It’s great to have a roof over your head, but if people pay too much for rent, it cuts into what’s available for other expenses. Affordable housing programs can help people have shelter and other necessities of life at the same time.
At its simplest, Colorado Proposition 123 would require the State of Colorado to devote 0.1 percent of its yearly state income tax revenue to affordable housing programs, although there could be exceptions based on economic conditions. The measure is more complex than a one-sentence description, and I’ll cover a number of detailed issues in the paragraphs below. Prop 123 is a statutory measure, and will only need a simple majority of voters to pass.
Why?
This first sentence is not meant to be hard science, but it’s difficult for lower-income families and individuals to find housing in many parts of Colorado that could be considered “affordable” or “attainable.” This could be partially because Colorado’s population has grown in excess of its housing supply, it could be partially because of pricing set by profit-oriented property owners, or it could be partially because of factors specific to a given community. The reasons might not matter to people looking for a place to live, and to keep this really simple, it’s tough right now.
In general, U.S. Housing and Urban Development (HUD) defines renters who pay more than 30% of their income toward housing as “cost-burdened,” and another definition says those paying more than 50% are “severely cost-burdened.” I’m using round numbers here only for illustration, but a person or family paying $1,500 per month in rent would pay $18,000 per year, which would be 50% of $36,000 in income, though income gets taxed.
According to the National Low Income Housing Coalition, Colorado has a shortage of about 114,000 rental units for “extremely low-income renters,” defined as a family of four making less than $27,830. That’s just one income category, but the state’s shortage of affordable housing across categories led to a number of recent State of Colorado affordable housing bills and to petitioning to get Prop 123 on the 2022 ballot.
How Much Funding Would Prop 123 Raise?
If Prop 123 passes, it would transfer about $290 million per year into a new State Affordable Housing Fund (SAHF) beginning in fiscal year 2023-24. It would also transfer about $145 million into the fund for FY 2022-23, since it would only be in effect for the last half of the fiscal year (fiscal years begin and end in July).
State income tax revenue could fluctuate in future years based on the economy or on income tax rates. In 2022, Colorado also has Prop 121 on the ballot, which if passed would reduce the state’s income tax rate from its current 4.55% to 4.40%. If both Prop 121 and Prop 123 pass, the SAHF would still get 0.1% of income tax revenues based on the new tax rate.
What Affordable Housing Programs Would Prop 123 Fund?
The following bullet points are just short descriptions of major programs that Prop 123 would fund. Readers can find much more detail in the Prop 123 ballot measure text in their Colorado Blue Book, but it’s sort of technical and takes up about 5 pages.
- Land Banking: In general, land banking allows local governments or nonprofit organizations to buy and own land, but provide housing for others on that land. Under Prop 123, land banking could also be used for mixed-use development.
- Affordable Home Ownership: Money from Prop 123 could be used for down payment assistance to potential home buyers, grants or loans to organizations providing affordable home ownership options, or to residents of mobile home parks who are interested in buying their park from current owners.
- People Experiencing Homelessness: Funding from Prop 123 could go toward rental assistance, housing vouchers, or grants and loans to organizations providing new housing for people experiencing homelessness.
- Affordable Housing Equity: A program under Prop 123 would grant shares of equity growth to tenants who have lived in qualifying affordable housing developments for at least a year.
- Concessionary Debt: Funding would be available to help finance new housing projects, including factory-built or modular homes.
Qualifications to Get Funding or Financing From Prop 123
Part of Prop 123 would simply set up funds to pay for or finance affordable housing programs or projects. Another part would encourage local governments to adopt policies that some people believe are necessary to optimize affordability – for example, access to transit so people can have affordable housing but might not have the advantages wiped away due to the cost of transportation.
Local governments interested in funding under Prop 123:
- Must file a plan with the state on how they intend to increase affordable housing by three percent per year. This could include building new housing units or converting existing units into affordable housing.
- According to the ballot text, the 3% plan “should prioritize” high-density housing, mixed-income housing, environmental sustainability, and prioritizing new projects for communities that don’t currently have high concentrations of affordable housing.
- Must establish administrative processes so local governments are able to “fast track” proposed projects – basically to approve them within 90 days of a project is submitted – though Prop 123 does not actually require local governments to fast-track projects.
TABOR. There’s Always TABOR.
In 1992, Colorado voters passed the Taxpayer’s Bill of Rights (TABOR), which very frequently complicates how we look at ballot measures like Prop 123. Under TABOR, the state government must refund money to taxpayers or adjust tax rates if it takes in more revenue than its limit under the TABOR formula, but might need to cut programs or services if it takes in less revenue than the TABOR cap.
Prop 123 language would remove the 0.1% of income tax revenue for the Affordable Housing Fund from the TABOR revenue cap. However, the state expects to have TABOR surpluses for the next few years, and passing Prop 123 could mean TABOR refund checks would be lower for the next few years than they would be without Prop 123.
