Authority for Different Mill Levy Rates

Second Regular Session Seventy-fifth General Assembly STATE OF COLORADO INTRODUCED HOUSE BILL 26-1119 LLS NO. 26-0402.01 Alison Killen x4350 HOUSE SPONSORSHIP Woodrow, SENATE SPONSORSHIP Hinrichsen, House Committees Senate Committees Finance A BILL FOR AN ACT CONCERNING THE AUTHORITY OF LOCAL TAXING ENTITIES TO IMPOSE PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES.

Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.) Section 2 of the bill allows local governments and certain special districts authorized to impose property taxes (local taxing entities) to tax certain land and improvements thereon at different mill levy rates, Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.

Capital letters or bold & italic numbers indicate new material to be added to existing law. Dashes through the words or numbers indicate deletions from existing law.

provided that the mill levy rate for the improvements is less than or equal to the mill levy rate for the land. A local taxing entity may not impose different mill levy rates for agricultural land, land used for renewable energy production, land subject to a perpetual conservation easement, leaseholds and lands producing oil or gas, producing mines or nonproducing mining claims, or state-assessed land. Nothing in section 2 allows a local taxing entity to impose property taxes on the assessed value of land and the assessed value of improvements thereon at different mill levy rates in a manner that is not consistent with section 20 of article X of the state constitution or any statutory limitation on the local taxing entity's mill levy rates or total property tax revenue. Section 3 requires boards of county commissioners and other local taxing entities to include with their certifications of all property tax levies the individual certification of any local taxing entity required by section 5 regarding the different mill levy rates used for land and improvements thereon by the local taxing entity. Section 4 updates the tax and levy rate information required to be made publicly available to include the specific, different mill levy rates used for land and improvements thereon, if applicable. Section 5 modifies the duty of local taxing entities to certify their property tax levy to the board of county commissioners to require any local taxing entity that imposes property taxes on the assessed value of land and the assessed value of improvements thereon at different rates, as allowed by section 2, to specify those mill levy rates in the local taxing entity's certification of its levy.

Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly finds and declares that:

(a) Colorado faces a severe housing shortage, with the state estimated to have a housing deficit of more than one hundred six thousand units according to the state demographer's office at the department of local affairs;

(b) More than one in three Colorado households are cost-burdened, spending more than thirty percent of their income on housing, and more than half of Colorado's renter households are cost-burdened, while nearly ninety percent of Colorado's extremely low-income rental households are cost-burdened;

(c) The median monthly home mortgage payment in Colorado increased by seventy-one percent between 2017 and 2023 according to the Colorado housing and finance authority;

(d) Rising land costs are a significant driver of housing unaffordability in Colorado, with land values rising from thirty-one percent of Colorado home values in 2012 to fifty-eight percent in 2024, according to the American Enterprise Institute;

(e) High land costs create significant barriers to housing development, as developers struggle to make projects financially viable when the improvements they make to the property incur a larger property tax liability;

(f) Creating a partial building exemption will reduce this barrier to housing, making it easier to build and finance new housing development;

(g) The value of land is determined primarily by its location and the amenities and services surrounding it-factors created by the community-rather than by any ingenuity, investment, or initiative of the landowner, whereas the value of buildings reflects productive investments made by property owners;

(h) When governments invest in public services and amenities like transit, parks, and schools, the resulting increase to nearby land values is captured by private landowners rather than reinvested for the public benefit, creating windfall wealth increases for landowners, whose contributions to such improvements are substantially outweighed by the increased cost of housing for workers and families;

(i) While a shift towards a property tax system where all buildings and improvements are exempt and only land is taxed is administratively and politically unrealistic in the short-term, one simple step in that direction is allowing local taxing entities to choose to "split" their mill levies so that a lower mill levy rate is imposed on buildings compared to unimproved land;

(j) Split-rate property taxation, which taxes land at a higher rate while providing partial "exemptions", provides economic incentives for productive investment and real estate development while disincentivizing land speculation and combating blight, because owners of vacant and underutilized land face higher tax burdens relative to owners who put their property to productive use;

(k) Split-rate property taxation incentivizes more efficient land use and development patterns by encouraging construction on vacant lots, infill development, and higher-density construction in areas with existing infrastructure, thereby reducing urban sprawl, lowering per-unit land costs, and minimizing environmental impacts associated with development on the urban fringe;

(l) Research and experience from jurisdictions that have implemented split-rate property taxation demonstrate that this policy can meaningfully boost housing construction while simultaneously reducing tax burdens for the majority of property owners who have invested in improving their land;

(m) The United States has more than a century of experience with split-rate property taxation, with split-rate taxation previously the law in Hawaii, as well as twenty-three jurisdictions in Pennsylvania having implemented such systems since 1913, and sixteen Pennsylvania cities currently using split-rate taxation, providing substantial empirical evidence of its effects;

