Tax assessments likely to fall 14 percent

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Property owners in El Paso County could see an average of a 14-percent decline in their 2011 assessments, meaning lower taxes for homeowners and others, according to a preliminary estimate from the El Paso County Assessor.

Such a drop in assessments would be the largest since the late 1980s, when Colorado Springs earned a reputation as “foreclosure capital” of the country.

For property owners, lower taxes are generally welcome. But for city and county budget planners, the news isn’t good, raising the potential for pay freezes, cuts in services and more bare-bones budgets amid a shaky economic recovery.

El Paso County Assessor Mark Lowderman said residential assessments could drop from 5 percent to 25 percent, while commercial properties could fall 10 percent to 12 percent. The assessment of vacant land could drop 15 percent, he said.

Local governments across the state face a similar situation, though El Paso could see some of the steepest declines in property assessments (see chart, this page).

Service cuts

El Paso County’s $242.2 million budget for 2010 included about $46.5 million in property tax revenue, or about 19 percent of the total.

A 15-percent hit to property taxes would mean almost $7 million less for the county’s general fund.

El Paso County Commission Chairman Dennis Hisey predicted that, as a consequence, few county employees will see raises in 2011 and 2012.

Also, the county’s Department of Transportation was scheduled to replace many of its aging vehicles. That’s now unlikely to happen, though some of the county’s 1,040 pieces of equipment have been in service for more than 30 years.

“Our staff actually has made parts for some of the equipment it’s so old,” said county spokesman Dave Rose.

The Sheriff’s Department also will likely face further cutbacks and delays in addressing its $14 million capital needs wish list.

Sheriff’s spokeswoman Lt. Lari Sevene said the sheriff expected the bad news.

“2012 is a big concern. We’re looking at a revenue decline of potentially of $5 million to $10 million. When there are cuts, it’s our salary line that will probably see them,” she said.

The City of Colorado Springs’ $209 million 2010 budget relies on property taxes for about 9.7 percent of its revenues, or about $21 million.

A 15 percent cut means another $3.2 million could be axed.

The situation represents another blow to a budget ravaged in 2009 when the city was forced to slice services valued at $23 million from its operations.

The city has already cut 15 fire department jobs, postponed $4 million in road overlay projects and more than 20,000 hours in city bus service. It also has shut off street lights and cut back on park maintenance.

City Financial Planning Manager Kara Skinner said the city hopes to avoid making further cuts.

“We would hope that other revenues such as sales and use tax or grant funding and other state revenue sources would offset some of those losses. Otherwise, we would have to find way to make further cuts,” she said.

School cuts

Schools will be among those hurt most by lower property valuations.

“They’ll probably see their ability to pay bonds or to provide programs and services reduced,” Lowderman predicted.

State education officials have cautioned all Colorado school districts to expect an average 5-percent drop in property tax revenues.

Under provisions of Amendment 23, which passed in 2000, the state must make up any shortfall in property tax revenue that feed K-12 mill levies. But that’s going to be a tough job at a time when the state is facing a shortfall of billions.

District 11, one of the city’s oldest districts, will be among those feeling the pain.

The district already faces $11 million to $16 million in budget cuts for the 2010-2011 school year as a result of a 6.12 percent state budget cut to K-12 education

District 11 Chief Financial Officer Glenn Gustafson hopes his district is immune from the worst. “We have been tracking the numbers and think we’re off only about 1 percent,” he said.

That may be, but even a smaller hit could mean pay freezes or program cuts.

Falcon District 49 is in danger of experiencing a much bigger hit because its neighborhoods have experienced greater property value declines.

Many of its residents bought at the peak of the market. And a high numbers of owners in District 49 ended up with risky subprime loans, according to the assessor’s data.

“More short sales or in foreclosures can push property values down more than 15 percent,” Lowderman said.

Good, bad news for homeowners

Homeowners and other property owners will see their taxes drop as a result of the lower valuations.

Dave Rose, who has owned a condominium in the Springs for 11 years, said his property taxes are already lower today than when he bought his residence.

“And to think that it will be 10 to 15 percent lower next year. El Paso County already has some of the lowest property taxes in the state,” he said.

Those who work in the real estate field see another side to the picture.

ERA Shields broker Eddie Hurt said the decline in property values will negatively affect many new homeowners.

The greatest drop in assessed values — as much as 25 or 30 percent — is likely to be seen in newer neighborhoods to the east and southeast of downtown, Lowderman said.

With assessments dropping, more of these homeowners could see themselves with mortgages that are higher than the market value of their homes.

On the other hand, Peak Commercial Partners broker John Rodgers pointed out that lower taxes mean landlords will save on overhead, and that their tenants might benefit, too.

“Investors with fully leased properties will either pass through tax savings in order to keep their tenants, and owners with vacant properties will get the direct benefit from any savings,” Rodgers said.

The TABOR problem

Lowderman believes El Paso County faces an even bigger problem than lower assessments.

“What concerns me is that TABOR’s (Taxpayer Bill of Rights’) ratchet effect comes home to roost,” he said.

Under the ratchet formula, local government is limited in how much it can retain in taxes, which depends on how much it collected in the previous year.

“Values will eventually recover, but El Paso County won’t be able to increase the mill levies necessary to pay for services that growth will demand,” he said.

Unless voters were to agree to modify TABOR and approve higher taxes, an unlikely scenario in conservative El Paso County.

Preliminary Assessments

Assessors statewide are in the process of coming up with updated valuations. Here’s a look at the figures so far from El Paso and several other counties:

County Category Projected % valuation change, up/(down)
El Paso Residential
Commercial
(5%) – (25%)
(10%) – (12%)
Adams (Aurora) Residential
Commercial
(8%)
(1%) – (2%)
Arapahoe (Littleton) Residential
Commercial
1%
(10%) – (20%)
Larimer (Fort Collins) Residential
Commercial
(1%) – (5%)
(10%)
Denver Residential
Commercial
(15%) – 5%
(20%) – 5%

How it works

Assessments occur every two years. El Paso County Assessor Mark Lowderman expects the entire process – including property valuation, approval by state auditors and acceptance by the El Paso County Board of Commissioners — to be completed by February.

During the most recent valuation period — July 1, 2008 through June 30, 2010 – the market saw record high foreclosure rates and short sales. That will contribute to lower assessments. But Lowderman said that extremes such as properties in exceptionally poor condition will not be used to determine average neighborhood valuations.

The latest assessed values will show up on taxpayers’ bills in spring 2012.