DENVER — A bill pending debate on the House floor signals a shift in how Colorado invests taxpayer money by directing the treasury department to spend up to $50 million on less-than-ideal rated bonds to subsidize “affordable housing.”
Senate Bill 25-006 “Investment Authority of State Treasurer for Affordable Housing,” would allow the state treasurer to purchase bonds from a quasi-governmental entity for the “creation or financing of new affordable, income-restricted for-sale housing.” The bill has already been passed out of the state Senate.
At a time when the legislature is struggling to trim a $1.2 billion state budget shortfall, the bill is estimated to cost taxpayers $1.5 million in investment income losses. Despite the treasurer’s office testifying they are not in favor of this type of investment, the effort passed the House Finance Committee on Monday, March 24.
The bonds, which will have below-market interest rates, would be used for the creation or financing of new affordable, income-restricted, for-sale housing by providing low interest construction financing to developers.
When the home is sold, it will be though a 30-year conventional loan, also with a below market interest rate.
Leah Marvin-Riley, the policy director for the department of treasury, testified that the treasurer’s office is taking an amend/neutral position because of the estimated loss of interest income to the treasury from the difference in what these bonds would produce (3 percent) versus what investments the treasury typically invests in (6 percent).
“We would prefer this program be funded with an appropriation from the state legislature, but we understand that is not an option this year because of budget constraints so we acknowledge the creative thinking of this bill,” she said. “While $50 million dollars is only a portion of the treasury’s portfolio, we don’t want to set a precedent that could lead to a large impact on lost interest income. … money comes in and out on a daily basis to pay the state’s bills. If the legislature choses to continue this program in the future we hope that you will find alternative funding sources.”
Marvin-Riley said because the bonds will cost the state $1.5 million because of the difference in interest income.
“We also have liquidity concerns as these bonds will not be able to be traded in the public market,” Marvin-Riley said.
Rep. Bob Marshall, a Democrat from Douglas County and the only Democrat to vote no on the bill, said this is not a no-cost program, calling it a raiding of the general treasury.
“I don’t know many examples of when political investing has gone outstandingly well, said Rep. Bob Marshall, D-Castle Rock. “That concerns me just as a general proposition. But we sat here and had the Treasury Department say they would not do this in their best judgment, only if they are being ordered to because of the concerns for liquidity and assets compared to other assets they should be investing the public’s money in. … We are losing $1.5 million. There is a $1.5 million hard cost to this program.”
The bill passed on a 7-6 vote and is scheduled for second reading on the House floor, March 28.
