Proposition 123 is an effort to tackle Colorado’s affordable housing crisis by allocating nearly $300 million each year in existing tax revenue to help local governments and nonprofits work on the issue.
The measure on the November ballot comes as affordable housing has become one of the state’s most pressing problems. A local survey recently estimated that metro Denver’s homeless population grew 12.8% in the last two years. And a gap between Black and white homeowners in Colorado has continued to widen since 1970. A Colorado Health Foundation poll also recently found that 86% of Coloradans think the cost of housing is an “extremely serious” problem.
The measure wouldn’t raise taxes, but it could eat into the state budget in some years and in other years would reduce Coloradans’ Taxpayer’s Bill of Rights refunds.
Here’s what you need to know about Proposition 123:
What it would do
Proposition 123 would set aside up to 0.1% of taxable income each year for affordable housing. That’s estimated to be $145 million in the current fiscal year — which ends June 30, 2023 — and $290 million in 2023-24 and subsequent fiscal years.
The measure would give grants and loans to local governments and nonprofits to acquire and preserve land for affordable housing development. Funds from Proposition 123 would help develop affordable multifamily rental units, increase homeownership rates in the state and provide down payment assistance for first-time homebuyers. It would also address homelessness by providing rental assistance and eviction defense programs, proponents said.
But for projects to qualify for funding, local governments where projects are located must commit to increasing affordable housing by 3% each year and create a fast-track approval process for such projects. If a local government chooses not to meet these requirements, or if it fails to achieve its affordable housing goals, projects in that municipality or county will be temporarily ineligible for funding.
The measure requires that the funding add to, and not replace, existing state money spent on affordable housing.
The measure defines affordable housing based on two factors: household income and housing costs. For a housing unit or project to qualify as affordable housing under the measure, housing costs such as rent or mortgage payments must not exceed 30% of the household’s income.
The affordable housing programs developed under Proposition 123 would be administered by the Colorado Housing and Finance Authority and the Division of Housing within the Colorado Department of Local Affairs.
The arguments for
Proponents of the measure say it would create a new source of funds to tackle housing issues without raising tax rates. It also would give local communities flexibility to respond to their specific needs.
Housing prices in Colorado are making it too hard for many households to afford rent or buy their own home. The new programs proposed under Proposition 123 could help Coloradans participate in the housing market now and in the future. Creating more homes will allow residents and essential workers to remain in their communities.
The new proposal could help ensure that teachers, nurses, firefighters and other critical workers could afford to live in the communities they’re serving and it could help address a full continuum of housing needs by serving people who are homeless as well as first-time homeowners, said Mike Johnston, a former state senator now leading Gary Community Ventures, the philanthropic organization bankrolling the committee working to pass Proposition 123.
“The ability to be able to put $300 million a year into affordable housing without raising taxes is, we think, the most critical opportunity to take on our most significant crisis,” Johnston said. “The state can’t go forward if people can’t afford to live here.”
Anna Stout, the mayor of Grand Junction, said Proposition 123 is specifically designed to keep affordable housing funding in Colorado neighborhoods and gives local leaders control when trying to address housing challenges facing their residents. In Mesa County, the average cost of buying a home has increased 30% percent in the last two years, she said. Simultaneously, Grand Junction has an apartment vacancy rate of about 2%, meaning people looking for an apartment have few options for housing in town.
If Proposition 123 passes, local governments like Grand Junction could apply for funding to ensure more affordable housing developments are created and that they stay affordable, Stout said. An affordable housing equity program outlined in Proposition 123 would also give renters a path to homeownership while they’re still renting and could help them build equity and generational wealth, Stout added.
“Housing is by far the most important issue in the state right now to voters and they’re most concerned about it and yet it’s dramatically underfunded,” Johnston said. “Only about one-third of 1% of the state budget goes to housing right now. So this is a solution that actually relieves pressure on the general fund because it finds a way to fund the state’s most urgent priority right now by funding it out of refunds and not funding it out of the general fund.”
The arguments against
Opponents of the measure say it wouldn’t address the underlying causes of high housing costs and that pumping money into the housing market could distort it further.
State budget writers, both Democrats and Republicans, have also expressed concerns about the measure potentially diverting money from the state’s budget in years when the Taxpayer’s Bill of Rights cap on government growth and spending, which is calculated based on inflation and population growth rates, isn’t exceeded. The legislature would still be on the hook to find $290 million in its budget to allocate to affordable housing.
“There’s no free lunch,” said state Sen. Chris Hansen, a Denver Democrat and the incoming chair of the Joint Budget Committee, which drafts the state budget. “K-12 and higher education (are) where the marginal dollar is in our state budget. So $1 less means $1 less for education.”
In the years where state revenue is below the TABOR limit, the measure could reduce the amount of money available for the state budget.
In years where state revenue exceeds the TABOR limit, the measure reduces money returned to taxpayers. If Proposition 123 passes, it’s expected to decrease the amount of money returned to each taxpayer by $43 in tax year 2023, according to nonpartisan legislative staff, and $86 per taxpayer in tax year 2024.
In its 2022 voter guide, the libertarian-leaning Independence Institute, a political nonprofit, recommends a “no” vote on Proposition 123. Rather than using taxpayer money to address the affordable housing shortage, the group says, politicians should focus on reducing government regulations that create barriers to new housing supply, including local zoning regulations and strict building codes.
One big thing you should know
Proposition 123 isn’t the only measure on the ballot in November affecting the state’s finances.
Proposition 121 would cut Colorado’s income tax rate to 4.4% from 4.55%, reducing the state’s tax revenue by an estimated $412.6 million in the 2023-24 fiscal year, which begins July 1, 2023.
If both Propositions 123 and 121 pass in November, state tax revenue would be reduced by roughly $700 million each year, heightening the likelihood that lawmakers would have to shrink the budget, where education dollars are typically the first to be cut.
Johnston says the legislature could simply forgo the affordable housing allocations prescribed in Proposition 123 in non-TABOR surplus years since the measure only represents a statutory change. But state budget writers are anxious about asking members of the General Assembly to take such a vote.
“If this is voter-approved, there really is a mandate from the people,” said state Sen. Rachel Zeninger, an Arvada Democrat who sits on the Joint Budget Committee. “And so we’re going to be on the hook having to backfill that money.”
Proposition 121 could not be reversed by the legislature. Voters must approve any increase in the income tax rate under TABOR.
The players and the money
Coloradans for Affordable Housing Now, also known as Yes on Prop 123, is the issue committee supporting the ballot initiative.
The group includes more than 180 organizations, advocates and elected officials who feel the affordable housing crisis needs to be addressed promptly, Johnston said. (The Colorado Democratic Party is among the groups that have endorsed the measure.)
Gary Ventures has contributed $2 million to the committee. Habitat For Humanity Metro Denver gave the committee $250,000 and Action Now, a nonpartisan human service organization in Houston, has given $500,000 to support the ballot measure.
The Association of Realtors also donated $276,000 to support the measure in July, according to campaign finance records. The conservative political nonprofit Advance Colorado Action is against the measure, senior advisor Michael Fields has said, and the group may spend money on ads to oppose it. But, so far, it appears there hasn’t been any organized, well-funded opposition.
Colorado Sun reporter Sandra Fish contributed to this report.