Aspen seeking tax-exempt status
ASPEN ” The Aspen city government stands to save millions of dollars with the Internal Revenue Service, but first it will cost $30,000 to find out for sure.
City financiers are hoping to get a private letter ruling from the IRS that would authorize tax-exempt financing for the construction of for-sale workforce housing.
But in order to get that authorization, the city of Aspen first has to ask the IRS on an anonymous basis. The application fee is $10,000 and non-refundable.
Legal fees in connection with making the case and negotiating with the IRS are expected to cost another $20,000, according to Scott Newman, the city’s senior financial analyst.
It’s a foregone conclusion that if the city intends to build hundreds of affordable employee units over the next several years, including the second phase of Burlingame Ranch, it will have to issue bonds.
The ability to finance future for-sale housing on a tax-exempt basis would allow the city to further leverage its available revenue streams for housing, which comes from a portion of the sales and real estate transfer taxes, according to Newman.
The savings associated with a tax-exempt bond rather than taxable construction financing could equate to interest costs of $12,000 per each $1 million borrowed. At Burlingame Ranch, where phase 2 is scheduled to begin next year and is budgeted to cost $65 million, the interest savings with tax-exempt debt would be $780,000 annually, according to Newman.
The only way right now to issue tax-exempt debt to finance the construction of workforce housing is to issue single-family housing revenue bonds, which are designed to provide affordable housing to moderate- to low-income families.
But the federal government has enacted legislation limiting how much each state can receive. Colorado receives a total of $413 million, with half of that going to the Colorado Housing Finance Authority. The remaining money goes to counties, cities and towns with populations in excess of 24,300. By virtue of their size, neither Aspen nor Pitkin County receive any of that money.
“The problem is exacerbated in that the population that the city is attempting to house is not destitute,” Newman wrote in a memo to the City Council, which is being asked to approve the IRS query. “Aspen’s working class is well off financially compared to the people that federal affordable housing programs target.”
Because of Aspen’s successful track record in providing workforce housing, city staff believes that Aspen might be an ideal case to present to the IRS.
To obtain a ruling, city financiers must build a case around the facts and take the question to the IRS anonymously. If the IRS indicates the request has merit, a formal presentation will be made. The IRS will review the application with the city’s lawyers and negotiate a ruling. The process could take up to nine months.
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