(music playing) - Welcome to The Aaron Harber Show, "Your Decision 2022," a special election series exclusively here on PBS12.

Today I'm honored to have four guests presenting their positions on Proposition 123, a proposal to create new affordable housing programs.

Joining me are Luke Teater and Mike Johnston, who are for the proposition, and Penn Pfiffner and Natalie Menten, who are against it.

I want to thank all of you for joining me.

Three of the four of you are veterans of the program.

I'm surprised any of you came back, but I appreciate it.

Luke, baptism by fire.

Right now, on the screen is a little information about the proposition.

What I'd like to do is, Luke, if I can start with you, tell us a little bit about the proposition, what it'll do, and why it's important to support.

- Sure.

Thank you, Aaron.

To start off, I would say that our housing crisis is the biggest issue facing Coloradans right now.

In the last few years, we've seen home prices skyrocket.

Recently, mortgage rates have been skyrocketing, as well.

We've seen rents rising dramatically, to the point where now 50% of Colorado renters can no longer afford to live here.

We're on a trajectory rapidly in the wrong direction.

Proposition 123 is intended to address that by dedicating $300 million a year of existing state tax revenues to addressing this crisis by building more homes that are affordable for Coloradans.

- So, it's important to say your point that this doesn't increase taxes.

Rather, it allocates existing and projected taxes to this program.

Is that a fair statement?

- Exactly.

This is an existing tax that is dedicated to a state affordable housing fund.

- All right, Michael, give me your take on why we should support this proposition.

Or what elements of it should people know about?

- Yeah, I think one of the things that we hear around the state, just talking to folks, Aaron--Woman running a hospital in Yampa Valley will say right now they have 70, 7-0, open nursing positions they can't fill because nurses can't afford to live in that valley.

They're afraid someone's going to walk in the emergency room they can't treat.

Superintendent in Eagle County who said first time in his career he had to send an email out to every parent in the district, saying, "Do any of you have a spare bedroom or a couch that I could have a teacher sleep on?

Because if so, we can't offer science and math this year."

Or you have right here in Denver people that work at Colorado Coalition for the Homeless who, their own staff members are having to leave their jobs because they can't find housing they can afford while they're trying to serve folks who are unhoused.

This is a real crisis.

The key is, what we want to do is build more units, build 10,000 units that would be permanently affordable every year.

We want to be able to provide down payment assistance so people can actually get access to homes.

- Now, wait.

How many units?

- It would be 10,000 units a year.

The total gap in Colorado is about 170,000 units, is what the Legislature has estimated.

Over the course of 15 or 20 years, you could build the scale of units we needed to make sure that teachers and nurses and firefighters can afford to live in the communities that they serve.

And we know right now this is a crisis affecting people at all stages of income.

And if we don't do something, we're going to be on a path where Coloradans can't afford to live in Colorado anymore.

- This tax would take--It's not a new tax.

What it does is, it would take--And correct me if I'm wrong--one-tenth of 1% of our state income tax revenue and allocate it to this program.

And that's roughly how you get to the almost one-third of $1 billion a year.

Is that an accurate statement?

- That's correct.

With no new taxes, it allocates dollars that we currently have.

Right now, 86% of Coloradans say that housing is a major issue.

And we only spend about one-third of 1% of the state budget on it.

There's clearly a gap here.

This allows us to both provide stable funding for affordable housing, doesn't make cuts to the general fund, and allows voters to still get a tax refund.

You get to do all of the above.

But most importantly, you get to make sure you're funding affordable housing on the way.

- OK, there may be some disagreement that it doesn't cut revenue to the general fund.

But Penn, why don't you start off and tell us why this is not a good idea?

- Natalie has the first word on this.

- Well, then, ladies first, please.

- Thank you.

What I would like to address first is that I've heard the term "it's not a tax increase."

And the fact is, that is incorrect.

The net amount of taxes people will pay at the end of the year will be more.

And the reason is, is because what this is going after is our Taxpayer's Bill of Rights, or TABOR, refunds.

That's been very clear from back to the title bird hearing, which I was there to hear it firsthand.

