Why We Support Proposition 123 (And Why We Need More on Affordable Housing)
Proposition 123 is a measure on this year’s ballot that intends to expand the availability of affordable housing in Colorado. Investments in affordable housing are long overdue. Half of renters in Colorado are cost-burdened––which is when the cost of housing exceeds 30% or more of a household’s income––and minimum wage workers need to work 75 hours a week in order to afford an average modest one-bedroom apartment. Colorado is the ninth-least affordable state in the country, and the state is a staggering 500,000 housing units short of where it should be.
Proposition 123 will fund needed housing investments by funneling 0.1% of all state income tax revenue to create a State Affordable Housing Fund. 60% of the funds will go to the Office of Economic Development and International Trade (OEDIT) and 40% will go to the Department of Local Affairs (DOLA). The measure outlines specific programs that the funds can be used for—including building more affordable housing, providing rental assistance, and supporting first-time homebuyers.
While these investments are both necessary and important, there are several long-term considerations that complicate how effective this measure will be towards materially expanding the supply of affordable housing in Colorado.
One of Proposition 123’s biggest long-term obstacles lies in the measure’s funding source. Proposition 123 will not create a new revenue source to fund its affordable housing investments in years when Colorado is not issuing TABOR rebates. Non-rebate years may come sooner than expected due to the threat of recession—Colorado’s state Legislative Council finds that from June to September of this year, the risk of a near-term recession has escalated considerably.
In years when Colorado tax revenue is not above the TABOR limit, affordable housing will compete for revenue dollar-for-dollar with existing public services including Colorado’s already underfunded K-12 education system.
That underfunding means school districts will continue to struggle to pay teachers. Colorado has the highest teacher pay penalty in the country. This means Colorado teachers make almost 36% less income than similarly-educated workers. Additionally, only one in five homes are affordably priced for teachers. Nationally, Colorado also ranks near the bottom for per-pupil funding. Our state’s General Fund budget is already struggling—and at times, even failing—to provide proper resources for students and educators. Colorado needs a funding source for affordable housing that is truly sustainable and does not make Colordans choose between education or affordable housing.
With these caveats in mind, CFI chose to support Proposition 123 knowing that in years when Colorado’s TABOR surplus is large—like this past year when it reached $3.7 billion—the measure’s State Affordable Housing Fund would receive considerable funds, and these investments are a good use of TABOR rebate money that would otherwise be refunded in ways that are not as equitable as they could be. However, achieving the goal of materially expanding the supply of affordable housing in Colorado is a long-term investment that needs a reliable and sustainable funding source.
Sustainable solutions include implementing a real estate transaction tax or fee. In most states, when the title of a property is transferred between owners, the parties involved must pay a fee or tax that is then used to fund things like affordable housing. To make it equitable, the amount could be based on the property’s value, and some amount could be exempted to ensure it falls on higher income earners, instead of lower income earners who are disproportionately people of color. Colorado is one of only thirteen states that do not have any kind of real estate transaction tax, due in large part to the fact that TABOR specifically prohibits them (though some local governments with already established taxes are exempted from this ban).
Under the current funding mechanism for Proposition 123, the State Affordable Housing Fund is estimated to collect $145 million for the upcoming state budget year of 2022-23 and $290 million the following year. However, a 0.5% real estate transaction tax that exempts the first $200,000 value of a home could generate $375 million in tax revenue in just one state budget year.
Whether Proposition 123 passes or not, establishing a dedicated funding source to invest in affordable housing is necessary to ensure that the state has the revenue to meaningfully expand Colorado’s housing supply, uplift renters, and support first-time homebuyers. If it passes, we’re hopeful Proposition 123 can be another step towards removing barriers to affordable housing in Colorado.
