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’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.