What this measure is doing is taking Taxpayer's Bill of Rights, or TABOR, refunds or rebates, whichever you would like to call them, from all of the taxpayers within Colorado, to give to a select group of people.

The impact there is that those TABOR refunds going to folks right now are helping them with housing costs.

But they have the choice because it's direct money going to them, that they'll be able to spend it perhaps on housing, but perhaps the greater need for them with that TABOR refund that's going to be taken away, that refund may be better serving them for a refrigerator that's on its last leg.

It may replace those bald tires on the car that are getting somebody to work.

That's what we need to make sure is included in this discussion because that is going to impact every taxpayer in Colorado.

That relief needs to be going directly back to them and not going through an administrative-heavy program that's going to just--We don't even know for sure the benefits yet.

We're waiting to see benefits from other programs just put into place.

At the end of the day, we need to put these TABOR refunds back directly in the hands of the taxpayers, like we are now.

It is what best serves the taxpayers.

- Penn, can you add to that?

- Sure.

We've heard the proponents talk as if this were going to be the first dollar that we send to affordable housing.

And I think it would have been much smarter for their group to have spent the money to find out why all the current affordable housing programs, according to them, aren't working.

You have the Colorado Housing Finance Authority already involved.

You have huge subsidies from the US Department of Housing and Urban Development for multifamily new construction.

There's Section 8 Housing, churches, Habitat for Humanity.

You have municipal programs, and now municipal mandates, that force builders to have to face putting in more affordable housing.

Rather than say, "Let's fix what's not working," here, they're setting up a centralized, hugely coercive situation, in terms of having a centralized administrator, which I hope we get back and talk about that later.

Now, the other thing that Senator Johnston brought up was that he wants to see 10,000 new units every year.

Now, the construction industry, in a good year, in an average, good year, is building between 40,000 and 45,000 new permits a year.

- That includes apartments as well as single-family homes.

- Multifamily, single family, you combine them.

And in a good, average year, we're doing 40,000 to 45,000.

So, here, we have a proposal for the government to essentially take over 25% of that private sector industry.

Do you think we're going to get more?

It's not going to be possible, Aaron, because we already see a shortage of labor.

We already see a shortage of material to get those 45,000, roughly, units this year.

So, they'll be supplanting, not adding units, to our state.

- Is another concern that really you're leading to is that, given the fact that home builders are challenged by supply chain issues, by incredible inflation in the cost of materials, way above the national CPI rate, Consumer Price Index rate, some builders are looking at 20%, 30% increases in the cost of materials, if they can get what they need.

Labor shortages are huge throughout.

Are you arguing that if you add a demand--And I want to talk about the 10,000 number--but if you add 10,000 on top of existing construction efforts, that's going to end up raising the prices and the cost of housing for everyone, not just that 10,000, but all 40,000 or 50,000?

If that's the case, you could end up making many of the new homes and existing homes, taking them out of the range of being affordable, and end up having a net loss of affordability.

Mike or Luke, tackle that puzzle.

- I'm happy to start.

I think the key things to look at is, what is currently working, and what will this do?

What's currently working, if you talk to people around the state, that's private sector developers, nonprofit developers, cities and counties, is they'll say, "We like working with CHFA.

Those LIHTC deals are effective."

They'd say, "There's a waiting list a mile long because there aren't enough resources to move more of them," because right now they're doing about $30 or $40 million a year.

This is seven or eight times that amount.

But what that does is, you actually create a supply of units that will come forward.

But what's really important, Aaron, is all of these units are deed-restricted to be permanently affordable.

What that means is, you don't pay more than 40% of your income to rent.

If you're a first-year teacher that's making %40,000 a year, that's $12,000 a year in rent.

That's $1,000 a month.

That unit is permanently deed-restricted.

That means all the new units that are coming on are affordable.

A lot of those units being built now are luxury units that are not affordable.

I think that's the really important thing.

And the last thing I'll say about the supply chain is, when you have inflation rates and others going up, that makes this all the more important because things like developers who have to go to raise equity or raise debt on the open markets, those costs are going to go up dramatically.

We put these dollars in CHFA's hands because they are an outside entity that both nonprofit and private sector organizations trust.

