Gov. Jared Polis is eyeing a vehicle registration tax that mainly funds local governments, including school districts, as a way to confront the state’s chronic cycle of budget shortfalls.
The tax, called the specific ownership tax, could also be key in keeping the state chugging along with its new school funding formula, according to Polis’ office.
But school district leaders and education advocates say his proposal would pull critical funding from K-12 education, to the tune of tens of millions of dollars in a single school year for some districts.
“I don’t think there’s any other way to look at this but a cut to K-12, and this is funding that has been distributed to school districts,” Chuck Carpenter, chief of finance for Denver Public Schools, said. “They’re due it by law.”
In simple terms, the specific ownership tax is an annual tax generated by vehicle registrations, including from new vehicle sales and driver’s license renewals, that counties distribute to local governments. School districts are among the recipients of that money — the amount they get is proportionate to the amount of property tax they collect, according to state budget documents.
What the governor is proposing is to change how that money is counted. And that matters because Colorado funds schools in two ways: the “state share” and the “local share.” Both factor into the state’s school funding formula.
Some, but not all, of the money districts get through the specific ownership tax counts toward districts’ local share. When a district passes a bond or a mill levy override, state law allows the district to collect additional specific ownership tax money. Historically, that extra tax money has not been folded into the local share. The dollars stay local and a district benefits from a funding boost that leaders can use at their own discretion, including for programs, staff and operations, according to Tracie Rainey, executive director of the nonprofit Colorado School Finance Project.
Lawmakers and state budget analysts refer to the additional dollars as “sheltered” funds. Rainey rejects that term, saying districts receive and spend this money lawfully.
During the current school year, specific ownership tax funds routed to all districts in the state added up to an estimated $451.8 million, according to state budget documents. Of that total, an estimated $190.5 million was not calculated into districts’ local share. Districts kept that money and decided how to spend it on their schools.
With troublesome state budget outlooks in the foreseeable future, Polis wants to sweep all the extra tax dollars, incorporate them into the school funding formula and then redistribute the funds among all districts. That sets up two significant funding consequences for schools: First, it would increase how much of the school funding pie comes from local sources, meaning the state could scale back the amount of money it pours into K-12 education. It would also result in a funding cut for districts that rely on that additional tax revenue.
DENVER, COLORADO — Jan. 26, 2026: The inside of the gold dome at the Colorado Capitol in Denver on Monday, Jan. 26, 2026. (Jesse Paul, The Colorado Sun)In Jefferson County School District, for example, more than $15 million of the nearly $40 million the district reaped through the specific ownership tax for the current school year was not applied to the local share. That money was separate from the school funding that flowed to the district through the school funding formula.
Under Polis’ proposal, the state would put that $15 million into the school funding formula and redistribute it among all districts. That would translate to a $15 million cut for Jefferson County School District.
Polis has recommended easing in the change so districts would not begin seeing the financial impacts until the 2027-28 school year, when he wants to take half of the additional tax funds and absorb them into the state’s school funding formula. Beginning in the 2028-29 school year, all additional tax funds would become part of the formula.
A budget analysis from the governor’s office shows those changes would boost local share by $110 million for the 2027-28 school year and by $222.2 million for the 2028-29 school year, thereby helping the state budget.
The governor’s office said Polis’ plan could help the state avoid pausing its new school funding formula for the 2027-28 school year amid a tight state budget and a need to maintain enough money in the State Education Fund. That fund is a kind of bank account that holds reserves to both disburse dollars through the formula and support a variety of other school programs.
“Governor Polis is committed to ensuring that every Colorado student can succeed in the classroom and this is about supporting equity in schools across the state,” spokesperson Ally Sullivan wrote in an emailed statement. “Currently, this specific ownership tax is not applied evenly across all school districts, especially for those who do not have the funding from a bond or mill levy overrides. This policy change would benefit students and teachers by improving the sustainability of the school finance formula.”
Largest school districts would lose the most
That kind of funding shift could lead to staff layoffs in school districts, Rainey said.
“What you’re doing is you’re taking dollars away that are currently going to school districts and are now counting them as local share,” Rainey said, “but it’s not like you’re saying, ‘We’re going to add more money to education.’ It just means that the state share is not going to put in as much money.”
The state’s biggest districts would stand to lose the most money since they’re located in more populated counties that process higher numbers of vehicle registrations.
