Rising Real Estate Values = Tax Hike

Get ready for a property tax hike
Rising real estate valuation hits home
By Tom Ross (Contact) Steamboat Pilot / TODAY
Sunday, January 27, 2008

Routt County property owners have found reason the last three years to celebrate the dramatic growth they’ve seen in the equity in their homes and land. Now, the bill has come due.

Routt County Treasurer Jeanne Whiddon confirmed that she sent half of the county’s property tax notices Thursday, and the rest will go into the mail today. For many local property owners, the tax notices will contain unwelcome news.

“In most cases, property owners will experience a significant increase in their 2007 tax bill when compared to prior years,” Routt County Assessor Mike Kerrigan said Thursday.

It is difficult to generalize about how much of a tax increase different property owners will see, Kerrigan said. That’s because the amount of the increase varies with the type and location of the property.

However, Whiddon said the tax bill on her home on Pine Street in Old Town Steamboat Springs went up 29 percent, to more than $2,000 annually.

The magnitude of the hit will vary for residential property owners in Yampa and Stagecoach, for example. And commercial property owners are apt to see bigger jumps than residential property owners.

Real estate developer Jim Cook, who is involved in five mixed residential/commercial projects in downtown Steamboat, expressed concern that property tax increases would make it more challenging for new and existing businesses to revitalize the downtown commercial district. Property taxes are typically passed on to commercial tenants as part of their rent that is referred to as CAM, or common areas and maintenance, he said. The net result will be higher rent on a per-square-foot basis.

Kerrigan said several factors have come together to result in the property tax increase. One of them is the unprecedented increase in real estate values in the county during the past several years.

“In 2007, all properties were reappraised to reflect market values as of June 30, 2006, while 2005 and 2006 property taxes were based on market values as of June 30, 2004,” Kerrigan said. “In that two-year period, the assessed value in Routt County increased approximately 35 percent.”

Kerrigan said Colorado’s Taxpayers Bill of Rights, adopted in 1992, affords property owners some protection from tax bills escalating with real estate values — but that doesn’t mean individual property owners won’t feel some pain.

Kerrigan acknowledged that TABOR requires taxing entities to reduce their mill levies so revenues will remain relatively constant unless voters approve additional mill levy increases.

However, TABOR does allow governments to adjust levies for inflation and new construction. During Routt County’s 2007 budget process, the Denver/Boulder Consumer Price Index allowed a 2.75 percent increase in mill levies, and new construction allowed another 3.25 percent, Kerrigan said.

Varied values
One of the least understood aspects of TABOR, Kerrigan said, is that it does not apply to individual properties. Instead, it limits tax levies for the overall valuation within each taxing entity’s boundary.

That leaves individual taxpayers, whose property out-performs the overall number for the tax district, vulnerable to a bigger tax increase.

“If the total valuation of Routt County went up 35 percent, but an individual property’s value went up 46 percent, then its net tax increase will be 11 percent, or 46 percent minus 35 percent,” Kerrigan said.

And that doesn’t include the 6 percent increase attributable to inflation and new construction.

Additionally, Kerrigan said, high demand for entry-level housing from 2004 to 2006 resulted in bigger increases in valuation at the low end of the market than it did in the highest price points.

Kerrigan said he’s aware of undeveloped land in Stagecoach that tripled in appraised value after multiple sales between appraisals in 2004 and 2006. Owners of similar property will see larger-than-average tax increases this week.

Ballot impact
Local voters have approved several new property taxes in recent years.

In 2006, voters approved two property tax increases for the Steamboat Springs School District that were expected to add about $100 to the tax bill of someone owning a $450,000 home.

In November 2005, voters approved tax measures for the Bud Werner Memorial Library expansion, the Purchase of Development Rights program and Horizons Specialized Services.

In aggregate, they were expected to add about $180 to the tax bill for a $600,000 house.

Kerrigan’s figures show that the 1.5 mills of property taxes for the Purchase of Development Rights program will generate $1.62 million in revenues this year. The 1 mill for Horizons will generate $1.08 million. Three-tenths of a mill devoted to museums in the county will generate $324,131. Those three special taxes are not constrained by TABOR and chalked up a 34 percent increase in taxes, according to Kerrigan.

Rich when you leave
Private sector commercial real estate appraiser Bob Maddox operates out of offices in a small building on Oak Street in downtown Steamboat. Springs, and he’s prepared for an increase.

“I bought the building from Florence Brown in 1978 for $130,000,” Maddox said. “Over the years, I’ve seen the property taxes increase until they are close to 10 percent of what I paid for it.”

Owners of commercial property take larger property tax hits than owners of residential property because an amendment to the Colorado constitution requires the overall commercial tax burden to be about three times that of the residential tax burden.

“A lot of the inequity in our tax bills is due to the Gallagher Amendment,” Maddox said.

Around his office, they have a sarcastic saying about the growth in valuation Routt County residents have experienced in their real estate.

“We always joke that everyone in Routt County is a millionaire,” Maddox said, “but you don’t get your check until you’re on your way out of town. And you can’t come back.”

— To reach Tom Ross, call 871-4205 or e-mail tross@steamboatpilot.com