Transcript 2009 Special District Association Regional Workshops

SDA
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 Basic Principles of State Tax System in State Constitution
 Personal and Corporate Income Taxes reserved to State
 Property Taxes reserved to local governments:
 Municipalities
 Counties
 Special districts
 School districts
 Some taxes are allowed to both the state and local
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 Reserved to the State
 Includes both personal income tax and corporate income tax.
 Constitutes the primary source of state tax revenue
o $6,180,665,308 collected in 2013
o 60% of all state revenue
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 State Sales and Use Tax
 Rate set at 2.9%
 Many exemptions, some in constitution, some in statute
o $3,358,295,290 Collected in 2013 (including excise taxes)
o 32.6% of all state revenue
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 Local Sales and Use Taxes
 Rates set by local taxing authority
 Many are State collected and remitted back to the local entities
 Only Home Rule Cities can collect their own sales and
use tax –69 Home Rule Cities currently self-collect
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 In 2007, over $1.92 billion in sales taxes were levied by
271 local governmental entities: 52 counties,
214 municipalities, and 5 special districts
 Total sales and use tax revenue collected in 2013
 Counties:
 Cities collected by the state*
 Local Improvement Districts
$462 Million
$139 Million
$5.3 Million
*Home Rule Cities information not available at slide time!
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 Paid upon registration of motor vehicles.
 Statewide approximately $450 million annually?
 Distributed by county treasurer on a pro-rata share to all taxing
entities based on entity mill levy
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 Property tax, also called
ad valorem tax
 Levied in Colorado by over 2000? local taxing entities
 Total in excess of $7 billion in 2013.
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 The rate of tax (mill levy) is determined annually by each
taxing entity, based on
 Budget established/amount of property tax needed by the entity to
fund that budget
 Divided by the ASSESSED value of taxable property within the
entity
o As certified by the county assessor to the entity
 Mill levy as set by the entity
o As certified by the entity to the County Commissioners
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 So what is a mill?
 A “mill” is 1/1,000 of a dollar or
 .001 applied against ASSESSED Value
 For example:
 A residential property with an actual value of $100,000
o ASSESSED value would be $7,960
• One mill is $7.96
 A commercial property with an actual value of $100,000
o ASSESSED value would be $29,000
• One mill is $29.00
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 What is a taxing entity/jurisdiction?
 An entity with the authority to levy taxes against property
o School Districts, Counties, Cities and Special Districts
 What is a tax area?
 A geographic area where all properties are serviced by the same
taxing entities.
 What is ASSESSED value?
 It is the actual value of a type of property multiplied by the
assessment rate.
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 Tax Area Example
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 Entity Mill Levies and Tax Area and Example for Mr. Smith:
 There will be four taxing entities for Mr. Smith’s Tax Area
o County
o City
20.24 mills
9.07 mills
o School District
o Water and Sanitation
Total Mill Levy
45.06 mills
2.75 mills
77.12 mills or .07712
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 Computing the Property tax for Mr. Smith’s Tax Area:
 Mr. Smith’s residential property is worth $100,000 of ACTUAL value
o Actual value X residential ASSESSMENT rate = $7,960
o Assessed value X 77.12 mills for tax area =
• $7,960 X .07712 = $613.86
 Constitution provides all levies must be “uniform”
 Social “engineering” comes in the various Assessment Rates
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 Based on 2013 Annual Report to the Governor and
General Assembly:
 School Districts (Total Levy)
4.52 Billion
50.3%
 Junior Colleges
$84 Million
1.2%
 Counties
$1.40 Billion
20.0%
 City and County of Denver
$373 Million
5.3%
 Other Municipalities
$342 Million
4.9%
 Local and Special Districts
$1.28 Billion
18.3%
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 5.5% Limitation
 “Gallagher” Amendment
 TABOR Amendment
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 Adopted in 1913
 Limits any district’s revenue from property tax to
no more than 5.5% more than the previous year
 Exceptions for new growth
 Provisions for voter approved suspension of the limit
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 Referred Constitutional Amendment, adopted in 1982
 Eliminated personal property tax on
o Household furnishings and personal effects not used for the
production of income at any time,
o Inventories of merchandise and materials and supplies held for
consumption
o Livestock; agricultural and livestock products; and agricultural
equipment used in the production of agricultural products
 Established the annual audit of assessors’ offices to confirm proper
values
 Ensured Agricultural properties would be valued on production
rather than Market, Income or Cost approach
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 Amendment initially established assessment rate at 21%
of actual value for residential property, and 29% for most
other properties
 GALLAGHER = During a year of general reassessment,
the percentage of total statewide tax base attributable to
residential property shall remain the same as it was the
prior year after adjusting for new construction …
 The proverbial 45% of value coming from residential property, and
non-residential property making up approximately 55%.

