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  Volume No. 14 Issue No. 7 July 2017  

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  Leaner times ahead?
  By Robin Widmar

   Thanks to a revenue-reducing provision in the state constitution, the Falcon Fire Protection District and other special districts statewide may be hunting for the leprechaun’s famed pot of gold to cover budget shortfalls in the coming years.
   
   Originally designed to maintain a property tax balance between residential and non-residential properties, the Gallagher Amendment requires the state to reduce the assessment rate for residential properties when their values outpace those of non-residential properties. The 2017 adjustment could drop the residential property tax rate as much as 18 percent. What is good news for homeowners, however, is not good news for special districts such as FFPD that rely on property taxes for funding.
   
   During FFPD’s February board meeting, Fire Chief Trent Harwig said, “The reality is this fire district will have less money next year than it had this year because 75 percent of our tax revenue comes from residential (properties).” He estimated that FFPD could lose as much as $450,000 when considering the combination of a reduced residential assessment rate and the revenue growth that the district had originally anticipated.
   
   Harwig said fire districts and other special districts that have a larger percentage of non-residential property in their tax base can weather this reduction better than those that rely predominantly on residential property taxes. Even so, he said, “I think a lot of fire districts will be asking for mill levy increases this year.”
   
   How Gallagher affects property taxes and FFPD revenue
   Property taxes are based on the assessed value of a property, which is a percentage of its market value. Mill levies are applied to the assessed value to determine how much a property owner will pay in taxes.
   
   Example: A residential property with a market value of $250,000 has an assessed value of $19,900 at the current residential assessment rate (RAR) of 7.96 percent. FFPD has a property tax rate of 8.612 mills, so this property generated $171.38 for the fire district in 2016.
   
   However, a January study by the Colorado Department of Local Affairs projected the new RAR at 6.56 percent for the 2017-2018 assessment cycle. Using the above example, a residential property valued at $250,000 would now have an assessed value of $16,400, resulting in $141.24 for the fire district. While a $30 difference may not seem like much, the lost revenue adds up quickly, considering the thousands of residential properties in the fire district.
   
   Even considering rising property values, FFPD will still see a reduction in revenue. If the property in the example increases 10 percent in value from $250,000 to $275,000, at 6.56 percent the assessed value comes in at $18,040, which is a $1,860 decrease from the original assessed value (market value of $250,000 and RAR of 7.96 percent). The fire district’s revenue then drops from the original $171.38 to $155.36.
   
   What does this mean for FFPD?
   The fire district won’t know the full impact of Gallagher until later this year, when the residential assessment rate has been finalized and valuations have been received from the county. Nonetheless, Harwig and the district board are already looking at options to maintain staff and remain financially sustainable.
   
   The district has applied for a $1.8 million Staffing for Adequate Fire and Emergency Response grant through the Federal Emergency Management Administration. This grant would offset three years worth of costs to hire and maintain additional firefighters to meet the district’s goal of having three full-time paid firefighters on each shift at each of its three staffed stations. Staffing would continue to be augmented with part-time and reserve firefighters.
   
   A mill levy increase was discussed at the February meeting, but Harwig said that a potential increase of 1.5 mills would only maintain the district at current funding levels. For now, the board is taking a wait-and-see approach until hard numbers are compiled and assessed. FFPD’s last mill levy increase in 2011 also maintained existing staffing and operations by helping the district keep six firefighters hired under a previous SAFER grant.
   
   Harwig said many types of local government budgets rely on residential property tax, and will be affected by Gallagher assessment rate adjustments, including schools. One difference, though, is that the state is mandated to make up what schools lose from reduced property tax revenues. Fire districts don’t have state resources to offset lost funding. “When it drops, it drops,” he said.
   
   References:
   https://drive.google.com/file/d/0B-vz6H4k4SESeUhyZW9ScHV3NFE/view
   “Residential Assessment Rate Study Preliminary findings 2017 – 2018” produced by the Colorado Department of Local Affairs, Division of Property Taxes. Jan. 13, 2017.
   
   http://www.denverpost.com/2017/01/13/tax-soaring-home-values-colorado/
   “Colorado homeowners will get a tax break, thanks to TABOR’s lesser-known cousin. But local governments will be squeezed.” Denver Post article by Brian Eason, published Jan. 13, 2017.
   
   https://www.youtube.com/watch?v=2cZgZL8Gj20&feature=youtu.be
   “Colorado’s Gallagher Amendment Explained…” Video produced by the Colorado Fiscal Institute
  
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  Gallagher and TABOR: Unintended consequences
  By Robin Widmar

   In 1982, voters passed Colorado Constitutional Amendment No. 1, more commonly known as the Gallagher Amendment. The Gallagher Amendment was intended to stabilize residential real property’s share of the tax base by ensuring that assessed values for residential property make up no more than 45 percent of the state’s overall assessed values. The assessed values for non-residential property, which includes businesses, farms, oil and gas and vacant property, comprise the remaining 55 percent.
   
   Gallagher fixed the non-residential property assessment rate at 29 percent, but the residential assessment rate (RAR) was flexible and could increase or decrease as needed to maintain the 45/55 ratio. Prior to 1982, most property was assessed at 30 percent of actual value, according to the Colorado Department of Local Affairs. In 1983, the RAR was set at 21 percent, but in the years since, growth and increasing residential property values have caused the RAR to drop proportionately to maintain the mandated 45/55 split. The last change came in 2003, when the RAR adjusted to 7.96 percent.
   
   If Gallagher alone was considered, residential assessment rates should have been adjusted to a higher rate over the past 14 years. In each assessment cycle since 2003, DOLA estimated that the RAR should have ranged between 8.17 percent in 2005-2006 to 9.13 percent in 2013-2014. However, the Colorado General Assembly declined to ask voters for an increase to residential assessment rates in each assessment cycle since 2003, according to DOLA.
   
   Any residential property assessment rate increase must go before voters because of another, better-known constitutional amendment: TABOR. The Taxpayer’s Bill of Rights, approved by Colorado voters in 1992, requires voter approval for all tax increases and property tax assessment rate increases.
   
   The result: Residential property assessment rates can go down to maintain the Gallagher ratio, but under TABOR, no rate increases can be enacted without voter approval. The voters cannot approve a property tax rate increase unless their state representatives opt to put such a measure on the ballot.
  
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