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Higher Home Prices in Colorado Should Boost Property Taxes

Colorado’s housing recovery is setting the stage for bigger property tax bills for homeowners next year and more revenues for local governments in many parts of the state. Overall, the gain in the residential assessed tax base is estimated at 14.3 percent between June 30, 2012, and June 30, 2014, according to the Division of Property Taxation. But that is a weighted average, and several counties are recording their biggest jump in residential property values since the dot-com days.

In Garfield County, the two-year gain is 35.4 percent. Adams, Arapahoe, Douglas, Gunnison, Weld and Yuma counties all
have residential assessed value increases topping 20 percent in that two-year period. “The housing market has stayed pretty hot,” said Marc Scott, deputy assessor for Arapahoe County. “Some of the lower price ranges hit hard by foreclosures are coming back very strong, and the higher price ranges remain in high demand.” Residential assessed values are up 23 percent in Arapahoe County, the most of any metro county and the best showing since the 24 percent gain between mid-1998 and mid-2000. The property tax increases that home owners see, however, will be very specific, based on their neighborhood and property type, Scott said.

Notices of property valuations are going out in May and, if not disputed, go into the calculation of property tax bills that will be mailed in January 2016 and 2017.

Property taxes are an important revenue source for counties, school districts and special districts, and they fell sharply when the housing downturn hit last decade, requiring the state to step in and fill the gap, especially for primary education. “The combination of funding is based on whatever the locals can provide and what the state will backfill,” said Wade Buchanan, president of the Bell Policy Center in Denver. Governments statewide won’t benefit as much as the 14.3 percent increase in residential assessed values would indicate, said Natalie Mullis, chief economist at the Colorado Legislative Council.

For starters, housing isn’t rebounding in large swaths of the state. In Cheyenne, Delta, Moffat and San Juan counties, assessors are estimating lower residential values, while an additional 10 counties are flat.

Also, Mullis notes that the counties with higher mill levies are seeing some of the smallest gains in residential values, while the biggest gains are concentrating in counties with lower mill levies. Counties most dependent on oil and gas production for tax revenues also are seeing big residential property gains. But with oil prices down by half, those counties could face lower overall tax revenues in the years ahead. “The big variable for us is the valuation of oil and gas because it is so significant,” Weld County assessor Chris Woodruff said. For Mullis, the higher residential values are important because they show an economy on the mend. Consumers who aren’t underwater on their mortgages are more comfortable spending money, generating higher sales taxes. They are also freer to move, which creates a more flexible labor market and boosts in-migration. County officials say the extra revenues generated are going to patch the big holes blown in their budgets following the 2008 recession.

In Larimer County, higher residential property taxes likely will go first to replenish reserves consumed during wildfires in 2012 and the September 2013 flood. “Commissioners had pulled a lot of money out of reserves to fund those recovery efforts,” said county manager Linda Hoffmann. “If you look at our general fund revenues, they have been flat for seven years.”

In Garfield County, higher residential and commercial property taxes could help cover the gap from lower oil and gas
prices, assessor Jim Yellico said. About 72 percent of that county’s assessed tax base is linked to oil and gas properties, which in turn are valued based on the underlying commodity. Large Western Slope producers WPX Energy and Encana Corp. have dialed back operations in the wake of sliding prices. Yellico notes the county also is coming off two dismal assessment cycles, where a 28.7 percent decline in residential assessed values was followed by a 23.4 percent decline.

For school districts, any increase in property tax revenues could help overcome the “negative factor.” That is the shortfall, estimated at $894 million statewide, between what state and local governments were required to provide in per-pupil funding for K-12 education under Amendment 23 and what they actually managed to fund.

About a dozen counties and some school and special districts won’t be in a position to benefit from higher property values because of the Taxpayer’s Bill of Rights. TABOR limits the growth in residential property taxes counties can collect to inflation plus new construction minus demolition. Voters in 50 counties have waived those limits or “de-Bruced,” although El Paso, Mesa, Jefferson, Pueblo and Weld have not. Unable to capture the added revenues from higher property values, those counties actually could end up needing to draw a proportionately larger share of support from the state than their neighbors.

Weld County, in particular, appears vulnerable if oil and gas prices fail to recover. Unlike Garfield County, Weld won’t be able to capture the 25 percent gain in residential assessed values not tied to new construction.

Source: Aldo Svaldi, The Denver Post