2024 Election, Denver, Exclusives, TABOR, Taxes, Uncategorized

Sharf: Denver’s already swimming in sales tax revenue, now wants more

Denver already has sales taxes approaching 9%, and a proposal to support Denver Health would push that number past 9% if approved by voters this fall.  Now, Mayor Mike Johnston’s office is pushing the idea of an additional 0.5% sales tax increase to support affordable housing.  The estimated revenue of $100 million over 10 years would be used to subsidize up to 20,000 units over that time.

Aside from the problem that affordable housing programs almost never make housing more affordable, there’s the question of why the city government thinks it needs the additional money.  Over the last 9 years, the city has been raking in additional sales tax revenue hand over fist.

First, let’s do the numbers.

According to Denver’s Annual Comprehensive Financial Report (ACFR) for 2022, the city took in $677 million in sales taxes.  The final 2023 numbers aren’t in yet, but using the state’s accounting for county-level retail sales, we can expect it to be around $1.26 billion, for an annualized increase of 9.2% over seven years.  If the sales levels for the first quarter of 2024 continue on track, it should be another 2.5% increase this year. Not spectacular, but still an additional $30 million.

Denver’s population has continued to grow, but at nowhere near the blistering pace we saw up until 2019.  According to Census estimates, Denver had 696,000 residents in 2016.  By last year, that had risen to only 717,000, an annualized increase of merely 0.4%.  Which means the per capita sales tax revenue has risen at an 8.8% annualized rate.  In 2016, it was $972; last year, it was a whopping $1750.  For a family of four, that amounts to $3100, or $260 a month.  That alone could easily be the difference between an apartment or even a mortgage being affordable and having to move.

According to Taxpayers Bill of Rights (TABOR) revenue limits, the city government should only be allowed to keep the previous year’s receipts, adjusted for inflation plus population.  But some years ago, Denver voters chose to de-TABOR, meaning that the city is allowed to keep whatever sales or property tax revenue comes in, without having to refund the overage.

Using 2016 as a baseline – the year the city’s portion of the sales tax reached its current 3.65% – we can calculate how much extra money the city government has had at its disposal.  Assuming that population and inflation remain the same as they did without TABOR limits, by 2022, the city was keeping an additional $362 million in sales taxes.  Last year, that number dropped slightly to $346 million, because the actual increase was below the TABOR limit.  That amounts to $484 per year per resident, or nearly $1950 for a family of four.

Two things are worth noting.  First, we don’t really know if the population changes would have remained the same.  It’s possible that, with a lower tax burden, Denver might have held onto its population gains, resulting in an even lower per-person burden.

Second, there would likely never have been a ratchet effect, even in the plague year of 2020.  While the population estimate dropped, it was slightly more than offset by inflation, meaning that even as the city raked in federal aid, its sales tax revenue would have held steady, adding to budgeting stability and predictability, avoiding the gyrations that we actually saw, and preventing the city from relying on every last available penny for pet projects and political patronage.

It’s also hard to argue that all this extra revenue is reaching the public in the form of basic services, particularly the popular ones that always seem to be on the chopping block when it comes time to ask for more money.

Police arrests in 2022 were down nearly 50% from their 2015 peak, but it’s not because people feel safer.  It’s entirely possible that it’s because they no longer bother to report crimes they know won’t be prosecuted.  Street resurfacing is below 2018 levels even as pothole repair also falls behind.  The body shops doing front-end alignments must be doing well.  And the perennially-threatened public libraries have fewer than half the volumes in their collections that they used to, with total borrowings down nearly a quarter from their peak.

As for affordable housing programs themselves, they produce housing units at a premium, but rarely much housing affordability.  In the decade from 2013 to 2022, Denver built over 7200 affordable housing units, but rents skyrocketed, the city became and remained one of the most unaffordable housing markets in the country, and now, according to the PODS survey, it’s #12 in the country for people to move out of, in large part because of housing costs.

The things that might alleviate the housing problem – building tort reform and encouraging more housing construction, especially outside the transportation corridors – remain off the table for Denver, the Denver Regional Council of Governments (DRCOG), and the state government as a matter of policy.  Even building housing targeted at higher-end buyers helps, as they move up and free up inventory for buyers moving up the ladder behind them.

So the net result is this.  The city government is already swimming in revenue.  It nevertheless finds ways to spend that money without attending properly to core services.  And now, it wants to make life harder on the bulk of its citizens with a regressive tax hike that most hurts the people it purports to help, which will likely to little to actually help make housing more affordable for either them or the rest of the city’s population.

Do better, Denver.

Joshua Sharf is a Denver resident and a regular contributor to Complete Colorado.


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