Dennis Gallagher, former state senator, Denver city councilman and city auditor, is helping to reform the constitutional tax amendment he helped pass more than three decades ago.
Dennis Gallagher, former state senator, Denver city councilman and city auditor, is helping to reform the constitutional tax amendment he helped pass more than three decades ago.
Anthony Camera

Man Behind Gallagher Amendment Working on Alternative to Tax Plan He Helped Create

Dennis Gallagher, one of the state's most accomplished politicians, only receded into retirement a mere three years ago after 45 years in elected office, but he's already being beckoned by legislators to speak to a committee to help steer what could be another bout of major (and long overdue) state tax reform.

Denver residents may remember Gallagher as the longtime city auditor who turned the office into an independent civic watchdog and wasn't afraid to butt heads with city officials, like Mayor Michael Hancock and his appointed bureaucrats, over government inefficiency and ineffective programs.

Gallagher isn't just being tapped by state lawmakers for his well of knowledge; he's also being called to answer for his legacy, a constitutional amendment called the Gallagher Amendment that is threatening to fold counties, fire and water districts and school districts across Colorado, particularly in rural parts of the state.

While doing an interview at Common Grounds Coffeehouse before the primaries, I bumped into Gallagher, who confessed that he was sorry about his namesake tax amendment and the impact it has had on Coloradans. When I later met with the retired statesman to clarify what he meant — does he regret Gallagher? — his response was more of a mixed bag than an outright apology.

Looking back, Gallagher doesn't exactly regret his tax amendment, even though legislators have already convened an interim committee this year to seek alternatives to it for a possible legislative referendum next session. (The interim committee met for the first time on July 13 and will meet again on July 18.) What he does regret is the way that his tax amendment has been an unwitting accomplice to its more infamous younger sibling, the Taxpayer's Bill of Rights, or TABOR, passed by voters in 1992 and created by Colorado's version of Donald Trump, slumlord Douglas Bruce.

Douglas Bruce was sentenced to prison in 2016 for violating his probation in a tax evasion case.
Douglas Bruce was sentenced to prison in 2016 for violating his probation in a tax evasion case.
Colorado Department of Corrections

"I have no regrets abut Gallagher; I think it's done what it should have for homeowners, and it's protected the middle class," Gallagher says. "It's the only protection for the middle class in the constitution in a state where business is everything."

While he's unapologetic about his amendment, he does want to fix what he says has twisted a win-win for homeowners and government into a noose.

Unlike TABOR, the Gallagher Amendment did not set out to strangle government by choking its ability to tax. In 1982, Senator Gallagher and his colleague, Democratic Senator Ron Stewart of Longmont, drafted it to protect homeowners, who, Gallagher says, were being taxed out of their homes. To understand the political environment at the time, here's a brief history lesson.

In 1948, Gallagher notes, 34 years before his political pride and joy passed, 75 percent of the property-tax burden was paid by non-residential property owners, like farmers, ranchers, businesses, commercial property owners — basically everyone but homeowners. But that changed over the years, and from 1975 to 1980, near the height of the state's property-tax revolt, residential property-tax collection for the state shot up by nearly 64 percent, according to a tax study prepared for the legislature in 1981 by University of Colorado Boulder economics professor Reuben Zubrow.

"I can remember Senate colleagues coming up to me on the Senate floor on Mondays saying, 'Boy, I had a terrible weekend. I went to three town meetings — a church, a school and a community center. They were ready to hang me on these property-tax increases, so we've got to do something.' So for once, the Democrats and the Republicans got together," Gallagher says. He helped draft the bill that called for the constitutional amendment. Once it had the governor's signature, the proposed amendment made its way onto the ballot for a vote of the people.

The amendment splits property-tax revenue in the state — think of a pie chart — 45 to 55, with non-residential property owners paying the slightly larger chunk. That group — business owners, skyscraper developers, farmers and others — have a fixed assessment rate of 29 percent, while homeowners, including multi-unit landlords, have a "floating" residential assessment rate that is set every two years by the state to keep residential tax revenue within the confines of 45 percent. Every other year, when properties are reappraised at the Colorado Department of Local Affairs, a new assessment rate is set for homeowners based on tax-revenue projections for non-residential property.

Man Behind Gallagher Amendment Working on Alternative to Tax Plan He Helped Create
enciktepstudio/shutterstock.com

But the amendment has also created a "ratcheting-down effect" of residential assessment rates: Homeowners have gone from paying a 21 percent assessment rate when the Gallagher Amendment passed in 1982 to a 7.2 percent rate today. In particular, rural fire districts claim that if assessment rates drop below 7 percent — which they are projected to do in the next few years — it will be catastrophic for them. That's because although statewide tax revenue must fit into that neat pie chart, the equation doesn't translate on a local level. Counties, cities, school districts and special districts that primarily comprise residential property consistently see their taxable property values drop, and they're powerless to make up the difference.

For example, a house worth $100,000 with an assessment rate of 10 percent means that $10,000 of the home's value is taxable. Shrink the assessment rate, and the only way for taxing entities to make up the lost revenue is to raise the mill levy, or tax rate. That's why Gallagher the man has been so frustrated with TABOR. Before Bruce came on the scene with his anti-government agenda, any taxing authority could make up for the ratcheting-down of residential assessment rates by adjusting their mill levies to keep revenues steady from year to year. But TABOR forbids any governmental entity from changing its rates without a vote of the people. (TABOR also requires tax refunds if revenues surpass a previous year's, plus inflation, meaning governments can't even store up funds when times are good.)

"As I say, the problems of Gallagher are really because of the intractable interaction with TABOR," Gallagher says. "I don't think the ratcheting-down theory was ever clear in the presentation of TABOR."

Gallagher doesn't squarely put the blame for the state's bad tax laws on Bruce. He admits that there is some room for change within his namesake amendment, including a different assessment rate for multiple-home owners.

"It wasn't considered originally, which might have been an oversight," Gallagher admits.

The other idea that Gallagher is suggesting to legislators that he says he would support at the ballot is re-instituting the floating mill levy, meaning governments would be able to raise at least the same amount of revenue as they did the prior year plus inflation without the need for a vote on their mill-levy adjustments.

Gallagher also argues that had his namesake amendment not passed and homeowners carried a higher property-tax burden today, they wouldn't have approved the many ballot initiatives, such as those regarding special taxes for parks, library districts or bonds, since the early ’80s.

And he wants to be especially clear on one thing: Legislators should not push to completely repeal Gallagher. He still believes it's the only real protection homeowners have from over-taxation.

"It's not perfect, we're not in heaven — but at the time, it seemed like a solution," Gallagher says. "The key to all of this is what are the legislators going to do if they come up with a solution? ... If they come up with something that's detrimental to homeowners — the only protection that homeowners have in the Colorado constitution is the Gallagher Amendment — and say, 'Oh, the middle class should pay more so business can pay less,' [that] is, as we say in Latin, bovis excrementum: bullshit."

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