They know they can move deals effectively.

And if they have a steady stream of dollars, you both can build a steady supply chain around that, and those are dollars that aren't subject to outside market pressures of inflation and cost.

And so, we think this is actually the best way to control those costs and deliver reliable, permanently affordable units.

- Luke, do you want to add to that?

- Yeah, I think two things.

First of all is just that, given the current constraints in labor and other resources, we live in an open economy.

So, where we increase this investment, that makes Colorado a more attractive place for construction firms and construction laborers to come and build more homes.

So, we do think this is going to expand the production there.

I think for the other thing is just to comment on--Mike mentioned a few minutes ago the 170,000-unit housing shortage.

That raises housing costs for everyone.

And so, everyone benefits then when we can have communities where teachers, nurses, and firefighters can remain in those communities that they serve.

And everyone benefits when we expand the overall supply.

Everyone sees the price benefits there.

- A couple of quick questions.

One is, how do you know that housing is going to be built in those expensive communities?

For some reason, I don't see major affordable housing programs at a significant number going into Cherry Hills Village or Boulder or whatever or a number of wealthy communities where you have a large number of people commuting into those communities who work there and can't afford a home.

Number one, how do we address that?

Second question is, Mike, you mentioned the 10,000 units a year.

If you spend $300 million, and if you were just building houses, which I know you're not, because you're leveraging that money, but if you were building houses... or not even houses.

Let's include apartments.

Let's say the average cost is 250,000, 300,000, not as a sale price, but as a construction cost.

You're talking about maybe 700, 800 homes a year, not 10,000.

To me, there's this huge disparity between that 10,000 figure and the reality of the market today.

Tackle those two questions.

And then, Natalie, if you want to jump in, you're welcome to.

- I'm happy to take on the market one.

Luke can take on the first question.

What we've seen here is exactly what we want to do.

You want to work with the market to make this work effectively.

This is about leverage.

And this is about providing capital that helps make the market move more quickly.

These dollars include things like CHFA as an equity financer into these affordable housing deals.

This does two things.

One is, right now, what's driving up the cost to housing is you have a lot of out-of-state investors who are coming in to Colorado projects.

They want a 20% return on their deal.

They take their 20%.

Only way for a developer to make that work is to jack up the rents dramatically.

Coloradans get high rents, and out-of-state investors get big profits.

Here, if CHFA is the investor, but they're a concessionary investor, they only a 2% return, that alone dramatically drops the cost of the deal.

And you can, with a 30% investment, leverage the other 70% of the cost in a way that builds more and more units.

And that fund is recyclable.

After that deal closes out, those dollars come back to the fund.

And so, I think that's the real benefit.

There are other things like gap financing.

You might have a LIHTC project that provides some of the funding but not quite enough.

But without some gap financing, they can't make that deal pencil.

A small amount of gap financing goes a long ways.

We know one of the big costs for developers is the predevelopment cost.

One of the things this measure addresses is the fact that it might take two or three years in a lot of communities to get a project approved.

This dramatically cuts the red tape and shortens that time.

Also helps provide funding for those developers to make sure they can cover the costs that they're incurring to get through that process.

Same with down payment assistance, where if you can help a family with $30,000 make a down payment that gets them into a $400,000 home, you can leverage these dollars in a way that uses the forces of the market to get people into those homes, not trying to fight them.

We think this is a market-aligned solution rather than one that tries to replace it with subsidies.

- Luke, go ahead.

Did you want to add to that?

- Yes.

The first part of your question was about, how do we know that these units are going to be built in the places where housing costs are highest?

And I think probably two parts of how I would respond to that is, first of all, we're seeing this as a statewide problem now.

It's not just a Denver, Boulder, Front Range problem anymore.

It's very much a statewide problem.

The way that this measure helps address that is that in order to be eligible for funds from this measure, local governments have to commit to increasing their supply of affordable housing by 3% each year.

In order to be able to access these dollars, they need to be looking at their own local rules and regulations that might be preventing them from growing their housing supply.

- And to Natalie's earlier point, you're actually making sure these dollars have to deliver results.

