Here's what Colorado voters need to know about Proposition HH, property taxes and TABOR

Proposition HH, a statewide ballot measure that was approved by the Colorado General Assembly and survived a court challenge to make this year's Nov. 7 ballot, could be the most complicated initiative the state's voters have seen in years.

Designed largely in response to 40%-plus increases in property values this year, Proposition HH is designed to give Colorado property owners a break by reducing their property taxes, a financial benefit offset by smaller refunds received by all taxpayers under the Taxpayer's Bill of Rights, or TABOR.

Due to TABOR, statewide voter approval is required before state or local governments can keep revenue that exceeds the rate of inflation and the state's population growth.

Proposition HH is steeped in nuances, has implications for every Colorado household, takes 14 pages in the state Blue Book to explain and has led to strong opinions among Republicans and Democrats, liberals and conservatives, business groups, homeowners and renters alike.

Here's the official ballot language: "Shall the state reduce property taxes for homes and businesses, including expanding property tax relief for seniors, and backfill counties, water districts, fire districts, ambulance and hospital districts, and other local governments and fund school districts by using a portion of the state surplus up to the Proposition HH cap as defined in the measure."

A "yes" vote reduces property taxes, allows the state to keep additional money that would otherwise be refunded under TABOR, and creates a new property tax limit for most local governments.

A "no" vote maintains current law for property taxes, TABOR refunds and state and local government revenue limits,

In its simplest form, if approved, Proposition HH would:

• Reduce property taxes for homes and businesses for 10 years unless the legislature extended it, which they could do without voter approval;

• Allow the state to keep more of your money that would have been refunded under TABOR;

• Allow the retained revenue to be spent to fully fund public education, reimburse local governments for some of their reduced property tax revenue and to provide rental assistance;

• Distribute TABOR refunds equally for most taxpayers in 2023 and reduce or eliminate TABOR refunds in 2024-2032, depending on state revenue collections each year;

• Make the homestead property tax exemption portable for seniors who have lived in their homes for 10 years;

• Create a new limit on the growth of property tax revenue for many local governments;

• Create a subclass of residential property to differentiate between homes used as primary residences and homes used as rentals or second homes. Beginning in 2025, second homes and rental properties would get a smaller property tax reduction than primary residences.

First, some background: What is TABOR?

Colorado's 1992 voter-approved Taxpayer's Bill of Rights (TABOR) limits the amount of revenue Colorado's government agencies can keep and spend. The revenue limit is equal to the prior fiscal year's limit plus the rate of inflation and population growth. It requires excess revenue to be refunded to taxpayers unless an entity has voter approval to keep revenue beyond the TABOR limit, and it requires voter approval for certain tax increases.

If Proposition HH passes, the revenue limit would be increased to account for inflation and population growth, plus 1%, and could compound every year.

What Proposition HH means for Colorado cities, counties, schools and special districts

If Proposition HH passes, cities, counties and special taxing districts will collect less property tax revenue because of the reduction in the property assessment rate. According to the 2023 State Ballot Information Booklet — also known as the Blue Book — prepared by the Legislative Council of the Colorado General Assembly, local government revenue across the state may see a net decrease of at least $240 million in 2024, $510 million in 2025 and $650 million in 2026.

Counties, which get most of their revenue from property taxes, will take the biggest hit, both from a reduction in revenue but also from a cap on revenue growth that will be limited to the amount they collected in the prior year plus inflation.

The cap will not apply to home rule cities like Fort Collins and Loveland, school districts, new construction or voter-approved mill or bond levies.

If taxing districts plan to exceed the cap, they must hold a public hearing and vote on the new limit.

Most local governments will not be reimbursed by the state if their assessed valued exceeds 2022 levels by 20%, which Larimer County did.

Colorado's cities, which get most of their revenue from sales taxes, receive only a small fraction of property tax revenue. The largest chunk goes to school districts, while the second largest slice of the property tax pie goes to counties.

Fort Collins collected $35 million in property taxes in 2022, but it is obligated to give 67% of that to Poudre Fire Authority under the intergovernmental agreement between the city and the Poudre Valley Fire Protection District that creates the authority, according to Fort Collins Chief Financial Officer Travis Storin.

In the 2022 tax year, that left about $11.6 million in property tax collections for city programs and services.

Because of the increase in property valuations this year, if Proposition HH fails in November, the city would expect to receive 35% more in property taxes, Storin said, "resulting in commensurate increases ... in 2025 and beyond — or about $4 million to the city annually after accounting for the PFA pledge," Storin said.

If Proposition HH passes, the city expects to see a 15% to 23% increase in property tax revenue in fiscal 2024.

