In 1982, voters fed up with rising residential property taxes passed a constitutional amendment known as the Gallagher Amendment.

• Mandates that all property values be reassessed every two years
• Says that out of all property taxes collected in the state each year, taxes on residential property can only account for 45% of the total, while taxes collected from commercial property owners make up the remaining 55%
• Fixes the portion of commercial property subject to property taxes (the so-called “assessment rate”) at 29%
• Allows the assessment rate of residential property to float each year, in order to maintain the 45/55 ratio (in 1982, the year Gallagher was passed, this meant that the assessment rate for homes was 21%)

This system worked well to hold property taxes steady – until the residential housing boom of the 1990s. Housing prices skyrocketed, while commercial property prices rose modestly. In 1982, residential property value was responsible for only 45% of total property value in the state (hence the Gallagher ratio). Because of the hot housing market, residential property now accounts for 75% of total property value in the state.

Yet because of Gallagher, residential property owners still pay only 45% of all property taxes. The floating assessment rate for homes has dropped from 21% in 1982 to 9.15% in 2003, and is expected to drop further. Businesses, whose property values make up only 25% of the total, pay 55% of all property taxes. While business property taxes have not increased except in proportion to increasing value, thanks to the fixed 29% assessment rate, business owners say they are bearing a disproportionate share of the property tax burden in Colorado.

In addition, anticipated property tax revenues have dropped because of the precipitous decline in the residential assessment rate, affecting school districts and other special districts dependent on property taxes. In fact, without Gallagher, homeowners would have paid $7 billion more in property taxes since 1987.

The interaction of Gallagher and other laws

… TABOR requires that any tax increase be voted on. Under Gallagher, school districts and other special districts reliant on property taxes have had to cut their residential property tax rates (known as mill levies) in order to maintain the Gallagher ratio. Under TABOR, those mill levies then cannot be increased, regardless of economic circumstances, without a vote.

…The School Finance Act requires the state to equalize funding among school districts by backfilling dollars not generated by local property taxes. With diminished property tax revenue as a result of Gallagher, the state is responsible for more and more school funding. In fact, the state now pays about 60% of K-12 funding, up from 40% in 1987. Together with Amendment 23’s requirement of perpetually increasing state funding for schools, the state now bears a heavy burden for K-12 funding.

Want to learn more about the Gallagher Amendment? Read Gallagher 101.

Want even more information? Here’s a collection of links and resources about Gallagher.

Read about proposals to reform the Gallagher Amendment.