Democratic lawmakers say their last-minute property-tax relief package will also go a long way toward shoring up school funding after the legislature committed to finally meet its financial obligations to Colorado students starting next year.
Republicans — some of whom were so upset about the tax proposal they walked out rather than vote on it on the session’s final day Monday— say it’s an excuse to undermine the Taxpayer’s Bill of Rights rather than make tough decisions about which government programs to prioritize.
The ballot measure’s impact on the money available for school funding would be complex — swapping locally generated property tax revenue for increased state funding in the future — and a lot would depend on future economic growth. District leaders and school finance experts say they’re watching carefully and trying to understand the effects.
The voters ultimately will decide if Proposition HH becomes law — if it survives a legal challenge to make it on the November ballot.
The proposal would cap the growth of assessed values to limit property tax increases if voters also agree to let the state keep more revenue generated by other sources. In other words, all taxpayers would give up a portion of future tax refunds in exchange for owners of homes and businesses getting some relief.
Most of the additional money would be set aside for schools and replace lost property tax revenue at the local level. Instead of growing at the rate of population plus inflation, state government could grow at the rate of population plus inflation plus 1%. That would allow the state to reap the benefits of a growing economy and ease pressure from spending caps.
If approved, the extra money the state could retain is estimated to add up to more than $500 million over the next two years. State projections are not available past the 2024-25 year, but a fiscal analysis of the bill says by 2031-32, Proposition HH would potentially allow the state to keep up to $2.2 billion over the state cap that triggers refunds to Coloradans.
“If Proposition HH passes, that is a real opportunity to increase funding to schools and a historic one at that,” said Senate Majority Leader Dominick Moreno, a Commerce City Democrat. “We have been underfunding schools for decades. And Proposition HH is a key piece of the solution and addressing that issue.”
State Sen. Barbara Kirkmeyer, a Brighton Republican, had pushed hard for lawmakers to fully fund schools this year instead of waiting, and she now believes Democrats resisted in part to justify the tax package.
“Then they wouldn’t have a reason to say why they needed your TABOR refunds,” she said.
Chris Brown, the Common Sense Institute’s vice president for policy and research, argued in a Twitter thread that Proposition HH is more of an education funding measure than a tax relief bill because over time, it would generate far more money than needed just to backfill lost local revenue.
Tracie Rainey of the Colorado School Finance Project sees it differently. She said lawmakers wanted to offer limited property tax relief to head off potential ballot measures from conservative activists but knew they would need to protect school funding, she said. The result is a cobbled-together policy whose long-term impact is unclear.
The proposal could provide important new revenue for school funding at the state level, she said, but if the campaign focuses a lot on the benefits to education, it could be harder to win support for a larger school funding measure in a year or two, she said.
Rainey is among many education advocates who think that meeting constitutional school funding requirements isn’t nearly enough. She also noted that Coloradans pay less in property taxes than do most of the rest of the nation.
Bret Miles, executive director of the Colorado Association of School Executives, said his members aren’t sure yet what the proposal will mean.
On the one hand, large property tax increases affect school employees and families just as they affect other members of the public — and make voters less likely to approve requests for new taxes.
“School districts don’t need to give people another reason to say no,” Miles said.
At the same time, property taxes are the most stable source of school revenue, so district chief financial officers worry about seeing them reduced.
Legislature sets a date for full education funding
Proposition HH was proposed in the final week of a contentious session that produced major gains for school funding that were hailed across the political spectrum.
Lawmakers approved a budget and school finance act for 2023-24 that raises per-pupil spending to $10,614, up more than $1,000 from this year. Legislators also wrote into law a promise to fund education according to constitutional requirements starting in the 2024-25 budget year. That would mark the end of the 13-year practice known as the budget stabilization factor, under which lawmakers held back more than $10 billion from K-12 schools to pay for other budget priorities.
“We made huge progress this year,” Moreno said. “Buying off the B.S. factor completely is within striking distance. I think we’re going to be able to do that next year.”
Lawmakers also increased funding for charter schools, special education, and school construction projects, and set aside an extra $30 million for rural schools.
But much of the increase in education funding over the last several years has come from rising local property tax revenues. Colorado sets a base budget for education funding and a per-pupil amount for each district. Whatever local taxes don’t generate, the state makes up the difference.
In recent years, the combination of a hot housing market, the repeal of the Gallagher Amendment limit on residential value growth, and a legal change that allowed the state to increase some local taxes have added hundreds of millions of locally generated dollars to school funding.
More in local tax revenue has meant less in state obligations toward that base budget. That could change if Proposition HH limits local property taxes and puts more of the burden of covering that base education budget back on the state. In turn, that raises questions about a permanent increase in school funding.
The state fiscal analysis estimates that should Proposition HH pass, Colorado would be able put an extra $124.9 million in the state education fund and would obligated to backfill $278.2 million, more than double. In 2025-26, Colorado would put $269 million in the state education fund and be obligated to backfill $350.7 million, just 30% more.
Over time, the revenue the state could keep and spend on schools would increase and could be more than the amount needed to backfill lost property taxes, the fiscal analysis says. An economic downturn could change that, as income tax and sales tax are more likely to decline than property values.
Lawmakers also worry that if they do nothing, school funding obligations will run up against TABOR caps, creating major budget problems.
Voters have rejected other requests to forego TABOR refunds to fund education. Tying it to property tax relief could sweeten the deal. To give renters a reason to vote yes, lawmakers also promised every taxpayer roughly $661 in TABOR refunds next year — but only if Proposition HH passes.
Conservatives promise to challenge Proposition HH
Michael Fields, Advance Colorado president, said his organization plans to challenge the ballot measure. He said he believes Proposition HH violates single-subject ballot rules and that the ballot’s language will need changes.
Fields’ organization has filed a ballot measure currently being challenged in the courts that would cap property tax increases at 3% and backfills revenue to fire departments, he said. The organization plans to propose other tax cut measures next year, he said. Fields already has run two successful measures cutting Colorado’s income tax rates.
Fields said Proposition HH sponsors want more money for education but are pairing that with an unpopular tax policy.
“The only reason that they’re going to the ballot is to take TABOR refunds. They don’t need to go to the ballot at all to deal with property taxes,” Fields said.
Fields said his anti-Prop HH campaign — if he can’t block it from the ballot — will focus heavily on the government asking voters to give up refunds.
“We are very much going to ask that the legislature and the governor call a special session to cap property taxes, and voters should not give up TABOR refunds,” he said.
Bureau Chief Erica Meltzer covers education policy and politics and oversees Chalkbeat Colorado’s education coverage. Contact Erica at emeltzer@chalkbeat.org.
Jason Gonzales is a reporter covering higher education and the Colorado legislature. Chalkbeat Colorado partners with Open Campus on higher education coverage. Contact Jason at jgonzales@chalkbeat.org.
