The Gallagher Amendment

The Gallagher Amendment What it was/is What was the occasion How it happened What Amendment 1 accomplished Observations on property tax politics Scott T. Moore, Ph.D. Associate Professor of Political Science Colorado State University

House Concurrent Resolution 1005 (1982) -Veto-proof measure to end-run the Governor s Call -Required 2/3 vote in each Chamber to send to the voters in November. -Sponsored by Rep.Bob Kirscht (D-Pueblo) -Shepherded by House Speaker Carl ( Bev ) Bledsoe (R-Wray) HCR 1005 was an attempt at comprehensive assessment reform after decades of property tax reforms. It was failing. Sen. Dennis Gallagher (D- Denver) offered a 3 rd Reading amendment on April 6. It was defeated.

STATE BOARD OF EQUALIZATION Ex officio membership: Governor Richard Lamm Treasurer Sam Brown Secretary of State Mary Estill Buchanan Attorney General J.D. MacFarlane Auditor John Proctor Order of September 22, 1975 -- To All County Assessors complete a reappraisal of all classes of property within your county in compliance with Colorado statutory requirement by June 1, 1977. Failure to do so will result in using the sales-ratio study to adjust the abstracts of assessment for that year

Assessment Sales Ratio in Colorado, 1971 (Legal Standard: 30 percent) Assessment-Sales Ratio Statewide Metro Areas All Property 17.6 20.8 Residential 20.9 21.6 Single-Family 20.7 21.4 Multi-Family 22.4 22.9 Acreage 20.6 12.8 Vacant Lots 12.1 13.7 Commercial & Ind. 12.3 19.5 Data from: Census of Governments, 1972

A county breakdown of Assessment Sales Ratios, based on the same data: All prop S.F. res Vacant Lots Adams 19.3 20.5 5.6 Arapahoe 20.9 21.1 9.6 Boulder 20.9 21.3 10.6 Denver 23.0 22.0 21.7 El Paso 20.4 22.0 6.5 Jeffco 18.1 20.1 10.3 Larimer 18.7 20.5 n.a. Weld 15.5 18.2 n.a

Tax Limitation Initiatives 1972-1986 1972 Amendment 7 Dean Amendment -limit mill levies to 1.5% of actual value - division of mill levies -school districts can use up to 20% of levy -other local governments up to 75% of levy -state up to 5% of levy Stated intention to draw state deeper into school finance Property tax losses to the schools estimated $248 million FAILED 23-77

1972 Amendment 12 [Common Cause] -Eliminate real prop tax for school purposes; -Limit property tax levy to 1.5 of full market value; -Authorize severance tax revs to School Fund; -Authorize tax on services -- rev to School Fund; -Distribute 85% of School Fund equally; 15% for special needs; -Establish graduated corporate income tax (5-10% marginal rates); -Establish graduated personal income tax rates (top rates applied @$20,000 incomes FAILED 21-79

1976 Amendment 10 -- Stop Tax Increases New or increased taxes must be approved by a majority of state or local registered voters FAILED 30-70% 1978 Amendment 2 Burch-Orr Amendment Limit per capita state and local govt expenditure growth to CPI, unless popular vote approves further spending. FAILED 41-59%

1986 Amendment 4 Cox Amendment Palisades farmers Require voter approval in even numbered fall elections to add tax or increase existing tax rate FAILED 38-62

HB77-1452: A terrible piece of law-making 1. Reversed HB76-1025, est. 1975 as base year for 1976 and 1977 property tax payments 2. Programmed Shock -- Base Year Concept Keep 1976 assessments down, using 1973 base year. 1973 replacement cost value to be implemented 1977-1982 [5 yr] interval] 1977 replacement cost value to be implemented 1983-1986 [6 yr interval] 1981 replacement cost value to be used 1987--? [6 yr interval]

3. Limits on Assessment Growth 40% limit on 1977 assessment increases to average of 1974-1976 assessments. 25% limit on 1978 assessment growth Permitted residential tax bills to register increases in home values only after multiyear intervals of 5 and 6 years; that is, only in shocks. Moderated the shocks through the 40% and 25% limit, but exposed homeowners to full shock 1979. 1982 Session tax reform activity prompted by anticipation of implementation of new 1977 values in 1983.