Residential rate re-calculation became a permanent part of the
constitution.
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Recap of Residential Assessment Rates since Gallagher
Years
1983-1986
1987
1988
1989-90
1991-92
1993-94
1995-96
1997-98
1999-2000
2001-02
2003-04
2005-06
2007-08
2009-10
2011-12
2013-14
Rate enacted
21.00%
18.00%
16.00%
15.00%
14.34%
12.86%
10.36%
9.74%
9.74%
9.15%
7.96%
7.96%
7.96%
7.96%
7.96%
7.96%
RAR Study Rate
9.83%
8.17%
8.19%
8.85%
8.77%
9.13%
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 Evan Goulding states: “Every reduction in RAR
results in a simultaneous reduction in property tax base
(assessed value) for every local government which has a
mill levy.”
JoAnn Groff doesn’t necessarily agree, depends on the
make up of your taxing area. The problem:
 Residential Assessment Rate calculated statewide
 All property tax areas are local
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 Included in property tax base for all taxing areas
Assessed Value of BPP was 14.70% of total assess
value statewide in 2013
 Varies greatly by county
o Lowest was Hinsdale 1.71%
o Highest was Rio Blanco 53.28%
 Total assessed value of BPP in 2013 - $13 Billion
State-wide
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 Totally exempting BPP could result in $1 - $1.2 Billion*
loss to all local governments
*Total guestimate of the PTA based on total program of
schools totaling 1/3 of all property tax, 2010 Legislative Council
estimate of $ 400 M necessary to backfill schools by general
fund if BPP eliminated
 Also has Gallagher implications:
o If you lower the 55% side of the pie you must lower the 45%
side of the pie. The size of the pie must get smaller to
maintain ratio.
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 Initiated Constitutional Amendment adopted in 1992
 More than fifty court cases have been necessary to
provide understanding and interpretation of the
complex measure
 Currently a case is pending brought by a group of former
legislators and concerned citizens stating the whole
amendment is unconstitutional
o Until that case is decided…
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 Limits property taxes in two ways:
i.
Section (4) Required Elections. …districts must have voter
approval in advance for: (a) any new tax, tax rate increase, mill levy
above that for the prior year, valuation for assessment ratio increase
for a property class, or extension of an expiring tax, or a tax policy
change directly causing a net tax revenue gain to any district.
ii.
Section 7(c) limits revenue from property tax to increase in
any year by no more than the previous year’s limit (or actual
revenue, whichever is less), plus local growth plus inflation
as reflected by changes in the Denver-Boulder Consumer
Price Index (CPI).
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 Mill Levy increases must have voter approval.
(Para. 4(a)).
 Voting on taxes is the central mantra of TABOR
 Especially troublesome when coupled with potential
Gallagher assessment rate reductions, where a mill
levy increase may be necessary simply to stay even
with revenue.
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 Fiscal year spending can only increase by the amount
of the previous year’s fiscal year spending
+ plus local growth
+ plus inflation in the prior calendar year.
 Local Growth = net new construction less destruction
 Inflation = Denver/Boulder Consumer Price Index [CPI]
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 If revenue (and thus spending) is reduced in a given
year, next year’s allowable spending is built from the
reduced revenue, or the new year’s limit,
whichever is less.
 The practical effect is that in bad times, a district loses
revenue, and cannot move back up to a previous level
without a vote of the people.
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 If revenue from sources not excluded from fiscal year
spending exceeds limits in dollar amounts for that
fiscal year, the excess shall be refunded. [Section 7(d)]
 Various methods of refunding are allowed
 Failure to refund can result in up to ten percent
penalty against the district
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 Voters can approve a revenue change as an offset. This
provision has led to the common practice of putting a
ballot issue before the voters, asking them to allow the
district to keep and spend an
unspecified amount of
revenue in excess of TABOR’s limits, often
for an
indefinite period of time. This has become known as
de-Brucing.
 Limited de-Brucing refers to a vote to retain a specified
amount of excess revenue, from a specified revenue source,
or for a specified period of time.
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 General de-Brucing seeks to retain a more general amount of
excess revenue, and for a longer, or unspecified time period.
 de-Brucing, however, is limited only to approving revenue
changes, whether limited or general, and does not relax or
remove any of the other restrictions of TABOR.
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 One of the more important safe harbors in TABOR is the
“enterprise exception”
 TABOR excludes from its limitations any qualified
“enterprise”;
 However, the term presents many difficult interpretive questions
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 Section 2(d) defines an enterprise as “a government-owned
business authorized to issue its own revenue bonds and
receiving under 10 percent of its annual revenue in grants
from all Colorado state and local governments.”
