Funding plan for housing defective

Funding plan for affordable housing defective.

Funding plan as proposed will backfire, attorney argues.

Workable funding plan needed and possible, James Mulligan says.

GUEST COLUMN

By James Mulligan

Special to Denver Real Estate Watch

Funding

Prominent real estate attorney James Mulligan makes case that affordable housing plan needs fixing.

I read with interest the “Developers Support Affordable Funding Plan,” guest column in Denver Real Estate Watch.

I cannot think of a higher priority for the Denver area community to address than the affordable housing crisis.

It has been building for years, recently reaching critical status.

A desperately needed targeted policy, or at least a framework, is required to address this issue.

What should be at the top of the list for an appropriate and justified funding plan is a mechanism that would provide a steady stream of targeted capital to address this society-wide issue.

However, a proposed funding source in the current plan is not the answer.

I believe it to be another defective measure that cannot produce the desired outcome. The same was true, in my opinion, with Denver’s Inclusionary Housing Ordinance, or IHO.

The following are thoughts to consider in this light:

  • Funding without a plan – There is no plan in place to utilize the funds as currently proposed.

In essence, the fund, or funds, if established as currently proposed, would delegate the authority to use the funds to the Office of Economic Development. The OED then could allocate the funds as it sees fit. The Fund Advisory Committee to be established is just that — an advisory committee.

This approach reminds me of the golfer who steps up to the tee and finds that there is no flag/green to aim for… a “ready-fire-aim” approach.

Without seeming negative, I would suggest that the funding plan should be at the execution stage once a specific plan has been developed to address the affordable housing issues. That plan must be specific regarding targets, timing, amount of funds needed  and so on. The current proposal just seems a bit backwards in terms of process. Therefore, it is premature.

  •  Defective fund make-up – If the purpose of the fund is to allow for those funds to leverage with other funds to be able to actually acquire, construct or preserve the desired housing (I think the number was 6,000 units of affordable housing), then the make-up of the fund is defective.

The property tax portion of the fund is a relatively reliable and consistent source of funding, but the proposed impact/linkage fee will go up and down with the market. In fact, funding will likely be at its lowest during a down cycle when it is needed the most to assist in securing property and units at a lower cost.

It seems to me, in order to maximize the fund’s possible utilization, one would want a long-term, reliable source of annually recurring revenues to bond against or otherwise leverage with other funds.

Imagine, for example, instead of half a mill, employing a full 1 mill or 1.2 mill portion of the available mills and do so for a term of 30 years instead of 10 years.

That’s a reliable $450 million revenue stream to leverage against.

That has numerous advantages over the current funding proposal. It could bring the project to scale, assuming an approved plan that identified the funding amount needed and the targeted use of the funds, plus a governance structure that is representative and has the decision-making authority regarding an approved plan.

  •  Discriminatory funding sources – An acknowledged community-wide issue should have a community-wide solution in terms of resources.

Everyone should pitch in on solutions to this public purpose.

Although avoiding a public vote for such a tax (that is what the so-called impact/linkage fee is in reality) is expedient, most times getting it right should trump expediency.  To select a particular portion of the community to bear much of the burden of funding is both discriminatory and unfair to those who bear such burden.

The property tax portion of the funding solution is a fairly widespread allocation (although commercial property owners already are penalized because of the Gallagher Amendment’s unbalanced allocation of the tax burden), the impact/linkage fee not only allocates half the burden to the narrower development community, but hits developers twice for the same purpose. That is because the developers typically are also landowners who are otherwise subject to the property tax portion of Gallagher.

  • The math does not work – The impact/linkage fee will, since imposed on the developers, ultimately would be a disproportionate cost passed on to consumers. In short, it doesn’t lower the cost of housing, but increases it.

I have been informed that the National Association of Home Builders recently commissioned a national survey and, for the Denver metro area, reported that for every $1,000 of impact fee increase, 1,800 potential buyers will be priced out of the market for buying a home.

The proposal is for a 10-year term.

That’s a total of 18,000 disenfranchised consumers,

The current general goal espoused for the proposed fund is to create 6,000 units of affordable housing.

The math just doesn’t work. It may even be worse. I have been told that the proposed impact fee for this fund could be more likely to average $1,500 per unit, not $1,000.

  • Governance – There is no appropriately representative governance structure to approve a yet-undefined plan for the use of the funds, There also is no structure to provide baseline measurements, a proper review and oversight of the funds on a regular basis.

There are no baseline measurements or specifically targeted outcomes in the proposal and nothing to match the use of the funds against.

Instead, there is an advisory committee to be set up later that is more representative of the beneficiaries of the fund than that of the fund investors or independent advisors. Again, without a specific plan thought out in advance and a process to measure the success of such a plan, the funds are essentially being raised under the “trust me” approach. This is not appropriate in this context. It certainly would not be appropriate in a public vote context.

That is not to say that we shouldn’t be aggressively and collectively pursuing solutions. But solutions must have community-wide support and a chance of actual success.

Now that this proposal has been put forth publicly and has raised the attention of the community in a more specific manner, let’s get to work addressing what changes need to be made to make this proposal workable. Or, we could hammer out alternatives that could work and are appropriate replacements for this proposal. What we need approved and implemented is a fair, equitable and targeted solution that would actually work.

Let’s not rush in with a defective plan; we can provide a more meaningful and feasible alternative.

I, for one, would be happy to be involved in a serious effort to devise a workable plan…I suspect that many in the community would as well

As a start, let me suggest that a specific plan requires a transparent process to objectively monitor and measure the outcomes. It also requires a long-term, reliable source of revenue, such as I suggested above.

An approved plan must marshall consistent resources to implement a system that is workable and appropriate.

Let’s get it right this time!

James M. Mulligan is a partner at Husch Blackwell LLP.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. DenverRealEstateWatch.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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