Amendment 60 - Would Limit Property Taxes

Amendment 60 would amend Article X, Section 20 of the Colorado Constitution ("TABOR") to add a new section to establish additional limits on property taxes.  This section will be in addition to all other provisions of TABOR.  Some of the provisions of this proposal appear intended to override court decisions interpreting TABOR (as it pertains to property taxes) and to roll back certain prior property tax voter approvals under TABOR.

Beginning in 2011, the following new rules are in effect:

• Electors may vote on property taxes where they own property.

This allows persons who own property in a jurisdiction, but don't live there, to vote on property tax measures.  However, it is not clear what is meant by "electors".  Does this mean only Colorado residents, or does it include out-of-state residents or even persons who live in another country? Might it include corporations and partnerships in addition to natural persons?  The proponents' website says "Under this reform, Colorado adults qualified to vote (now registered or not) who own any real property here (cabin, condo, lot, office) recorded in their name and who are liable for property taxes can file and receive election notice comments, sign a petition, and vote on any property tax issues."

• All local governments must allow petitions from citizens to propose property tax reductions.

This is probably true under current law for most municipalities, but creates new rights for citizens of school districts, counties and special districts.

• All property tax elections must be in November.

This provision further reduces the flexibility of elections and requires that they be voted only in November.

• Property tax increases must be voted separately from related debt questions.

This overrules TABOR case law which has allowed debt and related tax increases to pay the debt to be voted in a single question. This could result in situation where voters approve debt, but do not approve the property taxes to pay the debt.

• Property tax bills may list only property taxes and late charges.

Under current law, it is possible for delinquent fees and charges or for special assessments to be collected on the property tax bill.

• Enterprises and authorities must pay property taxes. Since this will result in an increase in revenue to the taxing entities, the tax rates must be lowered to avoid windfall revenues.

Since enterprises, such as water utilities, are business-like activities, this will apparently require an increase in the rates charged by the utilities.  Oddly, this means users will pay higher utility rates (which are not deductible for federal income tax purposes) and lower property taxes (which are deductible).

• Enterprises and unelected boards may not levy mandatory fees or taxes on properties.

This appears to be addressed in part at enterprises such as stormwater or drainage enterprises which impose mandatory fees, and could also encompass entities such as business improvement districts and downtown development authorities which have appointed boards but have the power to levy property taxes.

• Any future property tax increase may only be for 10 years.

The intent of this provision appears to be to require voters to revisit every tax increase every 10 years.  It is unclear whether this 10-year period begins on the date of the property tax election or on the date the tax is first imposed.

• Extension of an expiring tax is a tax increase.

This overrules a court case interpreting TABOR.  It also means that in the future such tax extensions will have to comply with TABOR's more restrictive election rules applicable to tax increases.

• Prior revenue change (i.e., debrucing) elections allowing property tax revenues to be retained are of no force and effect. Future debrucings expire in four years.

With the expiration of the debrucings, governments may have to recalculate permitted revenue increases pursuant to TABOR's formula from the date TABOR became effective. This calculation could be particularly difficult where a local government has received voter approval for broad debrucing questions, since this provision only invalidates property tax debrucings.

• By 2020 school districts must phase out one-half of their 2011 tax rates (excluding debt service levies). The State must backfill the lost revenues.

This appears to be an attempt to shift even more of the cost of public education from local taxpayers to the state government.  The state is not given any more resources to make this backfill (and, in fact, Proposition 101 would drastically reduce state revenues). 

• Nothing in this proposal is to limit to the payment of bonds issued before 2011.

The proposal also contains the following provisions aimed at overturning judicial interpretations of TABOR related to property tax increase, extension and abatement rates after 1992:

• Property taxes exceeding state laws and tax policies, or limits violated, changed, or weakened without state voter approval are terminated. Those laws, policies, and limits, including debt limits, are restored.

This provision seems to be intended to overturn the Supreme Court's decision upholding the legislature's mill levy freeze for school districts.  It would also reinstate statutory debt limits that were removed or weakened by the legislature since 1992, such as those pertaining to school districts and general improvement districts.

• Taxes that exceed the one annual fixed, final, numerical dollar amount first listed in their tax increase ballot title, as stated in (3)(c) of TABOR, are invalid.

This provision requires that a tax increase be stated as a specific dollar amount that cannot be exceeded without further voter approval. So, for example, a ballot question that authorized a tax increase of $100,000 in the first year and then whatever amounts are raised annually by a specified tax rate in subsequent years would, under this provision, only authorize a maximum collection of $100,000.  This provision will require each local government which received voter approval for a tax increase since 1992 to carefully review its ballot question and determine what portion, if any, of the tax increase is still valid if Amendment 60 is adopted.

• Those property tax rates imposed after 1992, without voter approval of a ballot item as stated in (3)(c) of TABOR, are terminated.

This provision seems to be intended to overturn a court decision that an expiring tax could be extended without using TABOR's mandatory ballot formulation for tax increases.

Under this proposal, the State must annually audit and enforce the provisions of this proposal.  Any person may file suit to enforce the strictest compliance with all property tax requirements of TABOR.  Successful plaintiffs shall always be awarded costs and attorney fees; districts shall receive neither.  This voter-approved revenue change supersedes conflicting laws, opinions, and constitutional provisions, and shall always be strictly interpreted to favor taxpayers.

If you have any questions regarding this article or its possible impact on your activities and operations, please contact your Sherman & Howard attorney or one of the attorneys in our Public Finance Group.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2010 Sherman & Howard L.L.C.                                                  February 5, 2010