Behind the Deal: Denver Housing Authority

Behind every affordable housing plan is a complicated contract with a lot of legalese and phrases like “area median income.” At least, that’s the case for one entry featured in this issue’s Big Deals. It’s an agreement between the Denver Housing Authority and the City and County of Denver for an affordable housing plan. 

Denver Mayor Michael Hancock has prioritized the need for more affordable housing during his three-term tenure. Butler Snow represented both the DHA and Denver in an intergovernmental agreement between the two entities for the DHA to deliver 2,400 units of affordable housing in Denver. The DHA financed the housing with $130 million in bonds. As part of the agreement, Denver will pay the DHA with mill levy tax revenue put in its Affordable Housing Fund. 

“What I love is that the City of Denver really stepped up to the plate in a big way by agreeing to share a portion of its mill levy to make this happen,” said Butler Snow attorney Dawn Bookhardt.

The agreement was signed in August 2018. According to estimates in the agreement based on .442 mills, Denver will have between about $7.3 million and $8.7 million available for appropriation each year through 2038.

Bookhardt said J.P. Morgan and Stifel, the bond’s underwriters, made conservative mill levy revenue forecasts when they analyzed the bond debt to make sure Denver’s ability to pay the DHA is realistic. 

A key part of crafting the agreement was making sure the city’s plan to pay with mill levy revenue didn’t run afoul of the Taxpayer Bill of Rights. 

Although the city has agreed to pay for the affordable housing, the bond debt obligation belongs solely to the DHA and doesn’t result in any new tax raises by Denver. To avoid any TABOR issues, the parties structured the IGA as an “agreement for services.”

“[The city] didn’t want to have it seem to be a disguised financing that the city really imposed but was just substituting itself for the Denver Housing Authority,” Bookhardt said.

According to the agreement, the DHA can provide affordable housing for people or households making up to 80% of the area median income. They are classified as moderate income, households bringing in up to 60% of the area median income are considered low income, and under 30% is considered very low income. 

Bookhardt said the program in the agreement “spans the distance” between the poorest residents and people who make money above the poverty line but struggle to keep up with Denver’s home prices, such as as service workers and public-sector employees.

Denver agreed to make payments, subject to annual appropriation, to the DHA over 20 years, and building the housing units has a five-year estimated timeframe. Assistant City Attorney Kwali Farbes, who works in the City Attorney Office’s municipal operations division, said the idea of delivery up front and paying over a longer period of time is a distinctive legal consideration in the deal. 

The structure of Denver providing mill levy funds to the DHA comes with some risk. Because the funds are subject to appropriation each year, City Council could technically decide not to allocate money for DHA in a given year.

Farbes said the city hasn’t taken a position on whether it will appropriate money in the future for certain, other than the fact that the affordable housing is important to Denver. But confidence the city will continue paying DHA factored into the housing authority bond underwriters’ analysis of the debt. 

“Luckily the market is accustomed to TABOR and the state of Colorado’s need to impose this ‘subject to annual appropriations’ standard, so that these government entities aren’t subject to multi-fiscal-year obligations without a vote of the people,” Bookhardt said.

—Julia Cardi

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