Denver city leaders plan to ask voters in November to increase sales taxes to raise roughly $100 million a year for affordable housing projects, helping Mayor Mike Johnston meet his housing development goals.

Johnston unveiled the proposed new tax — which would add 0.5% atop Denver’s current effective 8.81% sales tax rate — during a news conference Monday morning on the steps of the City and County Building. The Denver Post reported in early June that his administration was considering a new tax to fuel the city’s affordable housing efforts amid surges in home prices and rents that have made Denver unaffordable for many workers.

The tax wouldn’t be the only hike on Denver’s ballot, and it also wouldn’t be the first time the city has created new taxes or fees to pay for housing-related efforts. Voters in 2020 passed a dedicated sales tax for homelessness initiatives that brings in about $50 million a year. And an Affordable Housing Fund established in 2016 has drawn on property taxes, recreational marijuana taxes and fees on new development; the city’s budget this year includes $42.7 million in spending from that fund.

But the new proposal could turbocharge affordable housing initiatives.

The tax’s estimated $100 million a year in proceeds would go to support affordable housing development and other housing initiatives. Likely uses of the money include additional housing vouchers, bridge loans for construction projects and other programs, city officials say.

“We are very focused on the outcomes we can deliver for Denver here,” Johnston said. “So the goal is that this allows us to build or to bring on 44,000 additional units, which is what the estimate is (for) the total gap we have to fill over the next 10 years.”

His office says that without the tax, Denver is on pace to see about 19,000 housing units built over the next decade. The city’s gap — identified as a shortage in apartments and other homes affordable to people earning at or below the area’s median income — is part of a metro-wide housing deficit that Zillow recently estimated at 70,197 homes.

If referred to the ballot, Denver’s tax measure would be the second sales tax hike up for voter approval in November.

Last month, the City Council voted to refer a 0.34% tax to voters that would create a revenue stream to shore up the finances at Denver Health. The city’s social safety net hospital is contending with a roughly $70 million budget shortfall driven by uncompensated care it provides to people who do not have health insurance.

City’s rising sales tax rate

The council still needs to vote to refer Johnston’s affordable housing tax measure to the ballot. The 0.5% rate would amount to five cents on a $10 purchase.

If voters approve both measures, the city’s effective sales tax rate will increase to 9.65%. That includes state and regional sales taxes, in addition to dedicated city sales taxes.

Denver voters have approved several sales tax increases in the last half-dozen or so years for dedicated purposes, sometimes over concerns that the city’s tax rate was getting too high. Last month, Councilman Kevin Flynn channeled a similar unease with “burdening Denver taxpayers” if this year’s potential tax measures were to pass.

They would position Denver to have the highest sales tax rate in the eastern portion of the state. Several mountain communities in Colorado have effective sales tax ratesabove 10%, including Winter Park, Snowmass Village and Idaho Springs.

Asked if he was worried about the city’s sales tax rate reaching a level that might pose difficulties for low-income earners — or might even motivate people to shop for goods elsewhere — Johnston focused on the benefits the proposed housing tax could provide for household budgets.

If households spend a few extra dollars per week on sales taxes, but the result is much more abundant housing that could save teachers, nurses and public servants hundreds of dollars on monthly rent, Johnston said, that is a deal that works for Denver.

“That is how you make the math of the city work for the folks who are trying to work here and live here,” he said. “This will not be the highest tax rate in the state. We think we’re still very competitive with the region …”

Sarah Parady, one of the council’s most progressive members, is co-sponsoring the bill that would refer the tax increase to voters in November. She noted that many necessities are exempted from sales taxes, including groceries, home energy consumption and medicine.

Those exemptions are a key pillar for her support for the tax increase, she said.

“Meaningful” funding important

Johnston, Parady and other council co-sponsors were joined on city hall’s steps Monday by dozens of supporters, including representatives from the Denver Housing Authority, the Colorado Coalition for the Homeless and other service providers.

Among them was Ismael Guerrero, the former director of the Denver Housing Authority who now leads Mercy Housing, one of the nation’s largest nonprofit housing providers.

Guerrero said the affordable housing crisis is a nationwide problem, and the response needs to be funded at a level that reflects the damage being done.

“But sadly, we cannot rely solely on federal and state funding,” Guerrero said. “Having meaningful committed and flexible local funding for housing in Denver is just as important.”

Johnston and his supporters intend to move fast to get the measure in front of voters in November.

City Council president pro-tem Amanda Sandoval, another co-sponsor, laid out a timeline that would see the council hold its final hearing on ballot referral on Aug. 5.

The full council gathered on Monday afternoon for a briefing on what the administration is already calling the Affordable Denver Fund.

Questions included just how the new fund might interact with the city’s existing dedicated funding sources for housing and homelessness, whether the administration is planning to set aside money for supportive services dedicated to keeping people housed long term — and even if the tax could be viewed as a precursor to the city becoming its own developer of affordable housing.

In response to the final question, Jamie Rife, the director of the city’s Department of Housing Stability, focused on ways the city would support outside development. She gave examples of the new revenue stream being used to support market-rate developers and to ensure they are building more units reserved for tenants who qualify under income limits.

Former council member Robin Kniech watched from the gallery of the committee meeting room. She was a key architect of both the Affordable Housing Fund and the homelessness resolution sales tax. She is now a fellow with the Bell Policy Center, a left-leaning think tank.

Her research is focused on the efficacy of policies designed to create more affordable housing in Colorado. After the briefing, Kniech said her hope was that Johnston’s administration would present a clear vision to voters about just how a $100 million-per-year sales tax hike would benefit the people most in need in the city.

“It’s a lot of work to do in a short period of time to get to the level of planning that a funding source of this size requires,” Kniech said. “You have to demonstrate you’re going to make an impact where the need is the greatest, and those are the households earning less than $50,000 to $60,000 a year.”

Stay up-to-date with Colorado Politics by signing up for our weekly newsletter, The Spot.

Originally Published: July 8, 2024 at 11:51 a.m.