(n) The city of Harrisburg, Pennsylvania, which adopted split-rate taxation in 1975 and gradually increased the tax differential between land and buildings, experienced a transformation from one of the most distressed cities in the United States to a thriving community, with an eighty-five percent reduction in vacant structures over twenty years, a seven-fold increase in taxable real estate value, and between eighty and ninety percent of property owners paying less under the split-rate taxation system than they would have paid under a single, uniform property tax rate;

(o) The city of Pittsburgh, Pennsylvania, which adopted split-rate property taxation in 1913, experienced a seventy percent increase in building permits following an increase in their land-to-building tax differential in the 1980s, during a period in which comparable peer cities experienced a fourteen percent decline in building activity;

(p) Split-rate municipalities in Pennsylvania have experienced significantly higher construction activity than comparable single, uniform property tax rate cities, according to a 2000 study published in the Journal of Urban Economics;

(q) A 2010 study published in the Journal of Urban Economics found that split-rate property tax jurisdictions experienced five additional percentage points of housing growth compared to single, uniform property tax rate jurisdictions, with the increase occurring through infill developments rather than sprawl, leading the researchers to characterize split-rate property tax as "a potentially powerful anti-sprawl tool";

(r) Split-rate property taxation can have a significantly positive impact on aggregate market property values, with a 2022 study published in the Public Finance Review finding that it can increase aggregate residential property value by twelve percent and commercial property value by twenty percent;

(s) Economist Joseph Stiglitz has demonstrated that higher land taxes are correlated with higher economic growth rates because such taxes discourage land speculation that diverts investment from productive economic activities;

(t) Split-rate property taxation is supported by a broad range of economists across the political spectrum because of its efficiency, neutrality, and lack of economic distortions, beginning with Adam Smith and including Nobel laureates Milton Friedman, Paul Krugman, and Joseph Stiglitz;

(u) Colorado county assessors already assess land values and improvement values separately on property tax records; (v) Colorado already operates a form of split-rate property taxation, as the assessment rates for school district property taxes differ from the assessment rates for other local government taxes; and

(w) Allowing local governments and certain special districts to choose to adopt split-rate property taxation or building exemptions supports and reinforces recent state and local actions to address the housing supply and affordability crisis, including efforts to encourage transit-oriented development, and smart growth strategies, all of which seek to promote more efficient use of land within existing communities and urban centers.

development, accessory dwelling

(2) Therefore, by enacting this House Bill units, infill , the general assembly intends to provide municipalities, counties, and certain special districts with the freedom to choose to split their mill levies and create "building exemptions" so that a lower rate is levied on buildings and improvements compared to the land without improvements, consistent with section 20 of article X of the state constitution, to encourage housing production, discourage land speculation, promote efficient land use, and reduce tax burdens on property owners who productively improve and develop their land.

SECTION 2. In Colorado Revised Statutes, add 29-1-306 as follows: 29-1-306. Split mill levy - different mill levy rates for land and improvements to land - limitations - requirements - definitions. (1) AS USED IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES:

(a) "AGRICULTURAL PROPERTY" MEANS THE SUBCLASS OF NONRESIDENTIAL PROPERTY DESCRIBED IN SECTION 39-1-104 (1.6)(c).

(b) "CONSERVATION EASEMENT PROPERTY" MEANS PROPERTY SUBJECT TO A PERPETUAL CONSERVATION EASEMENT.

(c) "IMPROVEMENTS" HAS THE MEANING SET FORTH IN SECTION 39-1-102 (6.3).

(d) "LOCAL TAXING ENTITY" MEANS ANY COUNTY, CITY AND COUNTY, CITY, TOWN, METROPOLITAN DISTRICT, BUSINESS IMPROVEMENT DISTRICT, LOCAL IMPROVEMENT DISTRICT, PUBLIC IMPROVEMENT DISTRICT, SPECIAL IMPROVEMENT DISTRICT, DOWNTOWN DEVELOPMENT AUTHORITY, URBAN RENEWAL AUTHORITY, OR COUNTY REVITALIZATION AREA AUTHORIZED TO LEVY PROPERTY TAXES.

(e) NONPRODUCING ACCORDANCE WITH ARTICLE 6 OF TITLE 39.

"MINING PROPERTY" MEANS PRODUCING MINES AND MINING CLAIMS VALUED FOR ASSESSMENT IN

(f) "OIL AND GAS PROPERTY" MEANS LEASEHOLDS AND LANDS PRODUCING OIL OR GAS VALUED FOR ASSESSMENT IN ACCORDANCE WITH ARTICLE 7 OF TITLE 39.

