Colorado Legislative Council Staff

STATE

REVISED FISCAL NOTE

(Replaces Fiscal Note dated February 20, 1998)

TABOR Refund Impact

General Fund Revenue Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-021

Rep. George

Sen. Bishop

Date:

Bill Status:

Fiscal Analyst:

March 2, 1998

Senate Finance

Harry Zeid (866-4753)

 

TITLE:            SUBMITTING TO THE REGISTERED ELECTORS OF THE STATE OF COLORADO AN AMENDMENT TO SECTIONS 3 AND 20 OF ARTICLE X OF THE STATE CONSTITUTION, CONCERNING PROPERTY TAXATION, AND, IN CONNECTION THEREWITH, MODIFYING THE VALUATION FOR ASSESSMENT PERCENTAGES FOR CERTAIN CLASSIFICATIONS OF PROPERTY, ESTABLISHING A HOMESTEAD EXEMPTION FOR A PORTION OF THE ACTUAL VALUE OF OWNER-OCCUPIED RESIDENTIAL PROPERTY USED AS A PRIMARY RESIDENCE AND OWNED BY A PERSON WHO HAS RESIDED IN THE STATE FOR TWO YEARS OR LONGER, AND AUTHORIZING MILL LEVIES TO BE INCREASED WITHOUT PRIOR VOTER APPROVAL AS LONG AS THE EXISTING CONSTITUTIONAL RESTRICTION ON PROPERTY TAX REVENUES IS NOT EXCEEDED.



Summary of Legislation


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund (reduction)

Other Fund


*


*

State Expenditures

General Fund

Other Fund



 



 

FTE Position Change

None

None

Local Government Impact — The resolution would be revenue-neutral in the long-term because local governments and school districts would be authorized to increase their mill levies to counteract the declines in assessed values caused by the homestead exemption and the reduction in nonresidential assessment rates beginning in 2000. The resolution, however, would induce shifts in who pays property taxes.

             *State individual income tax General Fund revenue would be increased due to projected decreases in residential property taxes for those taxpayers who itemize. Conversely, corporate income tax revenue would decrease due to overall increases in business property tax liability. The net amount of annual revenue reductions that would occur is estimated to be $400,000 annually at full implementation in 2006.


            This House Concurrent Resolution would submit a question to the registered electors of the State of Colorado at the next general election in November 1998 to amend the State Constitution. HCR 98-1002 is a companion resolution to the statutory changes identified in HB 98-1152. Specifically, the constitutional changes contained within the resolution would require that for property tax years commencing on or after January 1, 1999:

 

                      Section 3 (1)(b) of Article X of the State Constitution (known as the Gallagher Amendment) would be repealed. In its place, residential real property would be valued for assessment at 10 percent of its actual value;

                      the valuation for assessment for vacant land would be phased down over a six-year period from the current rate of 29 percent to 20 percent by January 1, 2005;

                      the valuation for assessment for all other taxable property (excluding producing mines and lands or leaseholds producing oil or gas) would be phased down over a six-year period from the current rate of 29 percent to 25 percent by January 1, 2005;

                      Section 20 of Article X of the State Constitution (known as the TABOR Amendment) would be modified to allow a local district to impose a mill levy above that for the prior year without voter approval as long as the amount of the district’s property tax revenue that will result from the increased mill levy does not exceed the existing limitation on the district’s property tax revenue imposed by the TABOR Amendment.

 

            A homestead exemption would be authorized for residential real property that is owner-occupied and is used as the primary residence of the owner. The homestead exemption would be:

 

                      the first $25,000 of actual value, up to 30 percent of the actual value of the property for property tax years commencing on January 1, 2000, and January 1, 2001;

                      the first $50,000 of actual value, up to 40 percent of the actual value of the property for property tax years commencing on January 1, 2002, and January 1, 2003; and

                      the first $75,000 of actual value, up to 50 percent of the actual value of the property for property tax years commencing on January 1, 2004.


            HCR 98-1002 would take effect following the resolution’s approval by the registered electors at the November 1998 general election. Therefore, the resolution is assessed as having conditional state fiscal impact.



State Revenues


            Statewide, residential property taxes are projected to be reduced by 4.2 percent in FY 2005-06. The projected property tax increases for the commercial, industrial, agricultural, state assessed, and natural resources property classes would range from 2.1 percent to 7.0 percent by FY 2005-06. During the same time period, property tax liability for vacant land, however is projected to be reduced by 16.5 percent.


