I’ve written, scrapped and re-written this piece more times than the spread between the Broncos and Seahawks in our nail-biter of a season opener last Sunday. Should we be encouraged by the first half lead? Our rookie QB’s elegant rushing touchdown? Two safeties?!? Or fatalistic about the two interceptions, countless three and outs, and the loss? I think as fans we’re both hopeful and concerned about the Broncos. And that’s exactly how I feel about the affordable housing sales tax headed to Denver ballots.
If passed, measure 2R would represent the largest affordable housing investment in Denver’s history: an estimated $100 million per year. It has incredible potential to make a lasting impact in our city. And it’s roll out has been a hot mess.
That’s me, in the far right corner, falling off the wagon and attending my first official City Council meeting since being termed out a year earlier.
tldr: Only because of the 11th hour lift by the sitting City Council and the role they’ll play going forward, I’ll tentatively be voting yes on the sales tax. AND I’m calling for a shit-ton of organizing to ensure the city finishes the math and consensus building the Mayor rushed over to meet the ballot deadline.
More analysis than a wonk could want is below. Or listen to my City Cast Denver conversation on the topic, taped before the final City Council vote (more appropriate rental targets were added after it was recorded).
How We Got Here
For those with other plans on Monday nights, here’s a run-down of what happened along the road to City Council and why it’s important.
Mayor Michael Johnston launched his Affordable Denver 5 cent on a $10 purchase sales tax proposal with a promise to build 44,000 (or 45,000 depending on the speech) affordable homes and fulfill all of Denver’s affordability needs within 10 years. No calculation was provided for how they would deliver this number of homes with the funding generated.
Some, but not all, communications, clarified that existing funding will build 19,000 of the needed homes (though no verifiable calculations were provided for that either). In these comms, the promise has been to build the remaining ~26k with the new funds.
The first and only presentation to council to really discuss the 44,000 number actually talked about households served AND homes built or preserved. Both important. But different things. The promise to build 44,000 units didn’t appear again in any of the remaining council presentations by staff. But it’s been repeated in the Mayor’s speeches, as recently as a week ago.
Let me be clear: A funding source doesn’t need to SOLVE the entire housing crisis or to build exactly 26,000 homes to be worthwhile. But the public leaders behind it do need to be honest about the homework that still needs to be done to know how big of a dent it’s going to make. And they need to actually do that homework.
The City Council sponsors and housing staff are to be commended for not getting out over their skis with promises that haven’t been calculated yet. But when the coach is calling different plays, it makes for a messy offense. It is time for the Mayor to lead his team into the locker room, bring in the right experts who’ve reviewed all the game tapes, and do the math so that we can look at scenarios for spending, weigh the trade-offs, and develop a game plan we can rally behind.
Organizing opportunity #1: Our community deserves analysis of existing funding and spending, and a range of scenarios for spending new dollars in data-driven ways to maximize transparent and realistic outcomes—with an opportunity for stakeholder feedback on those scenarios.
For inspiration, below is what Seattle’s similarly sized housing bond is transparently aiming to deliver:
And these are the scenarios they looked at first to help them get there. (Note: there were lots more spreadsheets required to get from the funding column to the output column.)
Denver won’t get here before the November vote, but there’s no reason we can’t by Spring if the homework begins now. This is exactly the kind of data City Council will need to exercise the oversight they demanded and won in the final version of the ordinance they passed.
The Critical Role of Denver City Council
Denver City Council’s first of two required floor votes to refer the affordable housing sales tax to voters (August 12, 2024).
Council’s first vote followed hours of debate on a highly unusual number of floor amendments: 12. Two of the 8 members voting yes that night said they’d be voting no the second time around if concerns weren’t addressed. Because 7 votes are required, the loss of those two votes would have tanked the measure.
On August 19, 2024 the Council reconsidered several amendments that had failed or been tabled the prior week. By passing them, they secured 9 Council votes. And likely secured mine on the November ballot:
1. Data-driven income limits for rentals
The first dozen or so ordinance drafts were a blank check with no income limits or definitions of what counted as “affordable housing” whatsoever. Finally an income limit for subsidizing housing up to 100% of Area Median Income (AMI) was added, but without any distinction between rental and for-sale housing. Affordable Housing is needed across the spectrum, but those with higher incomes are struggling to buy, not to find luxury rents. Which is exactly what 100% of AMI would have subsidized.
A 100% of AMI income level would have allowed the city to routinely subsidize development of apartments renting for $2,282 (studio) to $2,934 (two bedroom). Not to lower those prices. To pay developers to build them and rent them at those prices. FYI this higher than Denver’s “median” rent of around $1,800.
