Colorado-Real-Estate-Journal_378941

Page 20 - January 3-16, 2024 www.crej.com Property Tax A recent 19-member task force appointed by Col- orado Gov. Jared Polis and leg- islative leaders aims to address Colorado’s property tax chal- lenges. However, the group lacks representation from com- mercial property tax experts and major county assessors, overlooking the perspective of those crucial to assessing commercial properties, which contribute significantly to tax revenues. How can this task force determine the best long-term solution for the state’s prop- erty tax system without con- sidering the taxes paid by com- mercial properties, which are the majority of taxes collected, and without the input of those tasked with its assessment? The impact of the Gallagher Amendment over the last 40 years has been to proportion- ally shift the state’s property tax burden from residential property owners to commercial property owners with the com- mercial property assessment ratio now being 406% high- er than the residential prop- erty assessment ratio. While the voter approved repeal of Gallagher may have slowed the growth of this assessment ratio disparity between com- mercial and residential, it will not reduce commercial prop- erty taxes or eliminate this inequitable application of the property tax structure. Instead, homeowners (of which I am one) will continue to enjoy arti- ficially low property tax bills while their home values have steadily risen. A recent National Federation of Independent Businesses sur- vey showed that 63% of small- business owners (of which I am one) con- sider prop- erty taxes to be “very/ m o d e r a t e l y burdensome. i” Regardless of whether a s m a l l - b u s i - ness owner leases or owns their building, they pay a dispro- portionately high amount of property taxes, impacting their bottom line in an already volatile economy. For com- mercial landlords, the majority of which are small businesses themselves, the situation is dire because, with historically high vacancy rates, tenants are unable/unwilling to pay for their share of these taxes (the historic norm), adding that cost to the already expensive expensive city and state man- dates for electrification, EV charging and green roofs. High vacancy rates, rising interest rates, burdensome and expen- sive regulatory requirements, and defaulting tenants are just some of the issues that are push- ing more and more commercial owners, particularly in Denver, to see their buildings fall into receivership and delinquency in ever-increasing numbers. Moody’s reported that 27.6% of office loans scheduled to mature in the second quarter were considered delinquent. It also found that among per- forming conduit loans in the office sector, 1.3% were extend- ed in the second quarter, down from 10.9% in the first quarter. Commercial property tax rates that continue to rise merely add to the escalating pressure building owners are facing. The estimated average increase in total commercial property value in 2023 is 26% based on a survey of initial value from county assessors. County increases vary between a low of 0% and a high of 62%. This increase would represent the largest annual increase in both value and property taxes for commercial properties in the state since 1993. What are the possible solu- tions? n Diversify the task force. Expand the Property Tax Com- mission to include more coun- ty assessors and commercial property owners for a compre- hensive perspective and fair solutions. n Revamp the manual. The last version of the county asses- sors manual was updated in May 2023 and is 400 pages in length. Anecdotally I hear many assessors don’t use it because it is too long and hard to understand. Consider a task force of current assessors to review, revise, and restructure the manual? n Reassess the assessment process. Consider recalibrat- ing assessment methodologies to avoid vast discrepancies in property values and tax rev- enues. Based on the accompa- nying chart, if you compare the total value of Colorado com- mercial property based on the Commercial Real Estate Price Index U.S. (approximately $110 billion) vs. the Total Value of Commercial Property based on an 11.6% long-run biennial growth rate (approximately $157 billion) vs. the Total Value of Commercial Property based on reports from the county assessors (approximately $187 billion), you see that there is a vast difference in these val- ues. If you use the biennial growth rate property value vs. the county sssessor value for 2023, the $30 billion difference would equate to an estimated $776 million difference in prop- erty tax revenue. That would have a corresponding negative impact on the economy, result- ing in an estimated 7,250 jobs lost, a $177 million reduction in gross domestic product, and a $223 decrease in personal income per household. ii Additionally, the Colo- rado Constitution requires that property tax assessments consider the “cost approach” when determining property values. Unfortunately, in prac- tice, county assessors ignore the cost approach and sole- ly rely upon the “value” and “market” approaches because they are easier to administer. Incorporating this approach could moderate tax increases for both residential and com- mercial properties. I’m not proposing any sin- gle solution here. What I am suggesting is that the current commission reviewing prop- erty taxes in Colorado is ill- equipped in both time and tal- ent to truly devise a system worthy of Colorado and one that will adequately set up all Colorado property owners, whether they be residential or commercial, for economic suc- cess. The current commission’s timeline may be insufficient for a thorough resolution. The Legislature can reduce rates on its own to deal with this imme- diate threat, a privilege pro- vided to the body in the repeal of the Gallagher Amendment. Reducing the rates would not reduce the amount of prop- erty tax below current levels; it would not put counties and services at risk. It will only reduce the increase expected due to the higher assessed val- ues. But it would provide relief while a more comprehensive overhaul is devised. The governor and the Leg- islature should establish a commission that will have the time, talent and ability to truly transform Colorado’s proper- ty tax system. Anything less would merely patch a failing system. s kbarstnar@wmrdenver.com Reimage rather than patch Colorado's property tax system Kathie Barstnar Executive diretor, NAIOP Colorado