DALLAS — Colorado property values fell 5.3% in 2010 and are expected to fall another 6.9% in 2011, according to the December economic forecast from the nonpartisan Legislative Council.
Total assessed values of $92.6 billion are expected to drop to $86.2 billion in 2011, representing the first decline in property values since the real estate bust of the late 1980s that coincided with the savings and loan scandals.
"Assessed values are projected to grow slightly in 2012," the December report said. "Growth will be modest again for 2013, a reassessment year, because the real estate market and economy will be slow to recover."
Because property values support local school districts, the declining tax bases will require the state to cover the shortfall, estimated at $140 million for the fiscal year beginning July 1.
The overall budget shortfall is estimated at $1 billion.
Colorado assesses value on eight classes of property, including commercial, industrial, oil and gas, and agricultural. Falling oil and gas prices represented the biggest share of the loss in nonresidential values, according to the Legislative Council report.
Commercial property values retreated sharply in those areas that experienced the biggest boom before the 18-month-long recession began in late 2007. Total assessed property values grew 14.2% in 2007, 2.8% in 2008 and 11.7% in 2009 before this year's decline.
Values increased 52.9% between 2004 and 2009 due to a widespread strengthening of the economy and the rapid expansion of the natural resource extraction industries. But assessed values will drop by $11.6 billion in 2011 from their peak in 2009.
"This is a decline of 11.8% over this two-year period," the report noted. "The sustained high level of foreclosures, economic downturn and tight mortgage financing market have put downward pressure on home prices throughout Colorado."
Colorado carries issuer ratings of AA from Standard & Poor's and Aa3 from Moody's Investors Service.
Earlier this month, the state issued $500 million of tax anticipation notes to smooth cash flows in the coming year.
The deal came a month after voters in the state rejected three ballot measures severely restricting bond debt, including one that would have outlawed all state debt, even short-term notes.
The General Assembly meeting in January will deal with the budgetary shortfall under newly elected Democratic Gov. John Hickenlooper, previously mayor of Denver.
The Colorado economy continues a slow and gradual recovery, with employment trending up since May, according to the Legislative Council. Personal income also showed moderate gains.
"Despite these clear signs that the economy is expanding, there are ongoing struggles and uncertainties that will restrain the strength of the recovery in 2011 and beyond," the report predicted.
"High unemployment, constrained credit, high debt, and the struggling housing market will dampen growth over the next several years."