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 The district itself, because it has the power to levy a property
tax, probably cannot qualify as an enterprise.
Nicholl v. E - 470 Public Highway Authority.
 An activity of the district, however, such as a water
distribution system, golf course, etc., may be selfsupporting through fees, or other means, so that less than
10 percent of its revenue is from taxes or government
grants, and thus qualify as an enterprise.
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 Enterprise status may vary year to year, depending upon
percentage of revenue made up of taxes and grants.
 When a segregated activity of a district qualifies as an
enterprise, the district probably does not need to take
formal action to designate it as an enterprise.
 The better practice, however, is to adopt a resolution on an
annual basis designating each enterprise owned by the
district.
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 Cost of a local improvement, assessed upon property
specially benefited (local improvement districts)
§ 30-20-601 C.R.S.
 Frequently used by municipal “special improvement district,”
or county “local improvement district”
 Funds generated by special assessment cannot be diverted to
other purposes
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 For services, programs, or facilities furnished by special districts
 Authorized as part of general powers of the board on behalf of the
district. § 32-1-1001(1)(j) C.R.S.
 Adopted by rule or regulation
 Constitute a perpetual lien on the property, which may be
foreclosed in the same manner as provided by the laws for the
foreclosure of mechanics’ liens
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 “Delinquency Charges” regulated by § 29-1-1102 C.R.S.
 No delinquency charge on any amount paid within five days of
due date
 Limited to $15 or up to 5% per month or fraction thereof, not to
exceed a total of 25% of the amount due, whichever is greater
 No interest can be charged on the delinquency charge
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 Interest can be charged on the amount of the fee or charge
due.
Interest cannot exceed the amount of the delinquent fee, and
cannot exceed 18% per annum
Limits shall not prohibit a district from recovering costs of
collection, including disconnection or reconnection fees,
reinstatement charges, or penalties assessed where fraud is
involved
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 Water and Sanitation districts are empowered to assess
reasonable penalties for delinquency in the payment of
rates, fees, tolls or charges, or violations of the rules and
regulations, with interest from due date at not more than 1%
per month, and to shut off or discontinue service.
§ 32-1-1006(d) C.R.S.
 Where these rules are inconsistent, districts should follow the rule
that is most restrictive on its administration of delinquency
charges
 In order to enforce, fees and charges should be adopted by rule
or regulation, and have clear policy and penalties spelled out
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 Fire protection districts are limited to fees and
charges as follows: § 32-1-1002(1)(e) C.R.S.
 for ambulance or emergency medical services;

for requested or mandated inspections if a fire code is in
force;
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 Water and sanitation districts have the power to divide
the district into areas according to the services
furnished therein, and to fix different rates, fees, tolls,
or charges and different rates of levy for tax purposes
against all of the taxable property within the several
areas of the district… § 32-1-1006(1)(b) C.R.S.
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 Special districts have no independent authority to impose impact
fees.
 Cities and Counties have clear authority to impose impact fees,
pursuant to § 29-20-104.5 C.R.S., adopted in 2001 in a special legislative
session. This act, however, intentionally omitted special districts from
the definition of local governments, thus precluding direct “impact
fee” authority on behalf of special districts.
 The Act also clearly states that the local government, i.e., city or county,
may impose an impact fee to “fund expenditures by such local
government on capital facilities needed to serve new development.
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 Since the law would seem to indicate that the money must be
spent by the collecting entity, care should be exercised in
structuring cooperative efforts where a city or county imposes
and collects an impact fee for the benefit of a special district
 The same act enumerates the conditions which must be met to
avoid “takings” problems. Great care must be given to meeting the
conditions included in the statute, which largely mirror leading
Supreme Court cases
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 Must have voter approval in advance. (TABOR, Para 4(b)).
 Affects bonding, short term loans, multi-year
employment contracts
 Lease-purchase has been approved by Supreme Court
as one way to deal with this restriction
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 To be used for declared emergencies only
 Each district must annually reserve 3% or more of its
fiscal year spending excluding bonded debt service
 Problem is in the definition of “emergency.”

It excludes economic conditions or most conditions other than
natural disasters, and probably does not cover most natural
disasters. The result is that 3% of a district’s funding is tied up
in a dedicated reserve, and completely unusable by the district.
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 Annual Revenue under revenue limits, not spent,
can be moved into non-emergency reserve account
 Reserve funds can be kept, grown, and spent
without regard for future TABOR limits
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 For Michal or JoAnn?
Thank you!
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