Marijuana Facts

Hike in retail marijuana tax is part of Denver’s plan to turbo-charge its $15 million-a-year affordable housing fund

Denver marijuana buyers would help pay for an expansion of the city’s 10-year, $150 million affordable housing fund under a plan that includes borrowing to amp up apartment production.

If approved, the proposal would boost the city’s shorter-term plan — to subsidize the building or preservation of 3,000 income-restricted apartments and other housing units in the next five years — to 6,400.

Mayor Michael Hancock and other city officials have been under pressure from City Council members and affordable housing advocates for more than a year to bolster the city’s commitment to addressing Denver’s housing crisis, and they unveiled their plan Monday. If key components win council approval this summer, the city would double an annual $15 million commitment that began last year, and it would partner with the Denver Housing Authority to issue $105 million in bonds to subsidize affordable housing projects and acquire new land across the city for income-qualified housing.

The property-buying spree could expand the pipeline of affordable housing projects planned by private developers by supplying them with land.

Leaders of All In Denver, a group of housing advocates, developers and residents, have pushed for the city to step up its public investment by commissioning polls and floating proposals. Though Hancock’s proposal wouldn’t increase spending as much as the group had urged, a co-founder offered praise.

“It’s a lot to like,” said Brad Segal, the president of Progressive Urban Management Associates. “I think we’re pleased that the city administration is taking the urgency of the housing crisis so seriously. DHA is a reliable delivery system, so I think that’s a real strong component of their plan.”

The group plans to delve into the details in coming weeks and may suggest some changes, but Segal was quick to add: “To me, it is a total game-changer, in how we’re thinking about affordable housing, to have these new resources in play.”

The expanded housing plan comes amid compliance problems in Denver’s longstanding affordable homeownership program. The city recently acknowledged that nearly 200 homes in the program were owned by people whose eligibility wasn’t verified under income guidelines because the home sales escaped the city’s notice.

City officials said Hancock’s plan, which mostly will benefit renters, represents a higher commitment to helping the estimated 80,000 households in the city that are considered cost-burdened because they spend more than 30 percent of their incomes on rent or other housing costs.

Money from marijuana, city budget

How to pay for the program’s rapid expansion is where marijuana comes in. Denver has dipped into sales tax proceeds from pot sales to cover one-off expenses, including additional street paving this year, but the new housing plan marks the first time Hancock has sought to earmark recurring marijuana taxes for purposes other than industry regulation.

His administration proposes increasing the city’s 3.5 percent special tax on recreational marijuana sales to 5.5 percent, which would bring the total state and local taxes on such purchases in Denver to 25.25 percent. The 2 percentage-point hike requires only council approval, since Denver voters capped the special local tax at 15 percent when they approved it in 2013.

The uptick in marijuana taxes is estimated to generate about $8 million a year, officials said. The city also would devote another $7 million a year from its operating budget.

Together, those would double the $15 million in proceeds expected annually from a property tax and development impact fees that were imposed by the council in 2016, when it approved the affordable housing fund’s creation. City leaders’ goal then was to supplement declining housing grants from the federal government with more stable local funding sources amid the housing affordability crunch.

To repay the $105 million or so in DHA-issued bonds over the next 20 years, the city would transfer the annual proceeds from a small property tax rate approved by the council two years ago.

That money, which had been going toward the affordable housing program, would in turn be replaced by the marijuana tax hike’s proceeds.

Ashley Kilroy, the city’s licensing and marijuana policy director, consulted marijuana industry representatives about the plan and said she received their support, a point confirmed by Marijuana Industry Group executive director Kristi Kelly. She attended the council briefing.

“We must thank our marijuana industry for stepping up to say we want to be part of the solution,” Hancock said during an earlier briefing of reporters.

A large chunk of DHA’s bond money would go toward accelerating its own planned housing projects, including the replacement and expansion of several aging DHA properties in Sun Valley and other neighborhoods.

In the housing fund’s expansion, officials said much of the increased housing production would target the lowest-income category of potential residents, from the homeless to those making up to 30 percent of the metro area’s median household income.

For an individual, that income limit currently is $18,900 a year. For a family of four, it is $26,960 — an income level that includes a lot of families in the working poor, Councilwoman Robin Kniech pointed out during a committee briefing about the plan Monday morning.

Besides subsidizing DHA and private-sector projects, the proposed infusion of public money also would aid existing and planned programs geared toward low- and moderate-income families faced with rising rents or displacement, when properties are redeveloped. A recently approved five-year city housing plan outlined strategies to help people across a broad spectrum, from the homeless to homeowners.

Questioning elements of the plan

City economic development and finance officials, along with DHA executive director Ismael Guerrero, were met by council members with a generally positive reception Monday.

But Kniech was among several who expressed concerns about various components of the plan — pointing to a likelihood that it could evolve in coming months as the Hancock administration seeks public input.

Kniech, an at-large council member, pointed out several uncertainties in the new proposal, including the commitment to transfer $7 million more per year from the city’s budget to the affordable housing fund.

Comparing Hancock’s plan to the alternative of a bond question put to voters, which would dedicate tax money for repayment, Kniech said: “The biggest difference is the general fund risk of political winds changing and the budget changing. I would like to invite more dialogue on how we get that piece more secured.”

Councilwoman Stacie Gilmore, who represents far-northeast Denver, said the housing assistance needs in her district center on families who pull in more moderate incomes. She suggested that an expansion that focuses heavily on the lowest-income category could be a hard sell, though officials stressed the other recently planned programs have favored households making up to 80 percent of the area median income (about $72,000 a year for a family of four).

As the council considers new financial moves, the unreliability of one key past projection troubled Councilwoman Kendra Black, who represents far-southeast Denver.

She noted that the development impact fees approved in 2016 so far are generating a fraction of the projected proceeds, partly as a result of a rush to file development plans before the fees took effect. City officials set aside an extra $6.8 million from the budget this year, mostly to cover lagging impact fees that are expected to bring in only $1.5 million this year. Officials also call those linkage fees.

“I’m curious about how we got the linkage fee estimates so terribly wrong,” she said to Brendan Hanlon, the city’s chief financial officer.

He said the fees have been rising more slowly than expected but should increase as development projects that have been in the permitting stages proceed to construction, since the fees are paid at the end of the city review process.

Here is the city presentation given to the Denver City Council on Monday: