A Colorado property tax relief program is on the budget chopping block

When the state legislature in 2021 expanded eligibility for a little-known property tax deferral program, policymakers expected it to explode in popularity.

The state Treasurer’s Office, relying on a study commissioned by the General Assembly that year, figured it would become a financial lifeline for 35,000 or more Colorado households — a modest participation rate of 7% of a potential 475,000 eligible homeowners.

Last year, the legislature expanded the program again. And property values spiked as predicted. But fewer than 2,000 homeowners turned to the program for help.

After a two-year stretch in which property taxes dominated Colorado politics, state budget writers now plan to abandon a key piece of the legislature’s tax relief efforts, saying it isn’t being used enough to justify its cost — not when lawmakers are making bone-deep cuts to health care and social services to close a $1.2 billion shortfall.

The Joint Budget Committee this month took a preliminary vote not to renew the state’s $1.8 million contract with software provider CoreLogic, which powers the property tax deferral program.

Budget writers insist they don’t want to end the tax program entirely. Instead, lawmakers want to wind back the clock to a few years ago, when county tax offices shouldered the responsibility for signing up new participants, and the state government had a smaller role in the program’s administration.

But state Treasurer Dave Young, whose office manages the program, says that if the decision stands, it would jeopardize an initiative that has enjoyed wide bipartisan support within the legislature for years.

How the program works

The tax deferral program — not to be confused with the senior homestead exemption — allows homeowners to put off paying chunks of their property tax bills until they sell their homes.

Seniors and military veterans have long been allowed to postpone paying a portion of their property tax bills in counties that participated in the deferral program. But starting in the 2023 tax year, all homeowners could apply to defer some of the growth in their taxes, if their bill rises by more than 4% from the previous two years. Last year, lawmakers expanded the program again to allow tax payment deferrals on any increases in a person’s bill, up to a maximum of $10,000.

The deferral amount gets converted to a lien on their home that is due, with interest, when the home is sold or the owner dies. (This is different from the senior homestead exemption, which is a tax break that qualifying homeowners don’t have to repay.) In the meantime, the state treasury covers the cost to local governments.

When lawmakers expanded the program, they also gave the Treasurer’s Office money to develop an application website, market the program and digitize its administration. That eased the workload on state employees who were tracking millions of dollars in property tax liens and accrued interest, largely through paper correspondence with county governments and taxpayers.

The legislature also took some responsibilities off county governments, many of which weren’t participating at all because of the staff time needed to research property titles and process liens.

Why budget writers want to cut it

Despite a historic spike in tax bills, only 1,600 homeowners applied to the program last year. And of those, just 1,042 were awarded a deferral. That was about double the 540 deferrals processed in 2021, but still far from the forecasted demand. CoreLogic predicted around 35,000 households would apply based on participation rates of similar programs in other states.

As a result, JBC members said the program wasn’t helping enough people to justify the software’s $1.8 million annual cost — about $1,500 for each homeowner with an active tax deferral today. They didn’t mince words before voting unanimously last week to end the contract.

“This is one of the worst return-on-investment proposals I’ve seen,” Sen. Judy Amabile, a Boulder Democrat, said at one meeting. “In some ways, I can’t even believe we’re entertaining this at all.”

At a follow-up hearing Thursday, Young defended the program despite its underwhelming numbers, saying the JBC was overlooking the consequences of ending it.

Some low-income seniors defer their taxes year after year after year in order to make ends meet. Without that option, he said, more Coloradans could be forced out of their homes due to the state’s rising cost of living, putting further strain on the state’s fraying safety net. Even though it has to be repaid, the deferral program can be more impactful in some financial situations than the better-known senior homestead exemption, which is limited to the first $200,000 of a home’s value.

Ending the software contract, he noted, won’t eliminate the need to manage all the tax deferrals already in the pipeline.

“Unwinding the program is not going to be a situation of just eliminating or drawing a line through that line of the budget,” Young said. “There’s significant costs and implications for doing so that will play out for many years in the future. We still have to service loans, and you’re doing it by hand, without technology.”

Moreover, Young believes there’s a simple explanation for its lack of use. Last year’s property taxes were “chaos” for local governments and taxpayers alike, he said. Tax bills went out later than usual in many counties, as local governments wrestled with the aftermath of a November election and subsequent special session that included sweeping changes to statewide property tax rates.

That left some homeowners just weeks to decide if they wanted a deferral before the program’s April 1 deadline.

In an interview, Young acknowledged that last year’s numbers might not justify the cost. “But we were never told to design it for (one) year,” he said. “We were told to think for the long term on this and design it that way.”

If the program continued to grow with more marketing from state and local officials, it could theoretically pay for itself, but far more households would have to use it. Over the past four years, Treasury officials said, it generated $668,000 in interest on 450 deferred tax liens that were paid off when homes were sold.

On Tuesday, the JBC voted to introduce legislation repealing the state’s expanded role in administering the program. That will leave it up to the rest of the legislature to decide whether to restore the state treasurer’s effort to grow the program, or return it to county control.

It’s not clear how many local tax officials would even bother to take the program on. Last year, only 30 of the state’s 64 counties had anyone enrolled — and that was with the state’s help.

“The tool is too expensive,” said Rep. Rick Taggart, a Grand Junction Republican. “There is no mathematical equation that I can see at $1.8 million a year that yields a return on investment.”

The money saved by ending the contract amounts to 0.15% of the $1.2 billion in cuts lawmakers need to make to balance next year’s budget, which starts July 1.