As Home Values Spike, Rocky Mountain States Face ‘Property Tax Mess’

DENVER — Marleen Gamble had already taken out a reverse mortgage on her town house in 2018 to keep up with the steady increase in expenses eating into the Social Security checks that are her only source of income.

Then this year, Gamble, a retired X-ray technician, faced a 20% spike in her property tax bill. With no other way to pay it, she began to empty her home of 34 years in the Denver suburb of Littleton, one memento at a time. Her dining room set, sold. Her jewelry, now someone else’s.

“Every knickknack I have, everything I don’t use, I’m selling,” said Gamble, 84, who has asked officials in neighboring Douglas County about applying for subsidized housing. “What I owe now is $962.62. I think I need to use two credit cards to do it. And I’m going to have to pay interest on those.”

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Skyrocketing property taxes have become a sudden new source of alarm for many people these days in Colorado, and across the newly booming states of the Rocky Mountain West.

As home values have soared, fueled by a pandemic real estate boom that turned large swaths of the Mountain time zone into magnets for hybrid work and recreation, so, too, have property taxes. And while the rates remain low compared with places like New Jersey, Vermont and Texas, the sticker shock in Mountain states has been discombobulating, especially for low-income families or people who own second homes.

State and local governments are scrambling to come up with remedies to provide some relief and predictability. But they also face the challenge of keeping up with the expanded services required as a result of so many newcomers, like schools and local government operations, most of which are funded through property taxes.

In Montana, where residential property taxes jumped 46% in some counties from 2022 to 2023, Gov. Greg Gianforte, a Republican, convened an emergency task force. One thing off the table: a sales tax for Montana, which aims to remain one of just five states without one.

In Wyoming, legislators passed several bills granting modest new exemptions and limiting annual increases. A former Republican candidate for governor has also pushed for a ballot initiative that would gut education and other government spending to reduce property taxes 50%.

And in Colorado, home of the Taxpayer’s Bill of Rights, or TABOR, which limits spending and new taxes and refunds any excess revenues to taxpayers, voters said no in November to providing immediate relief by tapping into future tax refunds. Gov. Jared Polis, a Democrat, responded by convening a special session of the state Legislature, and a task force to look for a more permanent solution.

“This has been a phenomenon in Colorado, Montana, Utah, Arizona, the Western states,” Polis said in an interview. “If your home value went up 40%, that might be a wonderful thing on the equity front, but it doesn’t mean you have 40% more cash to pay taxes. Your salary might have only gone up over two years 10% or 12%. That’s the challenge we face.”

Property taxes in Colorado are calculated by multiplying a home’s value (set by the elected county assessor) by a statewide assessment rate (set by the state). That figure is then multiplied by each town’s mill levy rate, which combines specific taxes set by local government entities in charge of schools, fire, sewer, recreation and more.

Several factors have contributed to the surges, said Adam H. Langley, associate director of tax policy at the Lincoln Institute of Land Policy, which has conducted extensive research on property taxes.

One is timing: Property values are assessed every two years, so the values being used to calculate taxes are relying on how much properties were worth in the middle of 2022, when home prices were at their peak and interest rates were low.

Another is the failure of many local governments in Colorado, unlike some of those in other states, to reduce their mill levy rates.

Then there was the repeal in 2020 of the Gallagher Amendment, which had limited how much of the state’s overall property taxes should be paid by homeowners. As home values climbed, the amendment had triggered repeated cuts in residential assessment rates, putting billions of dollars that would have gone to schools and services into homeowners’ pockets. And it shrank the tax base of areas that were not booming, like the rural Eastern Plains.

“Colorado is mired in a property tax mess with no easy way out,” Billy Hamilton, the deputy chancellor and chief financial officer of the Texas A&M University System, wrote recently in Tax Notes State, a nonprofit trade publication.

Still, Colorado homeowners have been paying less than many of their counterparts elsewhere in the country. Before the most recent increases, the median annual property tax bill for primary residences in Colorado in 2021 was $2,259, or 19% below the national median of $2,795, according to the U.S. Census Bureau.