Larimer County is budgeting for an anticipated 12%-13% increase in property tax revenue under the inflation cap set by Proposition HH, which is based on the Denver-Aurora-Lakewood Consumer Price Index. It includes voter-approved mill levies such as Foothills Gateway and improvement districts, which are part of the county budget.

That's not enough to keep up with inflation and a series of unfunded mandates — particularly in public safety, medical and behavioral health care at the jail — and pay raises to retain and attract staff, said Joshua Fudge, Larimer County's budget director.

County commissioners asked all county departments to reduce spending in their budget proposals for 2024. "Department heads have done a good job of understanding the environment," Fudge said.

The county's 2024 budget was prepared under the assumption that Proposition HH will pass and a new revenue cap will be in effect.

The county imposed a short-lived hiring freeze earlier this year but lifted it when the financial picture improved slightly. Still, the $610 million budget is $93 million less than the revised 2023 budget due to capital projects that were completed in 2023, lower federal COVID-19 funds and $2 million in cuts related to Proposition HH.

The county estimates property tax revenue will go up by $20 million from 2023, if HH passes, but the increase includes Foothills Gateway and many improvement districts that were voter-approved and not subject to HH's limits.

Commissioners have vowed to rebate much of that back to property owners. How much won't be set until after HH's fate is determined in November.

School districts could see a little more revenue if the state uses the increase in funds it is allowed to retain to fully fund education, something it has rarely accomplished. In a worst-case scenario, school districts that lose revenue under HH will have that revenue backfilled by the state.

Here's what would happen to Colorado property taxes under HH

Proposition HH reduces Colorado's property assessment rate from 6.76% to 6.7% for taxes paid in 2024 through 2032 on owner-occupied residences. It also reduces the assessed valuation of nonresidential property from 29% to 27.85%.

It also takes $50,000 off the taxable value of a residential property this year for taxes paid in 2024. That exemption drops to $40,000 from 2024-2032. If your notice of valuation showed a $500,000 value on your home, you would subtract $50,000, for a value of $450,000, which becomes the basis for taxes you'll pay next year, if HH passes.

The state's Legislative Council staff estimates passage of HH would save the owner of a $500,000 home between $186 and $276 this year and between $314 and $396 in 2024. That amount will vary based on a community's mill levy rate and property values, which are reassessed every two years.

To see examples of tax bills with and without Proposition HH, click here.

Proposition HH does not mean property taxes won't increase but does guarantee the assessment rate will not surpass 6.7% for a decade. As property values rise, tax bills will increase, but at a slower rate with HH in place.

Property taxes are determined by a formula that includes a home’s estimated value multiplied by the statewide assessment rate and then multiplied by the local mill levy rate.

Colorado would keep an additional $170 million in first year under HH

Proposition HH increases the amount of money the state could keep and spend above limits set in TABOR — money that would otherwise be returned to taxpayers. According to the Blue Book, HH would allow the state to retain an estimated $170 million in the state's 2023-24 budget year and $360 million in 2024-25. By 2031-32, when the proposition would expire unless the legislature extends it, the state would be allowed to retain an estimated $2.2 billion in additional tax revenue based on inflation and population growth.

State revenue retained up to the Proposition HH cap would be deposited into the Proposition HH General Fund Exempt Account, with would be used to first reimburse local governments for lost property tax revenue. After that, 5% or $20 million — whichever is less — would be transferred to the Housing Development Grant Fund. Remaining revenue would be transferred to the State Education Fund.

What would Proposition HH do to my TABOR refund?

Under Proposition HH, most Colorado residents will get an estimated flat refund of $898 this year, instead of a refund based on income. In past years, those who made more got a higher refund. The change to a flat rate means those earning $99,000 or less will get a higher refund and those making more than $99,000 will get less than they've seen in previous years. The actual refund will depend on final state revenue for the 2022-23 budget year.

In future years, refunds are expected to decrease because the state will be retaining more revenue. Refunds will again be distributed based on a taxpayer's income. In 2024, the state estimates refunds between $326 for those making up to $52,000 and $1,028 for those making over $289,000. Estimated refunds drop to between $269 and $848 in 2025. Depending on the state's revenue picture, TABOR refunds could be reduced or eliminated.

The legislature anticipated homeowners would willingly trade a lower TABOR refund in exchange for lower property taxes.

Proposition HH may represent a TABOR loss for Colorado renters

Colorado's renters will likely lose their TABOR refunds without the benefit of lower property taxes — that's why the Colorado Association of Realtors says it opposes Proposition HH.

There are more than 800,000 renting households, or approximately 2 million Coloradans (according to U.S. Census data), that won’t receive any property tax relief, but will likely lose their TABOR refunds, the association said in a news release opposing the measure.

A recent Colorado Health Foundation poll found that 85% of renters aspire to own a home, according to Colorado Association of Realtors. "Unfortunately, 47% of those who aspire to own a home believe it’s unlikely they’ll be able to purchase a home in Colorado. Less money in renters’ pockets from TABOR refunds is less money to put toward homeownership or to make ends meet," the association said.

