Colorado lawmakers have reached a final agreement on a property tax deal aimed at providing modest cuts to homeowners and businesses while implementing limits on future property tax growth. The deal was struck in exchange for the removal of two measures, Initiatives 108 and 50, from the November ballot. The removal of these measures, which threatened public services and private development, was crucial for the bipartisan support received during the special session.

This marks the fifth time in four years that the General Assembly has passed a statewide property tax cut, highlighting the ongoing effort to balance funding for public services like K-12 schools with alleviating the rising cost of living in the state, exacerbated by the pandemic.

The approved measure, House Bill 1001, is now awaiting Governor Jared Polis' signature before becoming law. It is estimated to cut property taxes owed in 2026 by approximately $255 million, effectively preventing a massive $2.4 billion tax cut proposed by Initiative 108 from going on the ballot.

The two conservative groups behind Initiatives 108 and 50, Advance Colorado and Colorado Concern, have agreed to withdraw both measures from the ballot. Initiative 50, a proposed 4% cap on future property tax revenue, would have imposed ongoing tax rate cuts, even in rural areas where the tax base is not growing. Governor Polis has stated that he will sign House Bill 1001 only after the removal of Initiatives 108 and 50.

Supporters of the deal, including a diverse coalition of groups, agree that while there are debates about the merits of additional tax cuts, the potential damage from the proposed measures was too high to risk. Progressive Democrats, however, have voiced objections, likening the deal to extortion and expressing concerns about its lack of progressive provisions.

The agreement was reached through behind-the-scenes negotiations involving a small group of Democratic and Republican legislators, representatives from the governor's office, and Michael Fields, the leader of Advance Colorado. Fields had significant leverage in the negotiations due to the threat posed by the ballot measures.

Efforts by progressive Democrats to redirect tax relief towards lower-income earners were unsuccessful, as moderate Democrats and Republicans united to protect the delicate agreement with Fields.

For homeowners, the size of the tax cut will vary depending on the value of the property and its location. The assessment rate for local governments will decrease to as low as 6.15% in the 2026 tax year, while school districts will see a decrease to 6.95%. In addition, the measure introduces a 10% exemption for residential properties, resulting in an effective tax rate of approximately 6.4% for the average home.

Businesses, including nonresidential properties, will experience a gradual reduction in property taxes, from the current 29% to the 25% commercial tax rates outlined in Senate Bill 233 by the 2027 tax year. Landlords, whose properties are taxed at the residential rate, will also benefit from the cuts for homeowners.

The impact on local governments and K-12 schools is a matter of concern. With an estimated property tax collection loss of $255 million in the first year, the potential losses grow to $291 million in the 2026 tax year. Local governments stand to face cuts of $119 million and $131 million in 2026 and 2027, respectively, while school districts would lose $136 million and $161 million in the same period.

The state's budget would also face challenges, as the property tax deal would require an additional $83 million in K-12 education spending by the 2025-26 budget year. This figure would increase to $100 million a year later, necessitating further cuts in areas such as higher education and Medicaid.

The approved property tax deal offers a delicate compromise between providing relief to homeowners and businesses while addressing concerns about potential public service cuts. It is now up to Governor Polis to sign House Bill 1001, followed by the removal of Initiatives 108 and 50 from the November ballot, thus cementing the agreement and securing the path forward for property tax reforms in Colorado.