Small floats 600% mill levy increase

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Vice mayor’s plan would shift majority of city revenue from sales taxes to property taxes

Vice Mayor Larry Small wants to restructure the way the city levies and collects taxes, shifting the burden from an all-too-often see-sawing sales tax to a more stable property tax.

The essence of the proposal is simple: Small calls for increasing the city mill levy from its present level of 4.94 mills to 34.40 mills — a mere 600 percent increase.

But that doesn’t mean property tax bills will increase by 600 percent — the city collects only a portion of countywide property taxes.

A residence in School District 11 that is assessed at $262,000 is subject to an annual property tax bill of $1,238, of which $103 goes to the city.  The remainder goes to El Paso County, to D-11, and to the Southeastern Colorado Water Conservancy District.

Under Small’s plan, the city’s share would increase to $717 annually.

However, much of the increase would be offset by the elimination of other city sales taxes and fees.

Small

Small

Small’s proposal would discontinue the Public Safety Sales Tax, the TOPs tax, the business personal property tax and the stormwater fee. It also would lower the 2 percent city sales tax to 1.5 percent.

These adjustments, Small claims, combined with an estimated $123 in federal tax deductions because of the increased property tax, would make the overall tax increase on that $262,000 residence a modest $23.58 per month.

The plan, Small said, will put the city’s finances on stable, fiscally sound footing, and enable it to pay for essential services — during good times and bad.

That’s because, under the new tax structure, nearly 55 percent of city revenue would come from property taxes, which today account for less than 10 percent. That fact has made the city dependent upon sales taxes, which fluctuate unpredictably.

Drastic revenue shortfalls, such as those experienced during the last two years, have forced the city to reduce or eliminate essential services.

Veteran real estate developer/broker Tim Leigh was impressed that Small had come up with the plan.

“At least it shows that somebody at city hall is thinking about these problems, and I give him credit for being willing to put his name on it and put it out there — but this plan is DOA,” he said. “I just don’t think that the voters will get any farther than the massive property tax increase. They won’t pay attention to any of the offsets, or the tax deduction. They’ll just see the big jump in property taxes, and vote it down.”

And, Leigh said, commercial property owners would take a much bigger hit than homeowners.

That’s because the Gallagher Amendment to the state constitution divides the state’s total property tax burden between residential and commercial property. According to the amendment, 45 percent of property tax collected must come from residential property and 55 percent must come from commercial property.

The amendment mandates that the assessment rate for commercial property be fixed at 29 percent. The residential rate is annually adjusted to conform to the 45-55 ratio

In order to calculate the residential property tax on a $100,000 home, the market value of the property is multiplied by the assessment rate and the mill levy,” according to coloradobudget.com, a state Web site.

“By multiplying the value of the home ($100,000) by the 2003 residential assessment rate (7.96 percent), we get the assessment value ($7,960), or the amount of value subject to taxation. This amount multiplied by the mill levy equals total tax liability. Using a mill levy rate of 100 mills for this example, the total tax burden for a $100,000 home in 2003 would be $796.

“A commercial property valued at $100,000 would be subject to the same formula, but would be taxed on 29 percent of its assessed value, or $29,000. Multiplied by the 100 mills, the total tax liability for the commercial property in 2003 would be $2,900.”

The negative impacts for commercial property owners are obvious, Leigh said.

“If you assume a 10 percent cap rate, that means every additional dollar in expenses reduces the value of the property by 10 dollars,” he said. “So, commercial property values in Colorado Springs would drop —and then they’d have to collect more taxes to make up for that. I don’t think that commercial property owners would support it.”

University of Colorado at Colorado Springs senior economist Fred Crowley characterized the plan as “incomplete,” but said that we should “move toward the right mix of sales and property tax.”

“We have a wealth-deprecating tax system,” Crowley said. “Our over-reliance on the sales tax means that taxpayers cannot itemize and deduct as they would property taxes. We need to look at taxes as we would building a portfolio of any kind, and ultimately it’s about building a strong, growing economy.  We haven’t had that for nearly 10 years — and that’s why we have problems.”

Like Leigh, Crowley doubted whether voters would approve Small’s plan.

“I’m not sure that you ought to knock out voter-approved taxes like TOPS or the public safety sales tax,” he said. “And you have to consider the impact of special districts, which have proliferated enormously during the last several years.  As many as a third of property owners may be paying special district property taxes, and many of them may not shop in the city, so the sales tax reductions may not impact them. A plan like this — I don’t think you submit it to the voters unless they’re demanding a new tax system.”

Like Leigh, El Paso County Board of Commissioners Chairman Jim Bensberg applauded Small’s moxie, but said he thought the plan would be a tough sell.

“I believe that it’s an intriguing proposal,” he said, “but I think that TOPS supporters, for example, would strongly oppose it.”

Bensberg said that during last November’s election city voters rejected a proposal to divert a portion of the TOPS tax to pay for park maintenance. So what might the reaction be to asking the amendment’s dedicated supporters to end the tax altogether?

“They’d come unglued,” Bensberg said.

Click here to see the complete proposal.