Prop 123 has no sunset date, which potentially means it will be in effect in years when the state collects less revenue than the TABOR limit. Since state statutes under Prop 123 would say 0.1% of income tax revenue “shall” go into the Affordable Housing Fund, there could be years in which this use of revenue might rub up against other financial needs in other state departments.
Since Prop 123 is statutory and not Constitutional, the Colorado General Assembly technically could be able to reduce funding for the Affordable Housing Fund in case of a bad financial year or years. However, a few officials quoted in this Colorado Sun story noted that this type of decision might not be easy politically, since state voters would have specifically voted to fund use of this revenue for affordable housing.
Pro:
- Some people believe the current lack of affordable housing is a crisis, but no matter what you call it Prop 123 would devote significant funding toward affordable housing.
- It would help take some people experiencing homelessness off the streets and into a home or shelter, addressing a number of social concerns beyond housing, including health and safety issues.
- Having affordable housing can help individuals or families have more money available for other needs beyond the cost of housing.
- Housing construction creates jobs and economic activity.
Con:
- This initiative could tie up General Fund money for a specific use, potentially diverting money from other needs that might arise into the future. There is no sunset date for this initiative, and even if we pass Prop 123 in 2022, we might not see these funding challenges until years into the future.
- Prop 123 could reduce the amount of near-term TABOR refunds, and the state anticipates TABOR refunds for at least the next few years.
- Part of this initiative ties funding for housing projects to local areas adopting land use or planning approval policies that some local areas might not want to adopt.
Richard’s Take
I’ll say vote YES, but hear me out through what I’m writing below because there are some nuances to my opinion. Fundamentally and most importantly, the lack of affordable housing in Colorado is clearly a severe problem that’s really hurting people. To me, this is a matter of public concern on a whole bunch of levels, so the general matter seems worthy of public expenditure.
I have some state fiscal concerns, since there is one other item on the 2022 ballot that involves Colorado’s income tax rates and revenues. Proposition 121 would reduce state income tax rates significantly and indefinitely, that is to say without a sunset date. If both 121 and 123 pass, it could represent a situation where we have both a significant reduction in income tax revenue plus requiring a significant amount of spending for some period of time.
In fairness, proponents of 123 will say the Colorado General Assembly could cut the amount of affordable housing if the state is going through a tough economic year(s). But will they? If Prop 123 passes, it will have been voted on and adopted by the people of Colorado, and it might not be easy for legislators to defy the will of the voters – potentially during a housing crisis.
Income tax revenue is typically about 2/3 of the General Fund, and passing both 123 and 121 simultaneously could really tie the hands of future legislators, or at least create budgetary challenges, in case other serious needs arise. Personally, if this is a concern for voters I’d suggest trying a little harder to vote down Prop 121, but I wanted to point out the potential consequences of both passing.
I’m not a fan of a few parts of this initiative that involve “fast-tracking” development and tying funding for localities to adopting land use policies. However, don’t egg my home quite yet, because it’s not enough to get me to vote against the initiative. It’s mostly that I’m a fan of local control, and I hope readers can trust that even though I’m from Boulder I’m not really talking about Boulder land use right now.
The guidelines on local policy and land use seem like they come from urban YIMBY-type platforms, but Colorado is a huge and diverse state and Prop 123 is a statewide initiative. To keep it simple and alliterative, I’m just saying Alamosa or Akron might not want or need to emulate plans like Alpine-Balsam in Boulder. I firmly believe affordable housing projects can be beneficial even if they don’t meet the guidelines laid out in this initiative. For example, if a community can only make plans to increase affordable housing by 2% instead of the specified 3%, projects would still benefit real people and would be positive developments in my book.
I also have long-standing trepidation about fast-tracking development. To me, it violates the old carpenter’s rule of “measure twice, cut once.” Through the years I’ve often heard pro-development forces criticize public process for delaying approvals, and this part of the initiative strikes me as a way to potentially limit input from people whose lives might be altered permanently by a project or its components. Moving too fast could certainly minimize discussion about potential unintended consequences or detail. To the proponents’ credit, fast-tracking is not required in this initiative, but I feel like I’ve heard “cut red tape” enough for my lifetime and really wish fast-tracking wouldn’t get adopted into public policy anywhere. Once something is built, it’s there for decades, so in my opinion people should want a fair vetting of potential problems along with the benefits.
Otherwise, I will come down on the side that Prop 123 will improve life for some significant number of Coloradans. The Colorado General Assembly has already passed a number of fairly recent bills to help fund or finance affordable housing, but much of the funding was only possible due to federal stimulus including the American Rescue Plan Act (ARPA). This level of federal funding seems unlikely to last far into the future, so it seems like a good idea to make sure some consistent funding is available at the state level for a very serious statewide need.
