• The attractive real estate market in Colorado has resulted in significant property tax increases for residents and increased revenues for local governments.
  • Proposition HH has been proposed for the November 2023 election to provide property tax relief. It also allows the State to collect additional tax revenue.
  • The proposal contains other key provisions, including property tax increase caps and exemptions.
  • Many Colorado homeowners are facing double-digit increases in their property tax bills for 2024 due to tax assessors throughout the State reassessing property values. The substantial increase is a result of the hot real estate market in Colorado. Although property values have generally declined in recent months, the 2023 assessment value is based on sales data from July 1, 2020 through June 30, 2022. Eagle County leads the State with the largest residential value increase of 70%, and the nine-county Denver metropolitan area experienced values increases ranging from 33%-47%. The results of these increases are higher property tax bills for residents and increased revenues for local governments.

    In response to taxpayer concerns, Colorado Governor Jared Polis is proposing property tax relief through Proposition HH at the November 2023 election. Proposition HH is designed to reduce future Taxpayer’s Bill of Rights (“TABOR”) refunds to provide current property tax relief, and allows the State to collect an additional 1% above the current limit. TABOR is a constitutional limit to the amount of revenue that Colorado and local governments are able to retain and spend or save. Excess revenue collected over the TABOR limit must be refunded to taxpayers unless voters authorize retention of the excess amount. It requires Colorado and local governments to obtain approval from voters for new taxes, raise tax rates, or issue bonded debt. Proposition HH proposes holding the assessment rate constant for 10 years, capping property tax increases at the rate of inflation, exempting the first $40,000 in a home’s value from taxation, and providing a $140,000 senior homestead exemption tax break.

    In Colorado, property tax revenues are used to fund school districts, special districts, municipal government, and county government. Property taxes are not collected to fund any State services. The ballot measure impacts school district funding by reducing local property tax collections and requiring the State’s to make up the difference in school funding. The State is estimated to retain an additional $166.6 million and $358.6 million in fiscal years 2024 and 2025, respectively, and an additional $200 million more each year through fiscal year 2032. Furthermore, the State estimates Proposition HH could allow the state to retain up to $2.2 billion over the state cap that triggers refunds to Coloradans.

    From a municipal bond perspective, property taxes that support general obligation bonds have historically been relatively stable during economic downturns. Furthermore, property tax collections in Colorado have been robust over the past several years, and property values have continued to appreciate. Given the historical relative stability of the property tax-funded revenue model, in our opinion, we do not foresee Proposition HH creating any material immediate credit risks for general obligation bonds. While property taxes and values are subject to change, along with other key developments impacting Coloradans and local governments, Aquila Group of Funds will continue to monitor Proposition HH.

    The information is general in nature and is not intended to provide investment, accounting, tax or legal advice. It is not intended to represent a recommendation or solicitation related to any particular investment, security or industry sector. The opinions shared are those of the author and do not necessarily reflect those of the Investment Adviser of the Fund.

    Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. State-specific fund performance could be more volatile than that of funds with greater geographic diversification.

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