For your community to get dollars, you have to be delivering 3% of units a year.

It's not a, "We got a government grant.

We talked to some people.

But sorry, nothing happened."

There's an actual requirement for accountability, an outcome on units, and units that stay permanently affordable."

- Right.

My point was, I think there are going to be some communities that aren't going to be interested in it because there are a lot of communities where there's a huge nimby problem, who don't want to have affordable housing.

They may officially say they do, but the bottom line is, they're not building affordable housing now.

They can afford to build affordable housing.

A lot of these communities have land they could dedicate for affordable housing.

They're not doing it because their populations are happy that their home values are so high.

If you're living in a community where properties are selling for 800,000, 900,000 $1 million, a lot of people say--not publicly--but a lot of people say, "Hey, I don't need to have affordable housing here.

I want to keep this as a community where I have a huge equity advantage."

But, Penn, please.

- Aaron, it's more than that.

It's not just people being selfish or wanting to keep the folks out.

Michael and I debated before Colorado Counties, Inc., the County Commissioners across the state, and it became clear in listening through that debate that there are many counties that are very wary about this formula-driven way of trying to get affordable housing, and that especially in places like resorts and others where the cost of living is very high, the qualification that they are telling us will happen, according to the County Commissioners, really is not going to be like that.

And there was a lot of concern voiced in that meeting about how disproportionate this money is going to be distributed across the state, that it's not going to be a nice, even amount all over the state to help everybody, and that it'll be in areas where you don't sometimes, in some places, have the greatest need.

- Help me understand the formulaic objection you were referencing.

- It has to do with how they define low income and affordable.

There are many different-- - But isn't the basic premise that you have to be under making what percentage-- - It goes up to 120% of AMI, which is about $100,000.

That's about 60% of the entire population.

- But is it AMI statewide or AMI based on county or region?

- Local counties can choose either their own county AMI-- - You're talking about average median income.

- I'm sorry, average median income, which is how much do people in your county make on average.

They can choose their own county area median income.

They can choose a neighboring county if they think that best represents them.

Or they can choose the statewide median.

We give local governments a lot of choice.

- What's the objection to that?

That seems a fairly reasonable approach.

- The County Commissioners were worried that in expensive places, the cost of putting the housing in is just going to be so exorbitant that you're not going to be able to say, "Well, we can pencil this in," and have low-income people qualify.

- Natalie.

- I'd like to weigh in on that local choice.

And let's go back to the big picture.

What we're doing is taking away Taxpayer's Bill of Rights refunds that are going directly into somebody's pocket right now, helping them.

Whether it be housing or a down payment on a home, a deposit on getting the kid that's been in the basement finally going to get his first rental, getting that money together, that's what the Taxpayer's Bill of Rights is helping right now by that direct refund.

It's going into this program.

And I'll give an example that is one very close to me that is a community that has chosen by vote of the people to limit growth within that.

The big picture is, we're taking away--What Proposition 123 would do is take away that direct TABOR refund into somebody's pocket.

They're living in a community that will have problems accepting these hurdles that are part of the program and written in to this lengthy, complex administrative process.

There are other communities that have also growth limits.

And within the community, the reason they chose some of these growth limits was because of an opposition, a concern about water with high-density units.

And what this program, Proposition 123, does is prioritizes through that administrative process that it is multifamily, dense housing.

And so, the communities, if they should pass, which I hope it will not, is that because we're taking away direct TABOR refund into a pocket, now the community won't get it, so it's going to go somewhere else.

And that is why some of these rural counties have expressed such concern.

Add in a water issue.

There are just so many challenges.

I don't see any reason at all to be dipping into our refunds.

- One of the points you're making is that this proposition, the revenue involved is exempt from TABOR limits.

- Yes.

When it is taken--See, this figure started at 270 million.

It has now increased to 290 million, because it's forecast.

We're getting close to that $300 million.

- And it'll go up every year.

- I'll go up every year.

- Most likely.

- Right.

It's taking it out of the general fund, where that would typically be going directly into our refunds right into our pocket.

It's moving it into a newly-created, on top all the other programs that we have.

We're not clear even what they're doing.

