Affordable housing funds up to Aspen voters
ASPEN ” Aspenites will be asked on Nov. 3 to issue $92.5 million in debt to pay for hundreds of affordable housing units.
The Aspen City Council on Tuesday signed off on moving forward with a fall ballot question that allows City Hall to borrow against future revenue generated by the 1 percent Real Estate Transfer Tax (RETT) and the housing portion of the 0.45 percent sales tax.
City financiers presented a plan to the council that centers around the ballot question, which will ask residents to issue three bonds, as well as renew the two taxes that are the primary revenue sources for the city’s housing fund.
The bonds are dependent upon renewing the RETT, which expires in 2024, and the sales tax dedicated to housing, which sunsets in 2010.
How long those taxes should be extended is undetermined, but it will be for at least 30 years, which is the length of the repayment schedule on two of the bonds.
The first bond would be for $29.6 million and would be tax exempt. It would pay for land acquisitions already made by the city of Aspen and have a 30-year repayment schedule.
The city of Aspen last year spent $31 million on land purchases for affordable housing, including the $18.25 million BMC West property by the Aspen Airport Business Center.
The second bond also would be tax exempt and would be for $12.7 million. It would pay for developing potential rental seasonal housing at 488 Castle Creek Road, a 35,895-square-foot property the city bought last year for $5.4 million. That bond also would have a 30-year repayment schedule.
The third bond is the largest at $50.2 million and would be taxable. It would be repayable in 10 years, and would pay for the construction and financing of for-sale housing, specifically at Burlingame Ranch.
It’s likely that there will be some money left over and city officials plan to ask voters to approve building housing on an undetermined parcel.
Although it’s presumed that the $50.2 million bond is taxable, city officials are hoping that the IRS will allow it to be tax exempt.
The City Council in February authorized city financiers to seek a ruling from the IRS that would authorize tax-exempt financing for the construction of for-sale workforce housing. Tax exempt bonds are typically issued for rental housing.
The savings with a tax-exempt bond rather than taxable construction financing could be substantial, according to Steve Jeffers, the city’s bond advisor.
Scott Newman, City Hall’s senior financial analyst for debt and investment management, said it will take up to nine months to get an answer from the IRS. He added that initial conversations with IRS officials are encouraging.
“We were not rebuffed,” he told the council, adding that because of Aspen’s successful track record in providing workforce housing, he believes that the city has a good chance for an exemption.
City financiers presented a list of potential properties that can be developed for affordable housing and ranked them in order of priority, based on whether they are owned by the city government and how difficult it would be to build on them.
The council generally agreed with the priorities but wants more analysis from city housing officials on what types of housing will be built, including specific income categories at Burlingame Ranch and on the Castle Creek property.
Councilman Jack Johnson said when City Hall purchased the Castle Creek lot he wasn’t envisioning seasonal housing.
“When we bought this property, I was thinking about our year-round residents,” he said, adding he doesn’t want city taxpayers subsidizing rental housing for private entities.
Assistant City Manager Bentley Henderson said there’s potential for partners from the private sector to be involved in the Castle Creek parcel; it is located directly behind the Marolt housing complex, which is dedicated to Aspen Music Festival and School students in the summer.
City and housing officials agreed they would want partners to put up the money before city taxpayers foot the bill.
“I would like to see private partners coming in at the outset with capital,” said Mayor Mick Ireland.
The council will rely on the newly formed citizen’s budget task force to oversee the analysis of income categories, construction costs and make a recommendation on how long the taxes should be extended ” but not at the expense of not moving forward.
“I think the citizen budget task force makes recommendations, but it’s our responsibility as elected officials to keep building Burlingame,” Ireland said, adding the council has a mandate from voters in two previous elections to move forward with building at Burlingame.
The RETT and housing portion of the sales tax together generated nearly $11 million in 2007. It’s estimated that the sales tax, if extended, would grow at a rate of 4 percent. The RETT is predicted to grow at 5.5 percent. Those are conservative estimates, Newman said.
Phil Verleger, an Aspen resident and economist, cautioned the council on those projections, especially given the uncertain economic times and the volatility of those revenue streams.
“Borrowing on the projections you’ve shown is a real gamble,” he said, adding national economists are predicting a nationwide stagnation and that could trickle down to the local economy with a drop-off in multimillion-dollar real estate sales and tourism dollars. “It’s a riverboat gamble to borrow that heavily.”
Without the extended tax revenue, the housing fund would only be able to cash fund 263 units over the next 30 years, which is nowhere near what City Hall’s ambitious plan calls for.
The housing fund cannot cash finance future housing projects envisioned by City Hall without ongoing revenue streams. Newman said 415 units can be developed in the next eight years with the proposed plan.
Jeffers said borrowing against future revenue allows the city to create a positive fund balance dedicated solely to housing.
If voters approve the debt, it’s predicted that the housing fund will have a $60 million balance in 2018. That balance includes revenue from selling new housing units, which would help offset the debt.
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