(g) "PERPETUAL CONSERVATION EASEMENT" HAS THE MEANING SET FORTH IN SECTION 39-1-102 (8.7).

(h) "RENEWABLE ENERGY PRODUCTION PROPERTY" MEANS THE SUBCLASS OF NONRESIDENTIAL PROPERTY DESCRIBED IN SECTION 39-1-104 (1.6)(b).

(i) "STATE-ASSESSED PROPERTY" MEANS THE PROPERTY REQUIRED TO BE VALUED BY THE PROPERTY TAX ADMINISTRATOR PURSUANT TO

SECTION 39-2-109 (1)(a).

(2) (a) NOTWITHSTANDING ANY LAW TO THE CONTRARY, EXCEPT AS PROVIDED IN SUBSECTION (2)(b) OF THIS SECTION, FOR PROPERTY TAX YEARS COMMENCING ON OR AFTER JANUARY 1, 2027, THE GOVERNING BODY OF A LOCAL TAXING ENTITY MAY, BY ORDINANCE OR RESOLUTION, IMPOSE PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES, PROVIDED THAT THE MILL LEVY RATE IMPOSED BY THE LOCAL TAXING ENTITY FOR THE IMPROVEMENTS IS LESS THAN OR EQUAL TO THE MILL LEVY RATE IMPOSED BY THE LOCAL TAXING ENTITY FOR THE LAND.

(b) A LOCAL TAXING ENTITY SHALL NOT IMPOSE PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES PURSUANT TO SUBSECTION (2)(a) OF THIS SECTION FOR AGRICULTURAL PROPERTY, CONSERVATION EASEMENT PROPERTY, MINING PROPERTY, OIL AND GAS PROPERTY , STATE-ASSESSED PROPERTY.

RENEWABLE ENERGY PRODUCTION PROPERTY , OR

(3) NOTHING IN THIS SECTION ALLOWS A LOCAL TAXING ENTITY TO IMPOSE PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES IN A MANNER THAT IS NOT CONSISTENT WITH SECTION 20 OF ARTICLE X OF THE STATE CONSTITUTION OR ANY STATUTORY LIMITATION ON THE LOCAL TAXING ENTITY'S MILL LEVY RATES OR TOTAL PROPERTY TAX REVENUE.

SECTION 3. In Colorado Revised Statutes, 39-1-111, amend (2) as follows:

39-1-111. Taxes levied by board of county commissioners.

(2) (a) As soon as such levies have been made, the board of county commissioners, or other body authorized by law to levy taxes, or either group's authorized party shall forthwith certify all such levies to the assessor, upon forms prescribed by the administrator, and shall transmit a copy of such certification to the administrator, to the division of local government, and to the department of education.

(b) A BOARD OF COUNTY COMMISSIONERS OR OTHER BODY REQUIRED TO CERTIFY ALL LEVIES TO THE ASSESSOR PURSUANT TO SUBSECTION (2)(a) OF THIS SECTION SHALL INCLUDE WITH ITS CERTICATION THE CERTIFIED LEVY OF ANY LOCAL TAXING ENTITY, AS DEFINED IN

SECTION 29-1-306, THAT IMPOSES PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES PURSUANT TO SECTION 29-1-306 (2)(a) AND IS REQUIRED BY SECTION CERTIFICATION EACH MILL LEVY RATE FOR LAND AND IMPROVEMENTS THEREON IMPOSED BY SUCH LOCAL TAXING ENTITY.

39-5-128 (4) TO INCLUDE IN ITS

SECTION 4. In Colorado Revised Statutes, 39-1-125, amend (1)(a)(I) as follows:

39-1-125. Tax and levy rate information publicly available.

(1) (a) When each town, city, school district, special district, or other taxing authority certifies its levy pursuant to section 39-5-128, it shall also provide the following information for each levy that it imposes:

(I) The rate of the levy, INCLUDING THE DIFFERENT RATES FOR LAND AND IMPROVEMENTS THEREON, IF APPLICABLE;

SECTION 5. In Colorado Revised Statutes, 39-5-128, add (4) as follows:

39-5-128. Certification of valuation for assessment.

(4) A LOCAL TAXING ENTITY, AS DEFINED IN SECTION 29-1-306 (1), THAT IMPOSES PROPERTY TAXES ON THE ASSESSED VALUE OF LAND AND THE ASSESSED VALUE OF IMPROVEMENTS THEREON AT DIFFERENT MILL LEVY RATES PURSUANT TO SECTION 29-1-306 (2)(a) SHALL INCLUDE IN ITS CERTIFICATION EACH MILL LEVY RATE FOR LAND AND THE IMPROVEMENTS THEREON IMPOSED BY THE LOCAL TAXING ENTITY.

SECTION 6. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 12, 2026, if adjournment sine die is on May 13, 2026); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.