Understanding Colorado's Proposition HH: Property Tax Changes, and Their Impact on Homeowners

I don’t think it’s any coincidence that Prop HH is one of the longest and most complicated taxing measures ever seen on a Colorado ballot. It amounts to 48 pages of legal verbiage affecting all kinds of taxes in Colorado.

Like any measure, it’s going to appeal to someone, and there are “good” “bad” and “ugly” aspects, in my opinion.

The Good

What this does is it puts a temporary freeze on how they calculate property taxes in Colorado, capping it at 6.7% for a whole decade and also knocking $40,000 off the taxable value. I've broken down how Colorado calculates property taxes and given an example below to make it easier to grasp, but for most folks, it means you can expect a nice $300 to $500 drop in your property tax bill for the next decade.

The Bad

This marks a substantial, enduring increase in income taxes for everyone, not limited to just homeowners. In return for the temporary reduction in property taxes over a decade, the State will retain a portion of your tax refunds. What's noteworthy is that the portion the state retains follows a progressive pattern, with the amount increasing over time. By 2023, the State will hold an additional $94 million, and this figure keeps climbing, reaching $358 million in 2024 and 2025. As we look ahead to 2033 when the property tax decrease period ends, it's projected that the State will have accumulated an extra $2.2 billion from withheld income tax refunds.

The rationale behind the State's retention of these tax refunds is ostensibly to "reimburse" institutions such as schools, fire departments, and libraries that will receive reduced funding due to the property tax reductions. However, this approach forces these entities to appeal to the State for what they would have naturally received without this legislation, effectively centralizing control of tax funds and enabling the State to selectively allocate resources. Additionally, the bill imposes rules and restrictions on taxing districts' ability to seek tax increases, ostensibly to maintain fiscal responsibility. While this may seem reasonable, it also transfers more control from local authorities to the State, potentially limiting local autonomy.

The Ugly

I usually steer clear of delving into demographic politics, but I can't help but voice my concern about the glaring inequity of this proposed tax hike. You see, our tax system has largely been structured to be progressive, meaning those who have more, contribute more. However, this proposal does the exact opposite.

Here's the kicker: About 62% of Coloradans are homeowners, and they will experience a modest reduction in their property taxes. Now, the tax refund retention and income tax increase doesn't just affect homeowners; it applies to everyone. But here's where it gets tricky from an equity perspective: Roughly 71% of white individuals in Colorado own their homes, compared to 53% of Hispanics and only 37% of Black individuals. Statistically speaking, homeowners have a net worth that's about 40 times greater than that of non-homeowners. The average net worth of a homeowner stands at $225,000, while a renter's average net worth is a mere $6,300.

So, under this proposed tax scheme, everyone faces the same tax increase burden, but only homeowners reap any benefits, and that too, only for a decade. This is what makes it one of the most lopsided tax proposals I've come across.

Colorado's method for calculating property tax assessments is already quite intricate, so let me offer a concise explanation:

The taxable value of your personal residence in Colorado is currently calculated at 6.765% of the assessed value. It's important to note that this 6.765% rate is temporary, as the statutory rate is set at 7.15%. However, for 2023, there was a temporary reduction to 6.765%, and it will gradually increase to 6.976% in 2024 before returning permanently to 7.15% in 2025.

Property tax is assessed in what they refer to as "mils," with a mil being one one-thousandth of a dollar ($0.001). To illustrate, let's take an example: If your home is valued at $500,000 in unincorporated Adams County, where the tax rate is 87.925 mils, the taxable value of your home would be $33,825.00 (6.765% of $500,000). Consequently, your property taxes would amount to $3,018.88 ($33,825.00 x 0.087925).

Now that we have this baseline understanding of how Colorado property taxes and tax rates currently work let’s move onto Prop HH.

Proposition HH brings about a noteworthy change in property tax assessments. It sets the assessment rate at 6.7% until the year 2032, after which it will revert to 7.15% in 2033. In essence, this freeze on the temporary reduction extends for a decade, which is certainly a positive aspect. Additionally, it introduces a $40,000 reduction in property valuation for the next 10 years, meaning that, for tax purposes, your $500,000 house would be considered as worth $460,000.

This is unquestionably a property tax decrease. Using the same example from earlier, property taxes under Proposition HH would amount to $2,709.84, resulting in a tax savings of $309.04. It's a good deal, and I'd be inclined to support it wholeheartedly.

For a couple earning $100,000 and filing jointly in 2024, the estimated tax increase is around $200. However, if this couple owns the property described above, they would actually experience a net tax decrease in 2024, saving $109.00. In 2025, this same couple is projected to face a tax increase of $246. When it comes to homeowners, it's anticipated that the tax increase will eventually surpass the benefit of the property tax deduction by the year 2026.

I don't know if it’s for you or not, but on November 7th, you’ll have your chance to see Prop HH defeated.

Click below and learn more facts about Prop HH that you’re asked to vote on, on your November ballot!

https://factsonprophh.com/

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