After years of pumping taxpayer money into affordable housing at the direction of voters, Colorado lawmakers are preparing to gut a program that developers say has become fundamental to how low-income rental housing gets built in the state.
Colorado’s state budget proposal would cut $130 million from Proposition 123, with most of the money coming from programs that develop affordable rental housing for low-income families.
That represents about a 40% cut to Proposition 123 – and about 75% of the money it provides for rental apartments, housing advocates said, temporarily hobbling a program that voters approved in 2022.
And the cuts to housing don’t end there. The Joint Budget Committee also slashed $28 million of the $30 million the state was supposed to spend on housing grants in difficult budget years like this one, and voted to repeal a law that could have provided additional funding in the future.
In budget hearings, the bipartisan panel defended the cuts, insisting they had no good options to bring next year’s spending plan into balance. The JBC also slashed spending on a slew of other social services – most notably Medicaid – in order to address Colorado’s $1.5 billion structural deficit.
And, JBC members noted, when voters approved Proposition 123 in 2022, they didn’t authorize any new taxes to pay for it. Under the state Taxpayer’s Bill of Rights, the legislature can’t raise taxes without voter approval.
“I am committed to making sure that we adhere to the voter intent of this particular proposition, and that we are supporting affordable housing,” Rep. Kyle Brown, a Louisville Democrat who serves on the JBC, said at a committee hearing this week. “I will say that the unfortunate thing about Prop. 123 is that it included no new revenue to the state. And because of that, it built in a specific mechanism for us to make transfers of this nature when the situation of the budget is as dire as it is today.”
Nonetheless, housing advocates say, the cuts are coming at a terrible time. Even though market rents have dropped in the Denver metro area, homelessness and evictions continue to rise.
“It’s just cumulatively getting worse year over year,” Cathy Alderman, a spokesperson for the Colorado Coalition for the Homeless, told The Colorado Sun in an interview.
“We keep seeing the numbers of people entering the cycle of homelessness are increasing substantially. And then we’re also seeing that gap for extremely low-income households is just getting bigger and bigger.”
If the legislature approves the cuts as expected, low-income housing developers say it will disrupt the state’s affordable housing pipeline – potentially delaying or preventing developments long after funding is restored.
“It is structural to how affordable housing finance works in Colorado right now,” said Brad Dodson, the chief financial officer for the Urban Land Conservancy, a nonprofit affordable housing developer.
And because projects take years of planning, taking Proposition 123 dollars out of the mix won’t just hamper developments already in the works.
“We’re not just saying, ‘hey what are we going to fund this year?’ We’re looking two, three, five years out,” Dodson said. “If a funding source that is fundamental to the overall affordable housing financial infrastructure just goes away, then it creates ripple effects throughout the market – and for years into the future.”
Dodson points to The Irving at Mile High Vista in Denver as an example. The ULC development on West Colfax provided 102 affordable apartment units for people making 20% to 80% of the median income – about $25,000 to $101,000 for a Denver family of three.
It took a complicated cocktail of public and private funding to get the project built – a dozen different sources in all, Dodson said, and the $1 million his organization got through Proposition 123 was the final piece they needed to get it done. Private banks had already lent all the money they were willing to at an interest rate the project could afford.
“That $1 million is the difference between a project happening and not happening,” he said.
After the post-pandemic boom, housing construction already faces headwinds in Colorado – affordable or not. The confluence of high interest rates, rising construction costs and labor shortages have caused new housing permits in metro Denver to fall to nearly half of their recent peak, according to Housing Forward Colorado.
ULC has some projects in predevelopment that could use Proposition 123 dollars, Dodson says.
If that money isn’t there, he said, “I think it does create real uncertainty about whether that gap can be filled from another source. There’s not an identified Plan B.”
At a committee hearing this week, low-income housing advocates said they understood the budget difficulties the state faces.
But they still pressed the House Appropriations Committee for changes – most notably a provision requiring the state to prioritize the lowest income households with the money that remains.
The proposed cuts will come exclusively from the Office of Economic Development and International Trade, which manages most of the money Proposition 123 spends to develop affordable rental housing. But OEDIT’s programs also have some of the loosest restrictions on how money can be spent, with some targeting people who make 90% of the median income – well above the 60% threshold that most low-income rental housing programs serve.
According to the National Low Income Housing Coalition, Colorado now has about 89 affordable homes for every 100 households that make 80% of the area median income. But it only has 45 homes for every 100 households who make 50% of the median income.
“Whatever’s left in Prop. 123, it does not need to be supporting middle income (households),” Alderman told The Sun in an interview. “If we don’t start really focusing our efforts on these lower income households, we’re just never going to make progress in that deficit.”
Rep. Andrew Boesenecker, D-Fort Collins, promised at the hearing to work on the request, suggesting that it could become part of a separate bill he is sponsoring to tweak the rules governing Proposition 123.
The Department of Local Affairs was exempt from the cuts. Its money primarily goes to programs that promote homeownership, like a down-payment assistance program, and ones that prevent homelessness, such as emergency rental assistance and supportive services.
Some housing providers asked the committee to restore $20 million of the cut, noting that Gov. Jared Polis had requested a smaller reduction than the JBC approved.
But Kevin Bommer, the director of the Colorado Municipal League, said the JBC should restore all of it – or at least put language in the law committing to restore it later, much as it did when the state short-funded K-12 schools following the Great Recession.
“I understand the fiscal situation, but as voter-approved funds, this is very, very upsetting,” Bommer said. “Leave Prop. 123 alone, and if the state can’t keep its hands off it now and forever, once this door is open, once the seal is broken, it’s gonna keep happening.”
Ultimately, though, the demands of Colorado’s budget crisis appear likely to win out over those of its housing crisis.
The House began debate on the budget this week, after which it will head to the Senate.
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