All data sources point to limiting routine subsidies to development of rental housing for households earning no more than 80% of AMI (annual income of $71,900 for 1 person to $92,400 for a family of 3). Council voted to limit routine rental subsidies to apartments renting to these households. (For extra credit you can scroll down to the Appendix below to check out the data behind this important decision).
They also voted to require spending plans to be based on demonstrated community need. A whopping 78% of Denver’s housing shortage is for households earning less than $54,780 (1 person) to $70,444 (3 people). To comply with the ordinance, funding will need to focus on making the biggest impact where the most people are suffering the worst.
2. Council oversight
Council wrestled as much as I did with the lack of detail on spending. With great power comes great responsibility. And the need for more checks and balances on a very strong Mayoral system. Especially when the Mayor has proudly defended his propensity to act first and gather facts and input later. Our city isn’t an “entrepreneur’s” venture capital fund. We’re a democracy.
Council voted for a stronger role in approving spending plans beyond just the first year originally proposed, including requiring a return to council if/when a change in prioritization is needed, even if it came between planning or budget cycles.
3. A Sunset
Council settled on a 40 year sunset, so voters can evaluate results and will need to weigh in again if the tax is to continue beyond that horizon.
The final big factor in my decision didn’t have to do with Council at all:
4. Voter Approval (Probably) Required for Bonding
Voters should get another bite at the apple if the Mayor decides he wants to borrow against this revenue, except under one scenario.
In Colorado, under TABOR, voters have to give explicit permission for Denver to take on debt. Bonding is borrowing against future revenue for a bigger lump sum of cash up front. It’s debt. There is NO language authorizing debt or bonding in the ballot question. Unclear if the administration actually knew that. The need for voter approval only got mentioned once in passing over six council discussions. Yet in every meeting the administration kept insisting they couldn’t have a sunset because then they wouldn’t be able to bond, indicating a clear intent to do so.
As Joey from Friends would say, it was a moo point. They cannot bond without explicit voter permission. UNLESS they partner with another entity that has independent bonding authority, namely Denver Housing Authority. Denver did just this with the property tax portion of our first Affordable Housing Fund to create DHA Delivers for Denver, or D3. But if they do go this route again, it would require a Council vote. And I expect Council to demand better outreach and scrutiny after having their backs against a wall this first time.
If the Mayor wants to borrow against the tax and control the funds himself, as seems more likely, he’ll need to make the case to voters a second time. And we can evaluate progress on the play calls at that time.
The Remaining Homework
Listening to the Mayor’s descriptions and the six public debates Council had on the proposal, it’s clear there was never any overarching consensus on what this new housing funding could and should achieve.
Most council co-sponsors were from the newly elected class, and they added their names to the Mayor’s proposal before such fundamental principles were agreed to even among themselves. As a result, even sponsors fell into different camps on some of the amendments along the way.
Here are three of the most important, unresolved issues that must be addressed:
Organizing Opportunity #2: Funds should be focused (not exclusive mind you, but focused) on building or converting physical housing that will be affordable for the long-term.
There was much talk about help for existing homeowners, and rental assistance. A comprehensive approach to affordable housing can and should include these measures to help families stay stably housed. However, it can cost many times more in city money to provide on-going housing assistance to a family that simply cannot afford their rent or mortgage than it does to provide one-time subsidy to building an income-restricted home that will be affordable to that family, and others after them, for 60-99 years. This is in part because capital dollars leverage other funding sources, one-time assistance dollars don’t.
A best practice is to program dollars that draw down other state and federal funds to build long-term affordable rental housing first, then to program funding for land trusts and to build homes for ownership that typically don’t draw down much match, and then setting aside a chunk of the remaining funds for short-term rental assistance and homeowner help.
We don’t get to count assistance to households as “new affordable homes” when we report out, because these dollars often go to families in market rate housing that won’t be more affordable to the next buyer or renter.
Organizing Opportunity #3: Denver still needs a Supportive Housing plan and revenue committed to it.
A near-deal breaker was the Mayor’s comment to Denverite that this funding wouldn’t go for “homelessness.” He is already spending a lot to move people from street homelessness to transitional hotels or tiny homes. It has reduced encampments in central Denver. But that strategy will fail unless we grow the pipeline of housing options to resolve homelessness for good. I made this point and described how supportive housing works back in January.
Since then the city did change the name from House 1000 to All in Denver, to more accurately reflect the work. But there’s still no plan or focus on supportive housing. There are several options for getting there:
The first is to legislatively commit a greater percentage of the existing Homelessness Resolution Fund to supportive housing and the rent subsidies and supportive services that go with it. This was intended when it was passed, and the flexibility we gave Mayors has diluted that focus and funded fewer new homes/vouchers/services than promised.