In Fort Collins, 43% of the city's 87,863 housing units are occupied by renters. That's 37,781 units occupied by people who may not benefit from Proposition HH.

Supporters, including former Gov. Bill Ritter, say renters will benefit from the up to $20 million per year set aside for rental assistance to help offset rent increases as a result of increased property taxes. Proposition HH does not spell out how that assistance will be allocated.

Proposition HH would make Colorado seniors' homestead exemption portable

Under HH, qualifying Colorado seniors can receive the homestead exemption benefit if they purchase and move to a new home beginning in 2025. In the past, seniors would lose their exemption if they downsized or moved.

For those who qualify for the exemptions, 50% of the first $200,000 in actual value (up to $100,000) of the primary residence is exempted from property tax. Under Proposition HH, they would also get the additional $50,000 reduction in valuation in the first year and $40,000 in the second year, amounting to a total valuation reduction of $150,000 in 2024 and $140,000 in 2025.

The Senior Exemption is available to those who:

• Are at least 65 before Jan. 1 of the year of application;

• Owned their home for at least 10 consecutive years before Jan. 1;

• Occupied their home as a primary residence for at least 10 consecutive years before Jan. 1.

Colorado Proposition HH's key supporters:

Proposition HH's major supporters include issue committee Property Tax Relief Now; Fort Collins philanthropist Pat Stryker, who donated $100,000 the committee; Gov. Jared Polis; Colorado's Democratic Party; Colorado Fiscal Institute; Colorado AFL-CIO; Colorado Professional Fire Fighters; Colorado Education Association; National Education Association, which made $100,000 donation; and Education Reform Now Advocacy Inc., which made a $200,000 donation.

OFFICIAL ARGUMENTS:

With Colorado facing a historic increase in residential property values, Proposition HH provides long-term property tax relief for homeowners and businesses. In doing so, the measure also limits the impact on local services, makes Colorado a more competitive environment for businesses, and allows seniors to downsize or move without losing the benefits of their homestead exemption.

The new property tax limit makes local taxing entities more accountable to their constituents. By requiring a public process to waive the limit, Proposition HH gives people a say in how much they are taxed while providing flexibility for local governments to retain revenue needed to provide important services.

By allowing the state to retain additional revenue, the measure benefits public schools. The state’s spending cap has limited Colorado’s ability to fully fund education for years. Proposition HH provides a funding source for at least 10 years, using money the state already collects.

Proposition HH benefits low- and middle-income people, many of whom are renters, by providing a more equitable distribution of TABOR refunds in 2023. With recent high inflation and housing costs, this puts more money in the pockets of those who need it most.

Source: Colorado Blue Book

Colorado Proposition HH's key opponents:

Proposition HH's major opponents include issue committees Tabor Coalition; No on HH; Taxpayers for a Better Deal; Americans for Prosperity Colorado Issue Committee; Colorado Republicans; Fort Collins Area Chamber of Commerce; National Federation of Independent Businesses (Colorado chapter); Colorado Association of Realtors; Advance Colorado Institute, which made a $1 million donation; Defend Colorado, which made a $500,000 donation; and Special District Association, which made a $10,000 donation.

OFFICIAL ARGUMENTS:

Proposition HH essentially increases taxes by reducing or eliminating future TABOR refunds, potentially growing the state budget by up to $2.2 billion per year by 2032.

The measure removes important taxpayer protections and gives the state legislature the power to extend the new revenue cap forever without asking voters.

Property tax relief should not come at the expense of TABOR refunds. While the measure provides some limited property tax relief, the loss to taxpayers from the reduction or elimination of TABOR refunds is likely to exceed the property tax savings over time. The measure is also costly for renters, who do not directly benefit from property tax relief and will receive lower TABOR refunds in the future.

Property taxes are a local issue, best handled by local communities. Proposition HH pushes state priorities and an unnecessary new revenue limit onto local governments and their residents, rather than letting them find solutions that work locally.

Proposition HH adds unnecessary complexity to an increasingly confusing property tax system, with new classes of property and an additional administrative burden for homeowners, seniors, county assessors, and potential homebuyers. As a result, the measure makes it harder for people to access their tax benefits and navigate the housing market, opening the door to unintended consequences.

Source: Colorado Blue Book

Want to know more?

To see how the combination of the property tax changes and TABOR refund changes impact taxpayers in Larimer County, visit hhcalc.apps.coleg.gov/.

Coloradoan reporter Rebecca Powell contributed to this report.

Proposition HH analysis by Coloradoan

This article originally appeared on Fort Collins Coloradoan: What to know about Colorado Proposition HH, property taxes and TABOR