Citizens Committee assembled by Speaker Bledsoe Ray Kimball, Executive Dir. of CACI David Rice, Cattlemens Assn Harold Ballard, AMAX Mining tax consultant Stan Sours, Mountain Bell Frank Miles; Colo. Assn School Boards Max Arnold, tax consultant Harry Bowes, Dir, Colorado Counties, Inc. Larry Kallenberger, Teller Co. Assessor Nate Patton, past member Assess. Appeals Bd. Rapporteurs/ consultants: Mary Ann Maurer, Prop Tax Administrator Lyle Kyle, Dir., Legislative Council Held 12 meetings in Jan-Feb 1982

The Committee recommended: 1. Differential Assessment Rates: Residential property 20% of actual value. -- Non-res. property assessed at 30% actual value. 2. Value of Ag land according to earning or productive capacity. 3. Exemption of Agricultural equipment and livestock Exemption of merchandise inventories

4. Equalization Enforcement: - Annual audits of county-assessed property - State Board of Equalization authority to order reappraisals of classes of property at county expense. -State Board authority to order reappraisal by PTA or private appraisal firm at county expense; -State Board authority to order Co. Comms to levy an assessment adjustment levy to repay State expenses. 5. Excess received from the School Finance Act for the prior year must be returned to State. 6. Methods of assessment (cost, market value, & productive capacity) should be specified in Constitution.

HCR82-1005 Provided 1. Differential assessment rates for residential and nonresidential property. 2. Residential property would be assessed by cost and market value approaches. 3. Non-Res property assessment rate fixed at 29% 4. To achieve and maintain a constant share of the statewide property burden, the Res. assessment rate was initially set at 23%; thereafter its level would float. 5. Residential assessment rates would be reset every assessment year (even numbered years)

The Gallagher Amendment SECTION 3. (B) ARTICLE X THE GENERAL ASSEMBLY SHALL ADJUST THE RATIO OF VALUATION FOR ASSESSMENT WHICH IS ATTRIBUTABLE TO RESIDENTIAL REAL PROPERTY AS IS NECESSARY TO INSURE THAT THE PERCENTAGE OF THE AGGREGATE STATEWIDE VALUATION FOR ASSESSMENT WHICH IS ATTRIBUTABLE TO RESIDENTIAL REAL PROPERTY SHALL REMAIN THE SAME AS IT WAS IN THE YEAR IMMEDIATELY PRECEDING

HCR82-1005 [cont.] 6. Agricultural vehicles and equipment exempt 7. Agricultural land valued by productivity and income. 8. The State Board would have equalization authority: it could both order reappraisals and conduct appraisals. 9. Enforcement mechanisms, including annual audits of the Assessors, mandatory County repayment of excess School Finance Act funds (through assessment adjustment levy order if necessary). 10. The 1977 cost values implemented in 1983. Two year assessment cycle to be phased in.

POST-1982 RESIDENTIAL ASSESSMENT RATES Years Enacted Rate Calc Rate, if different 1983-1986 21.00% 1987 18.00% 1988 16.00% 1989-90 15.00% 1991-92 14.34% 1993-94 12.86% 1995-96 10.36% 1997-98 9.74% 1999-2000 9.74% 9.83% 2001-02 9.15% 2003-04 7.96% 2005-06 7.96% 8.17% 2007-08 7.96% 8.19% 2009-2010 7.96% 8.85%

Modest Observations on Property Tax Reform The property tax is illegible to the vast majority of the taxpaying public. It may be acceptable, but not because its understood. Many moving parts multiple types of authors w/ different capacities & ambitions Better information (e.g., sales-ratio studies) lead to disproportionate unwarranted increases in confidence. Useful, specific information more obscure. It s impossible to control what you don t understand.

The property tax tends to punish end-runs, cleverness, & other species of non-consensus-based decision-making. --- Gallagher Amendment engineered an outcome to residential property tax administration [no shifting to residential], without micromanaging assessors as had four decades of assessment reform.