What are Colorado Initiatives 74 and 75?

Proposed ballot initiatives 74 and 75 both aim to reduce property taxes in Colorado by capping the growth of property values for the purposes of property tax calculation. Property value growth would be capped at the lesser of 3 percent or the rate of inflation determined by the Consumer Price Index (CPI) for the Denver-Aurora-Lakewood metro area. Both initiatives add new language to the constitution to specify that if a single property, or a whole county, experiences a decrease in property values, then reappraisals may occur until properties recover their value. These initiatives would take effect in 2023. Property taxes for 2023 would reflect property valuations from June 30, 2020 to June 30, 2022.  

While both initiatives 74 and 75 would have all the elements listed above, initiative 74 includes a “sunset provision” where the new valuation system proposed would have to be reapproved in 10 years. Initiative 75 doesn’t have this sunset provision and would permanently change the valuation system without requiring re-approval in 10 years.  

Originally, eight different versions of these two initiatives were filed, each with slightly different provisions. Initiatives 74 and 75 lack a rebasing mechanism, which means that the property value in 2023, at the time of implementation, can never increase more than 3 percent. This could permanently skew Colorado’s housing market by artificially capping home values and prices.

How do they affect counties and school districts?

Property taxes are the primary base of funding for school districts and counties. As such, a cap on property values will severely reduce property tax revenue for counties and school districts. Legislative Council Staff (LCS) analyzed the fiscal impact of initiatives 74 and 75 and found that in 2023-2024 alone, these initiatives will reduce local government revenue by $1.3 billion. These revenue losses grow over time as property values continue to be capped by the initiatives.  

Additionally, LCS found that these initiatives would reduce school district funding raised through property taxes. This reduction would result in an additional $360 million that the state would have to spend to backfill lost local government revenue. Colorado already owes school districts $571.2 million through the Budget Stabilization Factor. If initiative 74 or 75 were to pass, the state would either have to spend $360 million next year, reducing the amount of funding available for other government programs, or increase the Budget Stabilization Factor if they could not fully backfill the lost local revenue. Failing to adequately fund public schools results in stagnant teacher wages and fewer resources for students, such as counselors, mental health resources, and more. As the Bell’s recent report shows, continuing to place more requirements on our restricted general fund will only force more and more hard decisions for which programs get funding down the line. 

It is also essential to note that the cost of government services don’t grow at the rate of inflation. That is because the CPI measures how much the costs of goods, such as food, oil and gas, clothes, books, and other items change over time. Government spending is mostly spent on services to people and communities rather than on physical items (which can exceed the rate of inflation). This dynamic has been on stark display for the case of health care spending, because health care inflation has historically been much higher than inflation for consumer goods.

Who benefits?

Initiatives 74 and 75 would help current property owners see smaller increases in their property taxes. Colorado property values have grown significantly over the past several years. This is partly due to the limited supply of homes and homebuying trends during the COVID-19 pandemic. These trends, however, are expected to ease, meaning that the property value growth we are seeing now will likely subside in the upcoming years, although many homeowners may still see rising property taxes given the lag in the assessment process. However, these initiatives could permanently reduce local funding for essential services. They would also do little to address the root causes of housing affordability and may even restrict the supply of homes, if homeowners wish to remain in a home longer because they know that their property values will be limited to 3 percent growth per year. It is also unclear how a 3 percent cap on value growth will affect real market values.

Other implications of Initiatives 74 and 75

Other states have passed similar measures to initiatives 74 and 75: Prop 13 in California, Amendment 10 in Florida, and Measures 5 and 10 in Oregon. All these states have had to contend with skewed housing markets and reduced property tax revenue. Moreover, Colorado has additional fiscal constraints through the Taxpayer’s Bill of Rights (TABOR) that other states do not. Colorado has extremely limited mechanisms to compensate for lost local revenue. Past property tax limitations have had unintended consequences when they confront the reality of our constitutional constraints. While other states have responded with increased sales and income taxes, Colorado already heavily relies on regressive sales taxes and has never raised the income tax rate since TABOR has been in effect. TABOR also forbids progressive means of raising revenue, such as a progressive income tax.  

Initiatives 74 and 75 aim to contend with a real issue of rising property taxes in our state. Unfortunately, the solution proposed by these initiatives would skew the market, dramatically reduce school district and county revenue, and disproportionately benefit wealthier homeowners at the expense of services we all rely upon. Property tax relief should be targeted to those that most need it. Furthermore, it is essential that we maintain necessary funding for school districts and local governments as we strive to ensure that Coloradans can afford to call the Centennial State their home.