Basalt town hall

Basalt has been dealing with a property tax over-collection issue since last winter. The town council has directed staff to begin the process of drafting an ordinance that would set the wheels in motion to return about $2 million to current town property owners.

It’s getting down to brass tacks for the town of Basalt, vis-à-vis the controversy stemming from a TABOR-related property tax overcharge. 

With the town council behind refunding an estimated overcharge of about $2 million, the question now becomes how that sizable chunk of change will actually be dispersed to property owners.

Short answer: It will be complicated and time consuming. And some people might not be too happy.

In early July, the council directed town staff to begin the process of drafting an ordinance providing for a “voluntary refund” of property taxes collected over the course of the past four years in violation of Colorado’s so-called Taxpayer Bill of Rights, better known as TABOR.

In late January, Basalt town government admitted to the public that it had run afoul of TABOR, passed into law in 1992 by a statewide citizens’ referendum that amended Article X of the Colorado Constitution. TABOR restricts revenue for all levels of government — state, local, special districts and schools. Under TABOR, state and local governments cannot raise tax rates without voter approval and cannot spend revenue collected under existing tax rates without voter approval if revenue grows faster than the rate of inflation and population growth.

Two years after TABOR was enacted, Basalt voters approved a property tax rate of 6.151 mills. Almost immediately, given the increase in real estate values, that rate was lowered, finally bottoming out at 2.56 mills in 2010. As real estate values struggled to recover from the Great Recession, Basalt was forced to gradually raise the tax rate to meet its basic operating costs.

That’s when the TABOR-based trouble began.

Though the property tax rate still has not exceeded the 6.151-mill level approved by voters in 1994, the fact that the town raised the rate almost every year from 2010 to its current level of 5.957 mills for this year is a TABOR no-no.

The potential error came to light during the town’s annual budget process in November, but, since that process was too far along to make any major changes, the town set the 2019 rate despite its newly unearthed TABOR concerns.

Basalt came clean in a very public manner last winter, hosting two TABOR-based gatherings and establishing a TABOR-specific link on the town’s website.

Additionally, last spring, town government circulated a community survey asking, among other questions, whether the Basalt citizenry was inclined to forgive that debt or whether the town ought to pay back that illegally collected property tax. Slightly more than 54 percent of the respondents indicated they would prefer a refund.

Related: Opening brief filed in appeal against Basalt

The town is now moving in that direction, but specifics have yet to be worked out.

According to Town Manager Ryan Mahoney, the process of cutting an estimated $2 million in refund checks will take more than simply pushing a button on a computer.

“Basalt has nearly 2,600 taxpayers, which makes this a labor-intensive process,” Mahoney said. “Upon council approval of the refund, we will hire an accounting firm to process and disburse the checks. The town will begin the process of identifying all property owners within its boundaries on August 30, utilizing the most current databases of property owners held by Eagle and Pitkin counties.”

Though the decision as to which accounting firm will be hired to perform the grunt work has not been finalized, Mahoney said Basalt has “set aside approximately $50,000 for the administration piece of the refund. The exact costs are still unknown.”

Mahoney added that the refund checks could be sent out in September and October. He also said that all those checks will be a matter of public record.

The downside of all this fiscal beneficence is that it will apply only to current Basalt property owners. Those who might have divested their property in the past four years won’t be compensated.

“TABOR sets a statute of limitations on the number of years a refund is required at four years, meaning the town should refund the past four years of over-collected property taxes,” Mahoney said. “Along with that statute of limitations, TABOR recognizes that a refund may be provided through any reasonable method, and the town of Basalt has determined that refunding current taxpayers, or property owners, is the most reasonable and legally sound basis for distributing the refund.

“This approach has been used in other communities and is supported by Colorado law. Since the refund will go to current property owners, those who have sold recently or during the four-year TABOR period will not receive a refund check,” he said.

Basalt will essentially have to go into debt to finance the refund.

“Council is considering to fund this through what’s called ‘certificates of participation,’” Mahoney said. “Basically, COPs allow the town to receive cash up front through a bank, and then specific town property is leased back to the town over the duration of the agreement at an annual cost to the town. COPs are a TABOR-allowed legal method for municipalities to receive funds.

“The amount of the refund will be right around $2 million,” he continued. “The funding will come from the proceeds of the certificates of participation and will be included in the general fund. The annual payment will be approximately $250,000 per year” for 10 years.

That means, when all is said and done, the whole deal will cost Basalt about $2.5 million.

While Mahoney has not necessarily ruled out the exploration of obtaining additional avenues for the town — specifically, seeking some manner of fiscal recourse against entities or individuals employed by the town who perhaps should have been responsible for catching the TABOR issues before last autumn — thus far, that has not been a priority.

“We have been focused on a resolution to the issue, which we felt strongly was our first priority,” he said. “If there is direction from council to investigate whether there is recourse for those associated with previous administrations, we can address that in the future.”

None of the town’s various insurance policies will cover the town’s TABOR issues, according to Mahoney.

Though exact numbers still need to be crunched, estimates at this point are that a house now valued at $1 million would receive a refund of about $1,000, while a business property valued at $1 million would receive about $4,000.