In Denver Public Schools, Colorado’s largest district, nearly $24 million did not get counted in the local share for the current school year. That’s close to a third of the more than $60 million Denver Public Schools collected through the specific ownership tax.
Carpenter, the district’s chief of finance, said $24 million accounts for about 2% of the district’s general fund budget and is about the same amount the district uses to give all staff cost-of-living pay raises.
Krystal Aviles, a Denver Public Schools social worker, poses with a sign as teachers and public education supporters rally outside of the Colorado capitol on Thursday, March 20, 2025, urging the legislature not to cut school funding. Classes were canceled in some Colorado districts because so many educators called out to attend the demonstration. (Jesse Paul, The Colorado Sun)Carpenter said he understands the state is in a budget crunch, but if lawmakers follow through on Polis’ proposal, he worries about the financial pressure that will add to schools.
“The trade-offs are always hard,” he said, “but if this happens, it’s a real reduction to K-12.”
Carpenter is among district leaders who say they would prefer to see Colorado schools suffer funding cuts through the budget stabilization factor, a Great Recession-era accounting tool that gave the legislature the authority to distribute less money to schools than what they were owed under the state constitution. That tool, which had a 14-year lifespan before lawmakers abolished it in 2024, stripped schools of a collective $10 billion.
“It certainly would be more transparent and it would allow us to be able to communicate more clearly to the community,” Carpenter said, noting that it’s tough to help people understand the specific ownership tax.
Polis’ office has not included the possibility of bringing back the budget stabilization factor in its school funding proposal, focusing instead on whether to change how Colorado counts the specific ownership tax toward school funding or pause the new school funding formula for one or two years.
“If you’re going to make a cut, let’s make it obvious so people can plan”
Reintroducing the budget stabilization factor is the last thing state Sen. Jeff Bridges, a Greenwood Village Democrat and vice chair of the Joint Budget Committee, wants to entertain this session.
“This is what I care most about,” Bridges told The Colorado Sun. “I think it’s the most important thing to do as a state, education is. And it would just be devastating to be put in a position where this thing that I’ve worked so hard to undo comes back.”
Members of the JBC, which writes the state’s budget, didn’t jump at the idea of changing the way the state counts the tax money after listening to a Joint Budget Committee staff presentation on the tax last week.
Bridges said before he can make a firm decision on how to count specific ownership tax dollars, he needs legal clarity on whether some districts running mill levy overrides might have violated the Taxpayer’s Bill of Rights, which requires voter approval for tax increases.
A district spells out a dollar amount to be raised through a mill levy override, a local measure aiming to generate more money for a district that must be approved by voters. If the measure brings in more money than the amount reflected in the ballot question, a district must lower the amount they say they will collect or they have to go back to voters to ask to keep the excess dollars, according to TABOR.
Bridges worries that, depending on how mill levy override questions were phrased, districts could have violated the state constitution by keeping extra dollars from the specific ownership tax on top of what they collected through the ballot measure.
State Sen. Jeff Bridges, D-Greenwood Village, speaks to reporters at a news conference about the 2025 special legislative session at the Colorado Capitol in Denver on Aug. 21, 2025. (Jesse Paul, The Colorado Sun)Meanwhile, state Sen. Barbara Kirkmeyer, a Brighton Republican and JBC member, echoed school districts leaders’ concerns that Polis’ proposal would “in effect” cut education funding.
“It’s unfortunate the governor and Democrats keep trying to solve their budget mess by looking at education first,” Kirkmeyer wrote in a text message to The Sun. “This budget only gets cleaned up when they make the hard choices necessary, not by balancing the budget on the backs of students, families, and school districts.”
DENVER, COLORADO — Jan. 14, 2026: State Sen. Barbara Kirkmeyer, R-Brighton, speaks at the Colorado Capitol in Denver on Wednesday, Jan. 14, 2026. (Jesse Paul, The Colorado Sun)How to handle the vehicle registration tax is one of many school funding questions in front of the legislature this session. They also will assess whether the state has the funds to sustain the new school funding formula and whether they want to continue phasing out the state’s averaging tool. In past years, Colorado has given districts state funding based on an average of their student counts over multiple years, softening the blow of significant funding cuts for districts experiencing declining enrollment.
Whatever lawmakers decide, Rainey is urging them to be upfront and thoughtful so districts know what to expect.
“Don’t try to be cute and cut different things in education and then say you’re fully funding it,” Rainey said. “If you’re going to make a cut, let’s make it obvious so people can plan.”
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