F.A.I.R: In The Red For Affordable Housing, City Owes Wheeler Fund Millions

August 5th, 2008 at 05:54pm Post Staff 43

[Editor's Note: This news coverage has been underwritten by Factual Aspen Investigative Reporting (F.A.I.R.). F.A.I.R. has been formed and organized in Aspen, Colorado, as a nonprofit corporation to conduct investigative journalism in the public interest, and to provide accurate, meaningful and non-biased news coverage based on correct factual information.]

ASPEN (Post Time News)—Even a city like Aspen, known for affluence and excess, can flat run out of money when it comes
to funding affordable housing.

One solution: to borrow money in the municipal bond market in part to pay back the millions you just borrowed from your
own internal funds.

After spending more money than the City had in the bank to bank land for its 32-year-old affordable housing program, the
City of Aspen was compelled to borrow $8 million from the Wheeler Opera House fund to help finance more than $35 million
in land purchases. The City may be forced to borrow millions more from the City-owned Wheeler to pay off the outstanding balance, according to Aspen Finance Director Don Taylor.

“Additional amounts may have to be borrowed from Wheeler fund in 2008 to cover the 18,000,000 that was spent in 2007
on the BMC West lumber yard,” according to an email from Taylor. “It will depend on the RETT actual collections and what
happens with the bond issue.”

The RETT fund as of July 29, 2008, was just over $1.3 million, according to City of Aspen Community Relations Officer Sally
Spaulding.

“It is unusual for a city to get so over-leveraged in its funding,” former City Finance Director Paul Menter told Post Time News,
“in anticipation of voter approval on a bond issue.”

Translation: without the passage of such a bond for tens of millions of dollars in debt by voters in November 2008, the City
will not have nearly enough money in its affordable housing coffers to pay off the internal Wheeler loan until more tax money flows from the Real Estate Transfer Tax (RETT) and a portion of the City sales tax dedicated to affordable housing. The RETT fund in particular is coming under pressure after the $35 million land acquisitions—and the loan from the Wheeler—but should a bond pass in November 2008, payments in interest and principal will have to come out of the RETT/sales tax affordable housing fund for the 30-year life of the bond.

Any future bonds to pay for affordable housing, a real possibility according to Aspen Mayor Mick Ireland, would also be paid for by the RETT and sales tax over the life of the bond.

The funding complications come at a time when the RETT is facing a year-to-date plunge of 37 percent because of the weakening
real estate market in Pitkin County. Through June, the RETT generated a mere $3.023 million in 2008, compared to the more
robust $4.793 million generated from January-June 2007.

The near-term City of Aspen land purchases amount to $35.045 million, according to Community Relations Officer Spaulding, including $5.4 million for the property at 488 Castle Creek; $3.6 million for 312 West Hyman; $3.69 million for 802 West Main Street; $4.105 million for 517 Park Circle; and the controversial $18.25 million for the BMC West lumber yards. Sitting in the upstairs lounge of the historic Wheeler Opera House, Wheeler executive director Gram Slaton, addressing the $8 million loan to the City for affordable housing, told Post Time News he has been “assured we will be paid back in full within 24 months.”

The Wheeler, with $25 million in its fund, lent the affordable housing fund $8 million, leaving it with some $17 million in available funds as of July 2008. The Wheeler itself needs access to its own fund because it has ambitious expansion plans and has already issued a Request For Proposal (RFP) to architects bidding on the expansion.

“If the council approves issuance of bonds for reimbursement for previous land acquisitions,” City Finance Director Taylor
told Post Time News in an email, “that money will be used to pay back the Wheeler fund.”

How will the City pay back the Wheeler fund if the bond is postponed or fails?

“Over time,” Taylor responded via the same email, “from future Housing Fund [RETT plus sales tax] revenues.”

By all accounts such internal municipal borrowing, approved by Aspen City Council, is legal and not unprecedented. The
method has been used three times before to pay for street paving, for the Aspen Recreational Center (ARC), and for the Red Brick Center, with the City so far paying the money back as promised: $1.4 million for street paving; $1.35 million for the Asset
Management Fund; and $680,000 for the Red Brick West End Expansion. Finally, in 2007, the Wheeler Transfer Tax Fund loaned the affordable housing fund the aforementioned $8 million. The loan bears interest, according to the City, “at a rate, changing
monthly, equal to the monthly rate of return on the City’s investment portfolio, with annual principal and interest payments due through December 31, 2008.”

In this latest Wheeler loan, according to the City: “Proceeds from the loan were used for capital expenditures related to the acquisition of In The Red For Affordable Housing, City Of Aspen Owes Wheeler Millions real property for affordable housing purposes.”

The borrowing from the Wheeler for affordable housing—an order of magnitude larger than the $1 million-plus loans from the Opera House fund that came before—was initiated because the City had exceeded revenues available from the RETT and the portion of the sales tax devoted to affordable housing at a time when the City was anxious to bank land for affordable housing. The RETT was approved by voters to fund (a) affordable housing; and (b) the maintenance and operation of the Wheeler.

One advantage of such an arrangement to the City is that it can initiate the loan without paying any fees. But it also means
the City might be forced to use a portion of the proceeds from the proposed municipal bond to pay back the Wheeler fund—in effect, to borrow more money to pay back a minimum of $8 million borrowed from the Wheeler in the first place.

“Using the Wheeler fund is a way of circumventing the will of the people,” said the chairman of the Citizens Budget Task Force’s housing committee, Ward Hauenstein, speaking only for himself. “They’re not supposed to use it for anything else. Doesn’t that seem to be sidestepping the intended use of that fund? They’re borrowing it with every intention of paying it back so it’s not a violation. But it’s borrowing money to buy a new car and then saying you have to give me a raise because I just bought a new car.”

The City has yet to specify a bond amount, but if the bond were $50 million, for example, it would take a minimum of 16 percent of the bond to pay off what the City owes to the Opera House. That means only the remaining portion of the bond will still be available to pay for Phases II and III of the controversial Burlingame affordable housing complex—the focal point for such funding after the City came up tens of millions of dollars short of its published estimates of what it would take to finish the project.

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Entry Filed under: Aspen, Post Time News, Affordable Housing