Colorado’s real estate market is insane.
And while most homeowners watch the feeding frenzy drop to a new listing in their neighborhood, amused and confused, the Colorado property tax filings in mailboxes across the state over the past week should give everyone a cold dose of fear.
Property taxes go up, go up, go up, and if our locally elected officials don’t start proactively managing their local tax rates, we will all start to feel the pain. It is true that Coloradans enjoy extremely low property taxes unless you are unfortunate enough to live in a neighborhood. But just like tuition fees, if property taxes rise 5% to 10% annually, it will ultimately overtake the low-income homeowners.
Yes, the worst part of real estate inflation is keeping low-income households away from the economic benefits of owning a home. But the second worst part of rising home values is the monthly mortgage sneak that is slowly making people poor.
This may sound alarming, but I speak for those who already live on the fringes and occupy the last affordable homes along the Front Range. These people and families are most at risk of being forced to sell by rising property taxes. Yes, there are property tax payment programs out there, including Colorado’s generous senior tax exemptions, but to use these tools someone needs to realize that property taxes are part of the problem. Since most people pay their property taxes on their mortgage through their escrow, it is difficult to see how much pain this source causes. And like everything else, the higher the home value, the higher the insurance costs, which also affects the monthly mortgage payments through the escrow account.
The solution does not lower the nationwide valuation ratio. One idiotic election question will tell voters to do just that this fall, and it’s a daring and simplistic approach to a complicated subject.
Rather, the locally elected officials must act responsibly in this time of booming property tax revenues.
Denver is on track to do just that. In 2012, voters approved a revenue cap, which will lower the city’s property taxes during the boom years. This mainly affects the city’s “operational” mill levies – the estimated rate. Fortunately, though, over the years, when voters approved bond issues, they set a de facto cap on this toon by approving a fixed value. The taxes would pay off with a tax levy that fluctuates up and down as needed to pay off that debt.
However, not all Colorado cities and counties have been so responsible, and it is up to homeowners to determine if a city or county is on the verge of booming and ask elected officials to adjust the mill levies down to ease the pain . Local officials can lower mill levies without voter approval, although they may be reluctant to do so as adjusting votes would require a referendum.
Proactive management of milling taxes is especially important, however, as Colorado voters abolished the Gallagher Amendment, which was a natural disruption to property taxes across the state.
Getting rid of a rigid constitutional formula that shattered rural governments and specialty counties was the right thing to do, and now local elected officials must protect homeowners from the pressures of inflation.
The majority of property taxes go to school districts. Should we ask schools to do the same in the midst of a disaster? Yes, and I am saying that someone who has personally supported any increase in the mill levy has ever put a school district before the electorate. If revenues skyrocket, school board members should consider a small reduction. A single year of large increases is not going to force a homeowner out of their home, but it is the cumulative increase over a person’s life that affects me.
For example, our humble home in East Denver saw a $ 50,000 increase in value, up 9.5% from its 2018 estimate. That doesn’t mean we’ll increase our taxes by 9%, but even with the likely Denver tax adjustments, we are likely to have a bigger increase than in years past. Since we bought the house in 2013, the estimated value has increased by 59.8%. And really, that’s not bad compared to what’s happening in other neighborhoods and houses in and around this boomtown.
We paid property tax of $ 2,225 in fiscal year 2014 and $ 2,724 in 2020. That’s $ 500 over 7 years, or a 3% increase per year. This is a healthy increase that will keep school and local government growth pace with inflation. Given the wonderful experience my kindergarten teacher had at Denver Public Schools during a pandemic, this is an absolute bargain. Real estate owners in Chicago and New York laugh at this revelation and start searching Zillow for a new home to work remotely from.
However, if the new trend in Colorado is to result in property valuations that respond to insane bidding wars, we could start seeing double-digit annual gains, especially without Gallagher. Elected officials need to be proactive now instead of waiting until it’s too late to adjust.
Let’s keep Colorado property taxes low by working together to try to bring down local mill rates in years of double-digit growth.
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