Eagle County special districts face dropping revenues tied to state’s Gallagher Amendment
April 21, 2018
EAGLE COUNTY — Colorado's booming Front Range housing market may seem far removed from Eagle County's emergency services operations, but the two are inextricably bound together by ties contained in the Gallagher Amendment.
And as they look ahead to 2018, those ties are really chaffing local operations.
Adopted in 1982, Colorado's Gallagher Amendment prevents residential property owners from paying more than 45 percent of the overall state property tax base. Eagle County Attorney Bryan Treu explained that to maintain the 55 percent nonresidential/45 percent residential balance, commercial property is assessed at a fixed 29 percent rate, while the residential rate is flexible to adjust downward for increases in assessed valuation.
In most years, the formula doesn't come into play. But as recent Front Range residential building has outpaced commercial and industrial growth, homeowners have been footing a growing percentage of the statewide tax bill and forcing assessment rates down to comply with the amendment's provision.
“This year, we are facing a further reduction to 6.1 percent. To complicate it further, Gallagher forces residential rates down when housing prices go up but can’t bring the rate back when the housing balloon pops.”Bryan TreuEagle County attorney
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"The residential assessment rate had held steady at 7.96 percent for the past decade but was adjusted to 7.2 percent last year in response to the number of new homes being built on the Front Range," Treu said. "This year, we are facing a further reduction to 6.1 percent. To complicate it further, Gallagher forces residential rates down when housing prices go up but can't bring the rate back when the housing balloon pops."
That's exactly where Colorado sits today. In the end, special districts — such as the Gypsum Fire Protection District, Eagle County Health Service District or other smaller government entities — are walloped by the amendment provisions because they rely solely on property taxes to fund their operations. And in areas where commercial property tax collection is small, the pinch is particularly sharp.
The Gypsum Fire Protection District is a prime example of the Gallagher Amendment's impact. The district is almost completely reliant on residential property taxes to fund operations. The town of Gypsum's sales tax revenue generators don't help the fire district much. The Costco Warehouse is actually located in the Greater Eagle Fire Protection District, and the Eagle County Regional Airport isn't assessed as commercial real estate because it is located on government-owned land.
In 2017, when the assessment rate for residential property taxes was ratcheted down to comply with the Gallagher Amendment, Gypsum Fire Protection District lost nearly $80,000 in revenues for 2018. Looking ahead to 2019, the district figures it will lose an additional $150,000 to $225,000.
"It will wipe out the entire mill levy election we did," said Gypsum Fire Chief Justin Kirkland.
In 2016, Gypsum Fire Protection District voters approved a mill levy increase than brought in an additional $300,000 for operations. The district planned to purchase new equipment and hire more staff with that money. But as it has been hit with Gallagher impact, the mill levy increase will just help the operation tread water.
Chris Montera, of Eagle County Health Service District, was at the Colorado Statehouse last week to speak with legislators about another topic. But he did take the opportunity to bring up the Gallagher issue.
For the district, which operates the Community Paramedic program, finances have been tough over the past two years. First, provisions contained in the Affordable Care Act resulted in a $1.5 million revenue loss. Then in 2017, the district saw a $400,000 drop in property tax revenue due to Gallagher.
Montera said the projections reaching out to 2020 indicate that the district's revenues will drop by $1.2 million annually because of Gallagher.
The health service district, like Gypsum Fire, successfully passed a mill levy question two years ago.
"The net effort of this (the Gallagher Amendment) will wipe that out," Montera said.
Faced with dropping revenue and annual 10 percent volume increases, Montera said there are only two options for the district — reduce services or more elections.
"At the current rate, we would have to go back to the voters every two years, and our last election cost us $40,000," Montera said. "That doesn't sound like a very cost-effective solution."
But at present, it is the only option.
"When I talked with people at the state legislature, they didn't see any problem with going to the voters every two years," Montera said.
Treu said there was some talk about addressing Gallagher during the 2018 Colorado Legislature, but no bills have been presented.
Treu said one of the proposals involved changing the state's reappraisal process from a two-year to a four-year cycle.
"I don't know if that would have helped or not," Treu said, noting we never will know because the bill was never introduced.
Treu said Colorado Mountain College unsuccessfully floated a Gallagher solution last fall.
"CMC tried to give itself the ability to adjust its mill levy when future Gallagher Amendment reductions take place to offset the reduction," Treu said.
He noted the novel approach certainly would have faced legal challenges.
"Although courts generally look for ways to reduce the impacts of TABOR (Colorado's property tax limitation law), it is pretty clear that tax questions need specificity, need to be narrowly written and need to ask for a specific amount of new revenue. CMC's question was open ended to offset any future drops in residential assessments," Treu said.
With the 2018 legislative session drawing to a close, the chances of Gallagher reform are dwindling to the frustration of special districts statewide. Local special district officials shared those frustrations with the Eagle County commissioners last week, but the commissioners have no ability to change the law.
"Somebody needs to fix Gallagher," Kirkland said. "We made promises to our citizens when we did our mill levy question, but now the money is going away. We lose money when home values go up and when the values go down, it's an even bigger drop."
Kirkland noted that the biggest impacts from the amendment are felt in smaller, rural areas, and so it's been difficult to find someone to champion a solution.
"No one want to be characterized as raising taxes," Kirkland said.