One proposal creates a permanent affordable housing fund paid for with impact fees on new construction and a half-mill property tax increase, which would go into effect Jan. 1, 2017.
The other proposal would dip into Denver’s generous budget reserves to fund affordable housing in 2017, buying time for more debate on the housing plan and how it will be paid for. If no better plan could be agreed upon, impact fees would go into effect in October 2017 and property tax increases would go into effect in 2018.
The Denver City Council voted Monday to move both proposals forward to a second meeting on Sept. 19, where there will be a public hearing and a final decision.
The first proposal has the support of Mayor Michael Hancock and was developed by the mayor’s office in cooperation with Council President Albus Brooks and Councilwoman-at-large Robin Kniech over more than a year of stakeholder meetings. It has been pitched as “modest” and “balanced.”
Kniech has made the case over and over that the city needs to create a separate, dedicated funding source for affordable housing so that it doesn’t have to compete with other city services during the next downturn. Now, she argues, when the city is experiencing a building boom, is the time to create this fund and start collecting revenue.
The second proposal originated with Councilman Chris Herndon and was co-sponsored by Councilwoman-at-large Debbie Ortega and Councilman Rafael Espinoza. They have suggested the city spend $20 million on housing from its $201 million general fund reserve in 2017. The proposal also aims to create a permanent affordable housing fund, but Evan Dreyer, the mayor’s deputy chief of staff, has warned that pulling that much money out of reserves would put other spending priorities in doubt.
Both proposals are moving forward, but they don’t have equal support on council. Backers of the mayor’s proposal fear the alternative represents too much delay and could derail the permanent fund.
The mayor’s proposal received unanimous approval, except for Councilman Paul Lopez who was absent due to a family emergency, though some of the yes votes just want to keep it alive for purposes of discussion.
Here’s the breakdown on the alternative proposal:
Yes: Chris Herndon, Wayne New, Rafael Espinoza, Beth Susman, Kendra Black, Debbie Ortega, Jolon Clark
No: Robin Kniech, Albus Brooks, Paul Kashmann, Kevin Flynn, Stacie Gilmore
Some of those yes votes also just want to keep the debate going.
So, what don’t some people like about the mayor’s plan?
Councilman Chris Herndon has expressed concerns that it’s both too small — the city could be doing a lot more, more quickly — and that the impact fees could deter developers. His district, which includes Montbello, sorely needs a grocery store and other investment, and any extra fees could be the straw that breaks the camel’s back.
Councilman Rafael Espinoza is concerned that the plan is too nice to developers and does too much to support the status quo. He wants developers paying a much larger share than homeowners and commercial property owners. He also wants more attention given to how the city will spend the money. Just giving more money to the traditional developers of affordable housing projects won’t do enough to make a difference, he said.
“Right now, this dais has the political will to do more, yet the sponsors of this modest and balanced proposal are trying to kill debate,” he said. “For the sake of Denver and its citizens, we need to dig deep and find solutions. … It’s not sufficient.”
Councilwoman Debbie Ortega wants an affordable housing plan, one adopted by City Council, that lays out the city’s priorities and funding sources in one place, instead of leaving a large new fund to be distributed by a board largely appointed by the mayor, independent of other housing efforts.
“It ensures that everybody understands what this game plan is,” she said.
She’s seeking an amendment that would suspend the new fund if a plan isn’t adopted by October 2017.
Councilwoman Kendra Black would like to use marijuana tax money before the city looks at new taxes and fees.
“We’ve heard from housing advocates, and we’ve heard from developers,” she said. “I would like to hear from objective experts like some economists. I’m concerned about unintended consequences in making our market rate housing more expensive.”
You might notice a fissure here among backers of the alternative proposal.
Some of them want developers to pay more. Some of them want developers to pay less. Or at least, they worry there will be a lot of downsides to making developers pay more.
For Kniech, that’s a reason to move forward with the mayor’s proposal. It’s the compromise proposal that guarantees funding now at a level that is politically feasible.
“Some of you, I’m not going to name names, didn’t like the property tax. You were hearing from your constituents that they didn’t want to pay more property tax,” she said. “Others of you, and again I’m not going to name names, didn’t like the impact fee.”
Kniech compared dipping into reserves to digging in the couch cushions for spare change to pay for housing.
“Either we will be competing with other services or with our reserve policy and our bond rating,” she said.
In the meantime, there would be no guarantee of funding in 2017 and no guarantee that a better compromise could be found.
“This proposal will not fund one dollar of affordable housing in 2017,” she said of the alternative proposal. “Doing that will require a different action that will take place in the context of a budget that has already been proposed.”
What’s so wrong — or so difficult — about using reserves for housing?
The 2017 proposed budget released earlier Monday by the mayor’s office calls for $5 million in reserve spending to supplement whatever new affordable housing program the council approves. Drawing an additional $15 million — to get to the $20 million total — from the reserves would take the city from 15.2 percent budget reserves to 14.1 percent.
The city has a policy of maintaining 15 percent budget reserves, and bond rating agencies like to see that, as well. The mayor’s office probably would propose cutting other programs rather than taking that much from reserves.
Counterpoint: The last two years, the city has aimed for 15 percent reserves and ended up with 24 percent and 19 percent respectively. The city has a lot of money right now. Counter-counterpoint: These flush times won’t last, and there’s no guarantee 2017 will look like 2015 and 2016.
“Right now we’re relatively flush with our reserves, but during our recent downturn, we were forced to reduce critical services and went five years without hiring a police officer,” Kashmann said.
Herndon said the “projections of doom” around using the reserves were overstated. He’s not suggesting using surplus money for years on end, but for one year, to make a big impact, with a permanent fund with a permanent revenue source on the other side of that year.
What is the mayor’s proposal, again?
Property owners — commercial, residential, industrial — would pay an additional half-mill of property tax per year, and the city would charge a per-square-foot fee — 60 cents on a single-family home, $1.50 on an apartment building, $1.70 on a grocery store or a hotel — on new development and all that money would go into an affordable housing fund.
In 2015, that would have meant $16 million just on the fees on new development, much of it residential, and another $6.5 million in property taxes.
Earlier this year, an analyst with CBRE told me the impact fees would amount to less than 1 percent of project costs and wouldn’t make a major difference in whether developers build or what rents they charge.
That fund would be used to “create or preserve” some 6,000 units of affordable housing in a city where the number of “cost-burdened” households — those paying more than 30 percent of their income for housing — is estimated at 87,000.
The money would be divided between supportive housing for people who are homeless, housing for low-income families and “workforce” housing for people who might be middle-class in other markets but find themselves squeezed in Denver.
Chief Financial Officer Brendon Hanlon said there are potential downsides to waiting to implement the half-mill tax levy increase.
This is a little complicated, but here goes.
The city has unused mill levy capacity, and in 2017, it could raise the tax rate without hitting its revenue cap. But next year, property values will be reassessed and likely will go up a lot again. That would mean that even the same tax rate would bring in a lot more money, and the city could hit its cap. And that would mean the city might not be able to raise the tax rate — the mill levy — without going to voters.
Yes, the city would have more money overall and could just use that larger amount of tax money coming in to pay for affordable housing. However, other city departments will be planning on using those increased valuations for increases in their services. The budget assumes growth in programs and services to meet the needs of a growing population.
And that, Kniech argued, would leave the city where it is now, with affordable housing competing with other needs.
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