The second is to ensure a portion of the new funds go to building supportive housing. Not more shelter. Not more emergency services. But to housing that resolves homelessness and services provided in that housing. A. Proven. Best. Practice. We can still invest heavily across the income spectrum. But to leave funding for supportive housing out of spending plans would be a mistake Denver would pay for in other ways.
The ordinance language clearly allows for investment in these types of cost-effective housing solutions and doing so clearly aligns with the Mayor’s focus on resolving homelessness.
If the Mayor or his housing department don’t clarify that they intend to fund the pipeline of permanent housing for those exiting homelessness that the city has committed to previously, from a dedicated source of local funding, they will lose my vote.
Organizing Opportunity #4: Guardrails on “innovative” funding that “cross subsidizes” a small percentage of affordable apartments with majority market-rate rents
Close observers may have caught references to terminology like “concessionary debt” and acquisition of buildings in longer discussions about Affordable Denver. Not a single model being considered has been publicly shared. But this nugget of an idea was a driving force behind the resistance to adding income limits to the ordinance. What is being talked about is construction or purchase loans to build or convert a building to provide a percentage of affordable housing, let’s say 20 - 30% of apartments, below a certain AMI. With the remainder being rented at market rates.
The ordinance includes an exception to the 80% of AMI limit for subsidizing rental development for such “innovative” financing approaches.
There is a very prominent model for doing just this in Montgomery County Maryland that everyone is watching. But there are a couple features that Denver must replicate if it goes down this path:
The funds must revolve. When Montgomery invests in a building that is 70% market-rate, they only do so up-front, for 5 years. Then the funds are paid back and can be reinvested in another project. In this way, the city gets affordability without long-term subsidy. And it isn’t really subsidizing the market rate rents. We get fewer affordable homes per building than a 100% affordable tax credit building, which is why we need to keep funding those too. But this approach does grow the pie for affordable housing. As long as public funding is temporary.
Projects must build some truly affordable homes for those who need them most. The ordinance actually requires this due to Council amendments. In Montgomery County this means 20% of homes below 50% of AMI and 10% below 30%. Where the need is greatest. Denver must set similar standards.
Projects should be publicly owned. Montgomery County is using their revolving fund dollars to become the longterm owner of housing to ensure it stays affordable and can meet high standards into perpetuity. In a town hall yesterday the Mayor stated he wanted to see the City taking this kind of public ownership stake. It is important to hold the city to that outcome, which isn’t mentioned in the ordinance.
There should be some protections for market renters against exorbitant increases. This is the part with the least clarity in the Montgomery model. The goal Denver’s Mayor has described is for no one to pay more than 30% of their income for housing, even those earning higher incomes. But what happens when circumstances change? If market rents are what make the math work without permanent government subsidy for the affordable apartments, and a number of market tenants have decreases in income, how does the project remain viable if rent is capped at 30% of their income? More discussion could clarify these potentially colliding dynamics. Or we might just not be able to achieve all of these outcomes in the same building.
But it is important to note that “market rents” in Denver have no protection from double digit, annual rental increases. If Denver is going to invest taxpayer dollars and publicly own housing that includes middle-income renters, those renters should be protected from such market whims and be ensured only reasonable rent increases over time. That should be the value proposition of city ownership and up-front investment.
There’s no question Denver could make a bigger impact on housing affordability with a larger funding source better matched to the market forces we’re up against. But the rushed approach leaves lots of homework to be done. Engaged Denverites can weigh in now to ensure it gets done so we can maximize the impact of these sales tax dolalrs for families, and for the stability of our economy and communities. Our votes and our voices are needed.
Oh. And Go Broncos.
Coming Next:
My Take on the Minimum Wage
The Truth About Inclusionary Housing
Appendix
Data Supporting Affordability Levels
Council limited routine rental investments to 80% of AMI because that is where the demonstrated need for rental is the greatest.
The market is producing apartments renting for $2-3k/month all by itself without your tax dollars. As my upcoming final paper on Inclusionary Housing will lay out, Denver has around 30,000 market rate multi-family homes in the permitting pipeline, thousands more are already under construction.
Most households above 80% of AMI are seeking to break into homeownership. And the ordinance allows investment into for-sale housing for families earning up to 120% of AMI ($109,560 for 1 to 140,880 for 3).
The “need” table below does show a small gap at 80% of AMI, but the source provided no distinction between gaps in rental vs. for-sale. Data on households struggling with rent shows extraordinarily little rent burden at 100% of AMI.
The Denver Housing Sales Tax is a regressive tax and will hurt middle and low income people the hardest. It will also hurt small Denver businesses and shoppers will go elsewhere. The housing shortage is a statewide problem created by low wages paid by the wealthy and predatory rent increases. The best way to solve the housing shortage is to create a statewide wealth tax so that those who have created the problem will be forced to help solve it. I am voting against this regressive tax.