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Property taxes to increase to fix decades old misinterpretation by state

SVVSD expressed concerns and expressed that it was not in support of the new law, Superintendent Don Haddad said. 
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Photo by Joshua Hoehne on Unsplash

This December, all Coloradans will see an increase in property taxes to fix a decades-old practice that reduced funding for public schools across the state — an increase that St. Vrain Valley School District advocated against. 

History

In 1992, Coloradans voted in the Taxpayer’s Bill of Rights, otherwise known as TABOR, which placed strict limits on the growth of government revenues and spending and gives Colorado voters the ability to reject or approve tax increases. 

Shortly after TABOR passed, school districts went to the voters for approval to de-Bruce or de-TABOR — allowing the districts to retain and spend revenue in excess of the property tax revenue limitations imposed by TABOR — according to the Colorado Department of Education, or CDE, website.

This approval was supposed to allow districts to keep their local property tax mill levies at the level established when the de-Brucing was approved. However, the CDE interpreted the statute in a way that forced school districts to reduce their mill levies which also reduced the amount of funding a district could collect. 

According to the CDE, a mill is a “$1 tax payment for every $1,000 of taxable property value, which is set by a county assessor.” 

In 2007, the state legislature voted to freeze all school district Total Program funding mill levies across the state. The reduction of mill levies in the years prior to the freeze created an imbalance in the School Finance Act funding between the local taxes collected and the state taxes collected. Total Program funds are the amount a school receives based on the number of students enrolled and the per-pupil revenue.

School finance

K-12 education is funded in Colorado from three different sources — local property taxes, specific ownership tax, — which includes registrations on motor vehicles — and the state. Local property taxes for Total Program funding are set by a mill levy, which in the St. Vrain Valley School District is set to 24.955 mills. 

In order to determine how much a district will receive for Total Program funding, schools multiply how many students are enrolled by the per-pupil revenue. Districts take the Total Program funding total and subtract local property taxes and specific ownership taxes. The difference left is supplied by the state, also known as state equalization, according to Greg Fieth, SVVSD chief financial officer. 

On average throughout the state, local property taxes make up around 36% of revenue for schools with the remaining 64% contributed by the state.  

TABOR only allows districts to collect revenue under a specific formula. That formula allows districts to collect the previous year’s revenue and add in local growth and inflation. This formula forced districts across the state to reduce mill levies across the state.

The new legislation

The misinterpretation of the statute reduced the local collection of property tax collection which contributed to a larger burden on the state to make up the difference in K-12 education funding. 

Looking through the lens of a state legislator, Brandon Shaffer executive director of Legal and Governmental Affairs, community outreach and P-TECH at SVVSD said the reduction in the local collection of revenue has increased the state’s responsibility which has increased the burden on the state’s budget. 

“Because de-TABORed districts had permission from the voters to keep their property tax collection at a higher level, it is now clear that local property tax collections should not have been reduced,” according to the CDE website.

Beginning in 2020, the state legislature felt it was time to correct the “historical error of reducing local property tax mill levies in districts where taxpayers had voted to keep them higher,” according to the CDE website. A bill was passed forcing school districts across the state to set their mill levies to 27 mills and to offer tax credits for the difference of where their current mill levies are set.

In 2021, HB 21-1164 was passed by the legislature requiring the CDE to form a correction plan. This plan requires school districts across the state to reduce those credits 1 mill until the district reaches the full 27 mills. 

“The district really has no choice in increasing property taxes,” said Greg Fieth, SVVSD chief financial officer. 

The increase in mill levies impacts 127 out of 178 Colorado school districts, according to the CDE.

How the new law impacts SVVSD

In SVVSD, the mills have been set to 27, in accordance with the new statute. The district’s previous mill levy rate was 24.995 — a difference of 2.005 mills. It will take SVVSD until the end of 2023 to obtain the required 27 mills by increasing taxes by 1 mill in 2021, 1 mill in 2022 and .005 mills in 2023. 

Other districts in Colorado will not fair as well. The assesed valuation — the taxable portion of property value in the school district — increased dramatically since the time the district de-Bruced to when mill levies were frozen in 2007, according to Fieth. In some districts, it could take over a decade to reach the 27 mill requirement. 

“This is the lens through which the general assembly is seeing this mechanism as a way to free up some state dollars that have been previously going to public education,” Shaffer said. 

According to the CDE, all districts across the state must comply with the new legislation. 

One mill will bring an estimated $4 million to the district. After the mills have been completely adjusted in 2023 the district will receive just over $8 million in local property tax revenue. This is not in addition to the revenue district currently receives, but in place of state dollars that would have been given without the mill levy increase, according to Fieth. 

For an individual household whose property is worth $400,000 the annual increase is estimated to by $28.56 each year. By 2023, this increase is expected to be just over $57.12 per property assessed at $400,000.

Businesses will be hit even harder as the assessed valuation rate is 29% — about four times that of residential property owners, according to Fieth. “Most businesses aren’t $500,000, they are multiple millions so it becomes more significant,” Fieth said. 

All school districts across the state are mandated to comply with this new law. There are no alternatives or exceptions being made by the state. 

“There is no discretion as to whether or not we do this. The law says we have to do this,” Shaffer said. “If we don’t do this we break the law.”

SVVSD expressed concerns and expressed that it was not in support of the new law, Superintendent Don Haddad said. 

In a study session for the SVVSD Board of Education, in August, Shaffer and Fieth presented the school board with information on HB 21-1164. During the meeting, Haddad said “I personally, and talking to our board, would never entertain the notion of imposing a tax increase unilaterally without a vote of our public … We always believe that when we are going to ask our community, or when someone is going to ask our community, to impact their property taxes, is that we should go out and make the case — talk to them and share with them what our intentions are and where the need lies and how we are going to use the money and how we’re going to be held accountable, what’s going to be the communication. This feels very different than what we would normally do.”


 
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