give certain residential property owners on fixed incomes an exclusion from property-tax increases.”
Another possible solution is to repeal all property taxes and replace them with a sales tax on all services, Mamet said. “I don’t think we’ll see that one in my lifetime, but it’s being talked about.”
In regard to the Tabor Amendment, governments may have found at least a temporary help mate in the provisions of the law and what appears to be a perceptible shift in voter attitudes.”I call it the nickle-and-dime approach,” Knezovich said. “There were 35 different measures asking voter approval for slight or temporary increases in taxes or use of surplus funds across the state in November. Most of them passed. I think governments recognize that this is their best solution for now, because Douglas Bruce will do everything he can to prevent his amendment from ever being put up for repeal by the voters.”While government officials in Larimer and Weld counties say they are now feeling the steady squeeze, the long-term effects of the tax restrictions have been shielded for the moment by a generally strong economy.
“I think we’ll really feel this with the first significant economic downturn,” Warden said. “We’ll definitely begin to feel the effects of the Tabor Amendment as the new oil and gas wells begin to play out. They help shore up our commercial revenues, and we don’t have anything to offset their loss.”
“There’s got to be some kind of limit on government, but this is some kind of Rube Goldberg type of limitation, and no one is completely sure how to apply it,´ said Bob Kister, budget director for Larimer County.
“It’s sad when you have to wait for court challenges to figure out how to apply a law,” he said.