What is Gallagher?

Posted by Erin Eddy

Oct 09, 2008
Source: Telluride Watch

TELLURIDE – Named after former state senator Dennis Gallagher, Colorado voters adopted the Gallagher Amendment in 1982 out of concern about skyrocketing residential property taxes.

The amendment divides the state’s total property tax burden between residential and commercial property. At the time it passed, residential property represented 45 percent of the state’s total property value, while nonresidential property accounted for 55 percent.

The authors believed that the statewide property tax burden should always reflect this same 45-55 percent ratio, and so wrote it into the legislation. As a result, despite drastic changes in the real estate market since 1982, the total tax burden continues to be figured according to this formula.

Although properties throughout the state are reassessed every two years to determine their actual value, property taxes are not calculated according to that number. Instead, only a portion of the actual value – the assessed value – is used to determine how much property tax an owner must pay.

In addition to the 45-55 percent split mandated by Gallagher, the amendment also fixed the rate at which commercial property is assessed at 29 percent.

Since commercial properties must both be assessed at 29 percent and account for 55 percent of the total tax burden, the assessment rate on residential properties fluctuates to ensure that the correct ratio is maintained.

In 1982 the residential assessment rate was 21 percent compared to the fixed commercial rate of 29 percent. However, as homes grew in number and value across the state, the total 45 percent tax burden was spread among more people, resulting in lower rates for homeowners.

Statewide, commercial real estate did not appreciate at the same rate as residential. As a result, today residential property value accounts for about 75 percent of total statewide property value, while commercial property makes up the remaining 25 percent. This means that residential property owners today are paying only 45 percent of the total tax bill although their properties make up 75 percent of the total property value. Conversely, commercial property owners are footing 55 percent of the tax bill while generating only 25 of the statewide property value.

In a resort town like Telluride the discrepancy is exacerbated as so many new, extraordinarily expensive second homes have been built while commercial growth is limited.