8 Responses to Small floats 600% mill levy increase

  1. BAD IDEA!!! This proposal would increase my city taxes from $205.37 to $1428.97. I am sure Larry thinks it is great as his city taxes would increase from $41.00 to $290.00. Another idea would be to put on an increase but to put a ceiling on it so it would not be so devastating.

    David A
    July 6, 2009 at 12:56 pm

  2. God Help us all, the Democrats are in power, and as usual, don’t run businesses well, ala Fannie/Freddie and on. Lowering taxes, suring the real estate market, and quit passing ridiculous wasteful bills. Wow what a concept.

    Gammy Sparkles
    July 6, 2009 at 1:12 pm

  3. Dave A. has his numbers wrong, and while “Gammy Sparkles” is right about the Dems being in control at the Federal and State level, they don’t control our local issues. The bottem line is Colorado Springs has the lowest property tax rate along the Front Range and even with this increase, would still have that honor. Unless and until we can get beyond this mentality that all government is wasteful and excessive, we are going to see our streets and infrastructure decline and our quality of life erode. This area has charm because the early city fathers had the foresite to plan and invest well. I don’t like taxes any better than the next guy and annually pay in the low 6 figures. I would love nothing more than to see my Federal taxes go down and local go up a modest amount where I might see a little more benefit.

    Kent Karber
    July 6, 2009 at 1:47 pm

  4. That’s all we need is another “Stormwater Enterprise” which is a euphemism for “More Taxes”.
    I really believe sometimes that our city ‘overseers’ think their primary duty is to spend more than they collect and then find other creative ways to extract it from the citizenry.

    Robert Jackson
    July 6, 2009 at 2:09 pm

  5. As a republican I am not opposed to taxes, just opposed to taxes for tax sake. Our city population claims to be moderate (overall) republican yet votes libertarian and opposes any tax increases period. Mr. Small, I will support your tax increase but I need to see the city operate more like a business and not an ever growing entity that costs more while continuing to deliver less.

    The city needs to be a better steward of our tax dollars, absolutely. For instance, how much duplicate efforts/spending are there between the city and El Paso County? Couldn’t some of the administration of local services be combined as a way to save money? The city just spent a ton of money on a new data center that could have been outsourced for less.

    I am willing to pay more, but I’d better see a return this time.

    Trevor Dierdorff
    July 6, 2009 at 3:33 pm

  6. My main objection is that this proposal shifts the burden of taxes to fewer people. Renters likely won’t have to pay this tax increase (or not all of it) depending on market conditions. Supply and demand determines rental prices, and if demand is less than supply, landlords wont’ be able to pass on increased property taxes to their renters. This will place more negative pressure on the housing market as buying and renting could become much less attractive. Investors may flee. Also, this will put permanent negative pressure on the commercial real estate market.

    Finally, people visiting Colorado Springs will get a sales tax break because the residents will have more of the burden.

    In a recession, everyone suffers, but somehow the City Council doesn’t think it has to suffer – just the peons that voted for them should. Create a rainy day fund and fund it at a higher level to better weather ups and downs. And stop whining!

    Jon
    July 6, 2009 at 3:56 pm

  7. For years this City and it’s employees have strived to get paid at levels comparable to the private sector. Of course, this meant dazzling pay raises. Then they wanted to get paid based on the highest pay in the land, and went nationwide to find high pay. More raises. Then they wanted to “retire” and get rehired while collecting their pensions. More raises. All this happened under Small and Rivera’s “leadership.”

    Well, if you want to get paid like the private sector, then you have to participate in BOTH the upswings and the downswings. If you get paid MORE than the private sector, then the declines will be more painful as the system absorbs the stunning over payments. Nepotism just makes it worse.

    Most of the private sector here is experiencing 30-40% declines in business and income. Some businesses are faring far worse than that. If the City wants to get paid like the private sector, then they get to participate completely, up and down. It is distinctly unfair to assume that city employees are more “important” than the private sector citizens. And based on the paylevels at the top of the city and CS Utilities, an across the board pay cut of 40% would still leave them among the highest paid employers here.

    FactFinder
    July 6, 2009 at 5:55 pm

  8. Mr Smalls,

    I hope you like tar and feathers. When are you politicians going to learn that taxing the populace to death will hurt your organization more than helping it. May I make a suggestion Mr. Smalls? Cut the waste! I’m still astonished at the GoG street widening between Intel and Agilent. Those parking lots are almost empty. Why did you spend that money. It could have gone elsewhere.

    If the Pro-Rodeo Hall of Fame threatens to move, let them. If the USOC threatens to move, let them. Colorado Springs had an identity before they arrived here, and will continue to have an identity after they move. Quit greasing their palms. Attract more primary industry to move here. People will have jobs, they’ll start spending again, and sales tax revenues will increase. I like Jon’s idea of setting up a rainy day fund. Just don’t attack it for a pet project. Use it for times when revenues are down.

    As Mr. Dierdorff says, you need to be a good steward with the money. I understand the need for taxes to pay for necessary services. Just cut the pork! Don’t penalize the producers.

    Do what the population has to do when money becomes short. Cut back spending. That should be evident to you by virtue of the fact that sales tax revenues are down. If you push this proposal through, you can rest assured I’ll be organizing a recall.

    Christopher Colvin

    Christopher Colvin
    July 7, 2009 at 8:05 am