The buy-in of local governments is key to successfully implementing the goals of Proposition 123, which, if approved by voters this November, would direct $300 million per year in TABOR refund revenues into affordable housing programs, according to an analysis from a Colorado think tank.  

Indeed, the proposal will only be as successful as the number of local governments that participate in it, the non-partisan Common Sense Institute says in a report the group released this week.  

"Good luck trying to find an affordable home in Colorado," the report's executive summary says, "be it for rent or for sale, they simply do not exist."

The report notes that 98% of Coloradans live in a county with a housing supply shortage; statewide, the deficit could be as high as 216,000 units. The shortage is aggravated by a decline in new housing production, CSI report says.

That's where Proposition 123 comes in. 

The November ballot measure, backed by a host of nonprofit housing advocates, as well as Gary Community Ventures, seeks to deliver 170,000 new affordable housing units in the next 20 years. The measure's funding would come from 1/10 of 1% of the state's general fund, estimated at about $300 million per year. That revenue is intended to come out of the TABOR refund, which is expected to remain above a billion dollars annually for the foreseeable future.

Supporters, some of whom argue that TABOR is inhibiting the state's ability to tackle major challenges, insist that allocating a portion of the yearly refund to housing is a better use of that money. 

Mike Johnston, Gary Ventures president and CEO, told Colorado Politics this week that every new dollar of economic growth will go to TABOR refunds – and not to spending on any of the state's priorities – because the state budget can only grow by inflation plus population growth. He believes at least $400 million to $500 million will be available every year for Proposition 123.

"There's no scenario that we or anyone else has modeled where you drop below $300 million per year in refunds," Johnston said.

Should revenues fall below projections for any reason, the proposition gives the legislature the ability to cut the funding in half, Johnston said.

Proposition 123 would set up a variety of housing initiatives, which will be administered by the Division of Housing within the Colorado Department of Local Affairs and the state Office of Economic Development and International Trade in partnership with the Colorado Housing and Finance Authority. The initiatives include: 

  • A 90-day fast-track approval process, required for local governments that want to obtain the funding provided by the measure;
  • Land bank funding to purchase and hold land via grants and low interest loans, intended to allow for a greater percentage of affordable housing projects;
  • Provide rental units with permanent deed restrictions that would limit the rental cost to 30% of household income;
  • Set up a tenant equity account through the rental program that renters could use for a variety of purposes, including a down payment for a home;
  • Set up an affordable housing down-payment program, with priority given to first-generation home buyers, based on income qualifications; and
  • Set up a program to assist the homeless with supportive housing, rental assistance, housing vouchers and eviction defense assistance.

The CSI analysis points out that the proposition does not require local governments to participate, nor mandate that they change current land use, planning and zoning policies.

And that's part of the downside risks to the affordable housing program, the analysis says.

The proposal's strengths, according to CSI, include the fast-track process.

One study cited in CSI's report points out that permitting delays in southern Florida added almost $7,000 to the price of a typical home. The CSI analysis also commends the land banking proposal, noting that the cost of land is a "significant barrier" to the development of affordable housing. The proposition utilizes land banking to assist local governments and nonprofit developers, allowing them to compete for desirable land, the analysis said.

CSI calls the tenant equity mechanism "innovative and exciting," with the potential to change lives both from the ability to buy and affordable home, as well as benefiting from the program's fiscal performance. Those who live in the affordable housing units constructed under the program for at least a year would "be entitled to funding from the program for a down-payment on housing or related purposes," the report says. 

The downsides, according to CSI, include reducing TABOR refunds by about $86 per taxpayer beginning in 2024, which could earn it opposition this November.

Currently, there are three TABOR refund mechanisms: senior and military veteran property tax homestead refunds; a temporary reduction in the state income tax; and, a six-tiered state sales tax refund. The latter two show up as refunds issued through tax returns.

Johnston told Colorado Politics the funding for Proposition 123 would come behind the homestead exemption but in front of the latter two refund mechanisms.

CSI says because local governments' participation is key, the proposal could mean voters who support the measure find themselves "on the outside looking in" if their local jurisdictions don't opt-in.

The proposition also runs the risk of "re-appropriation," similar to what the General Assembly has done in the past with severance taxes, which is to tap them when the state budget experienced a shortfall.

The affordable housing program has no cap, the analysis points out, and can grow larger every year, depending on the number of local governments that participate – or don't.

"Lawmakers could easily and legally re-appropriate the funds to address other critical state funding needs" in a shortfall situation,  the analysis claims. "While the measure attempts to safeguard the fund from actions, such as this, precedent demonstrates that the legislature has legal solid ground to re-appropriate funds as they deem necessary."

The analysis also raises questions about the program's target of increasing new affordable housing units by 3% per year, which could be a significant challenge to local governments. Statewide, that would increase rental units by 7,319 in the first year and home ownership by 12,073, the analysis says.

"Does this look feasible, can these growth targets be achieved?" the analysis asks. 

Study co-author Peter LiFari told Colorado Politics that the program might do better to adopt a set of regional policies, in particular for the fast-track approval process. That could be done by the General Assembly, according to the report. Regional consortiums, instead of piecemeal local government policies that could be difficult for developers to manage, might better facilitate development of affordable housing units, LiFari says. 

The report also suggests periodic fund performance analyses, although Johnston said the program will be included in audits that already take place for the Division of Housing and OEDIT. The CSI report recommends evaluating performance objectives, such as affordable housing unit creation, fiscal performance, local government participation, baseline averages tied to the 3% growth target, land backing activity and performance of the tenant equity mechanism.

"Colorado's housing market is failing to meet the basic needs of our growing population ... (and) endangers our ability to compete regionally," the CSI report concludes, adding that while Proposition 123 is not without faults, it presents "a number of positive elements if embraced by local governments" and a new path to greater home affordability. 

While it maintains a nonpartisan posture, CSI's work is guided by several principles, notably free market and economic vitality. CSI is an associate member of the State Policy Network