Among the places now absorbing the biggest increases are the mountain towns on the Western Slope, where white-collar workers and real estate investors have powered job growth and higher taxable incomes.

That has exacerbated a shortage of affordable housing, particularly for service and public employees, including a sizable number of Latinos who have been moving away from Aspen along Highway 82 to Glenwood Springs and beyond.

“The billionaires are pushing the millionaires down valley,” said Brittany Hailey, who lives in Carbondale, near Aspen, and manages vacation properties in the area. She previously worked for Sen. John Hickenlooper, a Democrat, when he was governor.

In Pitkin County, Aspen’s home, property taxes climbed 27% this year, said Jon Peacock, the county manager. “That could put some folks at risk of not being able to stay in the community,” he said, particularly retired people on fixed incomes.

To ease the crunch, the county is rolling out a rebate program that would give rebates of up to $2,000 to eligible individual homeowners who earn up to $72,900 and couples who earn $98,600.

Hailey and her husband, Michael Hailey, might have qualified for that program when they moved to the Western Slope 10 years ago. She was working at a local wellness company, he was the third employee at an early-stage tech startup, and they found it hard to pay their bills.

They now have two homes and rent one out to seasonal visitors. Brittany Hailey’s business, Boutique Mountain Homes, has been so successful that her husband is now the chief financial officer.

Though their property taxes jumped more than 36% on average this year, Hailey, 37, said taxes sometimes needed to be raised to sustain important services, like the area’s popular bus system. In fact, she was involved in a successful Carbondale initiative in 2022 to add a 6% lodging tax for short-term rentals to create an affordable housing fund.

But like many people who own second homes, she opposes a bill that would classify homes that are rented out for more than 90 days a year as commercial properties. Commercial tax rates are four times higher than residential ones.

“The lawmakers think that this will maybe reduce the number of second homes, or punish people who have more than one home,” she said. “They’re trying to find a scapegoat.”

Mike DeGuire, a retired school principal who owns a second home in Silverthorne, closer to Denver, also criticizes the bill as misguided and unfair. But as a longtime education advocate, he believes the entire tax structure should be overhauled to bolster the state’s chronically underfunded schools.

His frustrations resonate in Denver, where many parents find it incongruous that property taxes are escalating while teacher layoffs also loom. Students have even staged walkouts.

“Maybe we’re not thinking the way we should with property taxes,” DeGuire said. “It’s almost a psychological thing — people are used to getting their refunds, and they’re used to their taxes not being so high, so we’re in a real bind.”

The idea of paying more taxes has found little support in fast-growing Douglas County, a conservative area between Denver and Colorado Springs.

New developments are sprouting regularly, and prospective homebuyers have sometimes offered $100,000 or more in cash over list prices. Now 1 in 5 Douglas homeowners is facing a 40% spike or more in property taxes, according to the Common Sense Institute, a free-enterprise research organization.

Douglas County officials had proposed lowering the assessments of all single-family homes by $4 million, which would have saved the typical homeowner $223. But a state board rejected that, and the county has since sued the board.

“The citizens of Douglas County have been living on this roller coaster, not knowing what their property taxes look like,” said state Rep. Lisa Frizell, a Republican and former county assessor.

Frizell is a member of the bipartisan tax commission empaneled by Polis. Among its recommendations are allowing the state to intervene if property taxes exceed a specific amount, separating school funding from other funding, and reducing commercial rates.

The Legislature has until May 8, when the session adjourns, to codify any proposals as bills.

One Colorado term that was invoked constantly during a meeting last month was “de-Brucing,” which permits local governments to ask voters to waive TABOR’s spending limits. It is named after former state Rep. Douglas Bruce, an anti-tax activist who authored TABOR in the early 1990s, taking inspiration from Proposition 13 in his native California.

“When they say they’re going to de-Bruce, it’s an insult to the voter — it doesn’t hurt my feelings,” said Bruce, who later spent time in prison for tax evasion and related matters and is now running for Congress. “It’s like saying they want to purge me from the constitution.”

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