Denver Could Raise Pot Sales Tax to Fund Affordable Housing

To help remedy its well-publicized affordable-housing shortage, Mayor Michael Hancock wants to use a lifeline that mayors of most major cities don't have: pot. On April 16, the city floated the idea of using $105 million in bonds from the Denver Housing Authority — a quasi-municipal corporation that provides housing for middle- and low-income families and individuals — to help cover a proposed $105 million surge in funding for affordable housing over the next five years.

The City of Denver would double annual contributions from $15 million to $30 million for Denver's Affordable Housing Fund, according to an announcement from the mayor's office. That money must come from somewhere, though, and that's where marijuana comes into play.

To help cover its contributions to the Affordable Housing Fund, the proposal calls for a $7.5 million annual infusion from the city's general fund as well as raising Denver's special marijuana sales tax from 3.5 percent to 5.5 percent. The sales tax raise would bring in an additional $8 million of revenue each year, according to estimates from the mayor's office, allowing the city to pledge existing property tax revenue to the DHA, which can then bond against it for an estimated $105 million.

“Denver’s need for more affordable housing is critical. Since our creation of Denver’s first dedicated Affordable Housing Fund, we’ve been working on ways to leverage those dollars to expand the fund’s capacity and broaden its impact,” Hancock said in a statement accompanying the announcement of his new plan. “This proposal will deploy more funding quicker to support our residents and families without increasing costs on the very households we are working to serve.”

The plan would direct about half of the new funding to support Denverites in the bottom 30 percent of area median income (AMI) and those experiencing homelessness; the other half would go toward fulfilling the rest of the city's five-year plan to increase affordable housing. "The bonds will spur building new and preserving current permanently affordable housing units maintained by DHA, and create a new land acquisition fund to secure a pipeline of projects to serve Denver’s lowest-income residents and those experiencing homelessness," the proposal states.

Thanks to the bonds, at least 1,400 affordable units would be created or preserved over the next five to ten years through land and property acquisition; those would be paired with a minimum of 300 project-based vouchers. An additional 759 units would be added to three DHA developments over the next five years under the plan, as well.

The marijuana tax increase would create or preserve approximately 750 units over the next five years, the city estimates, and also provide subsidies to 1,000 additional households over the next five years.

Denver voters approved a measure in 2013 that allows the city to raise the special marijuana sales tax up to 15.5 percent. According to Ashley Kilroy, director of the Denver Department of Excise and Licenses, that flexibility is unique to legal marijuana; she says she doesn't know of any other area under the authority of Excise and Licenses that has a sliding tax.

"That was right when marijuana had first started and we had very little idea of what regulating marijuana was going to cost us," she explains. "I reached out to a number of marijuana industry representatives and had a couple of conversations with them. ... It's commendable that the marijuana industry has been so supportive of this increase."

Both the Marijuana Industry Group and Colorado Leads, as well as the dozens of legal marijuana businesses that the organizations represent, are behind the proposal. “We support the cannabis sales-tax increase to help ease the housing challenges faced by our employees, as well as scores of other Denver residents,” says Colorado Leads chairman Chuck Smith.

Even mayoral candidate Kayvan Khalatbari, who will face off against Hancock in the 2019 campaign if the incumbent runs again, sees some benefits to the plan. An affordable-housing advocate and founder of Denver Relief, a marijuana business consulting firm and former dispensary of the same name, Khalatbari has become well known in Denver thanks to his role with both communities. "I think it's something we should look at when we're in the crisis that we're in," he says. "There's a lot of things that I would probably look at before this, honestly — but that said, if [the revenue] is sitting there, then it could be worse."

Khalatbari believes the city would be better served by pursuing the idea of a community land trust proposed by a private philanthropic group last December, as well as eviction protection for renters and approval of accessory dwelling units, such as tiny homes in back yards. "Developers keep building these things for $250,000 a unit when we could be building tiny homes for $10,000," he says, calling the new proposal a "drop in the bucket" for Denver's housing needs.

"I think housing and homelessness is definitely a worthy cause, and when you're in a crisis like we are, then you have to do something," Khalatbari adds. "I wish it were more money, though. The money we're talking about here isn't enough."

Although he doesn't believe there will be a major uproar from Denver marijuana businesses over the proposed tax increase, Khalatbari thinks some of the smaller operations will feel the effects, and so will the consumer. "This isn't going to affect businesses that much at the end of the day, but I do believe it will be a detriment to most mom-and-pops. They're having a hard time keeping pace with the consolidation and the large-scale operators," he explains. "And, ultimately, this will be passed down to the consumer."

The proposed increase would add around $1 of extra sales tax to a $50 dispensary purchase in Denver, according to Excise and Licenses — an essential move to help match the needs of a growing city, says Denver Chief Financial Officer Brendan Hanlon.

"We have a number of issues as a growing city — affordable housing, mobility and many others just as a population that now exceeds the demands of 700,000 folks," Hanlon explains. "Addressing [affordable housing] is really imperative right now. You're hearing a lot from members of the City Council and Housing Advisory Committee, saying we've made some positive steps. But this was a way to double that effort."