We haven't all sat down and said, "The recent changes just pushed through the Legislature," we haven't figured that out, putting it into a new state affordability housing fund instead of getting it back to taxpayers.

- OK, we only have a few minutes left.

I want to let Mike and Luke jump in.

But just out of curiosity, I think we're all in agreement we have a serious affordable housing crisis.

Is that a fair statement?

Penn?

- Aaron, you're not looking at a balance.

Understand that the way this is set up, it puts as top priority affordable housing.

The General Assembly, the Legislature, will have to face the power of that measure going through.

And yet, what if there's something that needs greater attention?

Public safety, what if you have a natural catastrophe like wildfires, and instead of being able to move money to those things, you've got this locked in place that says, "We're just going to give a certain percentage 300 million a year"?

And they're avoiding the whole issue about how the fix is in for the control of this.

- All right, we only have three minutes left.

I want to give these guys a chance to respond.

What would you do to address the need for affordable housing?

- I started out by saying, had the money that went into preparing this initiative and getting it on the ballot been used wisely, it would have gone to say, "Look, we're already spending hundreds of millions of dollars at the federal, state, and local levels on affordable housing.

And yet, we're not getting what we want."

Wouldn't it be better to fix the programs we have in place rather than set up a new centralized bureaucracy with an incredible amount of discretion?

- All right.

I don't know if that would solve the affordable housing crisis.

But, Mike, Luke, we only have two minutes left.

- Couple key--Yeah, I think 86% of Coloradans would disagree with Penn on that.

They want something to be done.

They want it to be done now.

I think the key is, we believe here in local autonomy.

We let local communities decide to choose how and where they want to build this affordable housing unit.

We give them the resources to make that decision.

We believe in free markets, which is, yeah, if you're a local community that says, "We don't want to build any affordable housing," you can do that.

I tend to think the market will show that if you have two neighboring communities, one wants to make the community affordable for workers to live, business will thrive there, and you will see the economy move there.

And that will be the natural consequence.

But more importantly, let's talk about the TABOR refunds.

You don't have to take our word for it.

You can read the blue book.

The blue book says, in a year like this, even after this measure, you would still get about a $710 refund every year, worst case scenario.

That's worst-case scenario.

Many scenarios in which there is zero impact on your refund.

And so, you're talking about general fund stays whole.

300 million goes to affordable housing.

By the way, to Penn's concern, the General Assembly has still got 16 billion extra to solve whatever problems they think they have to solve, so I think they're going to be OK to figure that out.

The question is, what do you do when these one-time federal dollars go away and there's no path to actually stay at the solving of this problem over time?

You need a way to solve this problem consistently over time, build the supply chain, build a marketplace, and chip away at that 170,000 units.

If you can't, none of us is going to be able to hire employees to stay here, none of us are going to have our kids be able to grow up and get homes here.

And that won't be a Colorado we all want to live in.

- All right, Luke, I'm going to give you a final word here.

What else do voters need to know about this proposal?

- I would actually take us back to where we started, which is looking just at the scale of the problem that we're currently facing and the trajectory that we're on currently.

As we started this off, we extrapolated the price growth for homes from the last five years.

And if that trend continues for another 10 years, we're looking at a median home price that's up at $1.7 million.

To be able to afford a mortgage on that, you need an income of almost $400,000.

We are rapidly approaching a place where the Coloradans aren't going to be able to afford to live here.

We're going to see increasing homelessness, more people forced to move out of a state.

And this is a problem where I think there's an easy, very practical solution here that we can get in front of this with.

- Well, depending on what happens with the economy, I don't see that trajectory continuing.

But that doesn't mean that it's going to be easier to solve the problem.

- And I would say that that is unlikely to actually happen because that trend breaks down before then, with more people homeless, more people forced to move out of state.

And so, we don't actually get to that point.

But those are problems that we can avoid by passing this.

- You can't solve a supply and demand problem without adding more supply.

- All right, well, I want to thank Luke, Mike, Penn, and Natalie for joining me today.

Make sure you watch all of our programs on "Your Decision 2022."

I'm your host, Aaron Harber.

Thanks for joining me.

We'll see you next time.

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