            Any decrease in residential property taxes will increase state and federal income tax liability for those taxpayers that itemize their deductions on their federal income tax form. In 2006, it is projected that Colorado individual income tax will be increased by $1.7 million as a result of the higher level of property taxes. Including the effect of property tax on vacant land, Colorado income tax payments for businesses are projected to be decreased by $2.1 million in 2006. On balance, the net effect of the bill on individual and corporate income taxes is projected to be a net reduction of $400,000 in 2006.


            By FY 2005-06, property taxes on producing mines and oil and gas properties will increase 11.8 percent and 14.6 percent, respectively. The increased property taxes paid will reduce the amount of severance taxes due on these properties. Property taxes on state assessed properties would increase by 5.4 percent.



TABOR Refund Impact


            Section 20 of Article X of the Colorado Constitution limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.



State Expenditures


            The net impact of the resolution is a reduction in the statewide valuation for assessment. Under current law, a reduction in assessed values would reduce property taxes to fund the School Finance Act, resulting in an increase in state aid. The resolution permits local governments to increase their levies to offset the reduction in property taxes, but the School Finance Act is not amended to repeal the mill levy cap on school district levies. A state expenditure increase is not provided because it is assumed that the General Assembly will amend the School Finance Act if the resolution is approved by the voters.



Election Expenditure Impacts (For Informational Purposes Only)


            A General Fund line-item in the 1998-99 Long Appropriations Bill will fund the costs of publicizing any initiative or referendum proposal in newspapers and for printing and distribution of the Blue Book to all electors. The General Assembly spent $291,267 GF for one state-wide ballot proposal on the November, 1995 ballot and $1,042,014 GF for the 12 proposals that appeared on the November, 1996 ballot.


            The 1996 General Election fixed costs for mailing the Blue Book to 1.35 million registered voters was $174,036 for postage and $3,800 for obtaining mailing addresses. These costs will be the same regardless of the number of issues on the ballot. Variable costs included: Spanish translation of $11,215; newspaper publication of $644,828; printing costs of $206,806; and other costs of $1,328. Total costs were $1,042,014 GF. Fixed costs totaled $177,837 and variable costs were $72,015 per ballot issue.


            Based on the costs incurred for the 1996 Blue Book, one ballot issue cost $249,852 to print and mail to the public. The $72,015 of incremental cost would be added for each issue to the basic mailing costs of $177,837.



Local Government Impact


            The resolution is assessed to be revenue-neutral in the long-term because local governments and school districts would be authorized to increase their mill levies to counteract the declines in assessed values caused by the homestead exemption and the reduction in nonresidential assessment rate beginning in 2000. The resolution, however, would induce shifts in who pays property taxes.


            When fully phased in for assessed value year 2005 (upon which 2006 property taxes are paid), the owners of vacant land would, on average statewide, be the beneficiaries of reduced property tax liability. This will occur because vacant land will have the greatest percentage reduction in the assessment rate. Statewide, the property tax burden of all other property classes would increase. The reduction in property taxes on vacant land would be shifted to other property owners because mill levies would be allowed to rise. The largest increase in relative tax burden would be in the oil and gas (14.6 percent) and producing mines (11.8 percent) property classes because the only assessment rate decrease these property classes would receive is in personal property (which tends to be a low portion of the total assessed value in these classes). Statewide, residential property taxes are projected to decrease by 4.5 percent by 2005. The projected increases for the commercial, industrial, agricultural, state assessed, and natural resources property classes would range from 3.4 percent to 7.0 percent by 2005.


            Tax shifts within individual counties would vary dramatically. By 2005 when the homestead exemption and other components of the resolution are fully phased in, homeowners in many counties would experience property tax increases even though, in most cases, the homestead exemption would reduce the value upon which the residential assessment rate would apply. The two reasons for this are: (1) homes in 2005 with a market value above $862,069 would have increased assessed values because of the homestead exemption cap of $75,000 and the higher assessment rate of 10 percent; and (2) homeowners in counties or tax areas with high percentages of total assessed value attributable to vacant land would have tax increases because mill levy increases would need to compensate for the loss of taxes levied on vacant land.



Spending Authority


          The fiscal note would imply that no appropriations or spending authority are required for FY 1998-99 to implement the provisions of the bill.



Departments Contacted

 

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