Could New Local Taxes Fix Colorado's Housing Crisis?

What This Bill Actually Does

Right now, Colorado is facing a severe housing shortage. According to the legislative declaration in HB26-1206, the state is short roughly 106,000 housing units, and we need to build about 34,100 new homes annually just to keep the problem from getting worse. While public housing authorities are on the front lines of building deeply affordable housing, they often lack the dedicated, reliable funding streams needed to get massive construction projects off the ground. This bill fundamentally changes their financing toolkit by allowing both city and county housing authorities to levy their own taxes.

Here is how it works: If a city or county adopts a resolution saying a new tax won't unfairly burden one specific group, the local housing authority can put a tax measure on the ballot. This isn't an automatic tax hike—it still requires a majority vote from registered electors to comply with the Taxpayer's Bill of Rights (TABOR). If voters say yes, the housing authority can implement a sales tax or a sales and use tax capped at 1%, or a property tax capped at 5 mills. The revenue goes directly to the housing authority's fund to finance, build, and preserve affordable housing. To stretch those dollars further, the bill also allows county housing authorities to issue general obligation or revenue bonds backed by these new tax revenues.

But the bill doesn't stop at taxes; it also takes a hard look at how commercial and residential developments are funded through Urban Renewal Authorities (URAs). Often, large developments rely on Tax Increment Financing (TIF), where future tax gains are borrowed against to fund current construction. But what happens if the project underperforms and the tax revenue falls short? Right now, that's a massive risk for public entities. HB26-1206 allows URAs to enter into shortfall guaranty contracts with developers. This means if the TIF revenue isn't enough to pay the debt, the developer is legally obligated to make a direct payment to cover the exact amount of the shortfall. Even more critically, this obligation becomes a lien on the property that holds the same priority as a tax lien—meaning it jumps to the front of the line, ahead of the developer's mortgage.

What It Means for You

As a Colorado resident, the most important thing to understand about this bill is that it puts the ultimate decision-making power right in your hands at the ballot box. HB26-1206 does not automatically raise your taxes; it simply gives your local housing authority permission to ask you for funding. If a measure makes it to your local ballot, you'll need to weigh the cost against the benefit of having more affordable housing in your community. For context, if voters approve a 5-mill property tax, a homeowner with a home valued at $500,000 for tax purposes would pay roughly an additional $167 to $170 per year, depending on the current assessment rates. If your community opts for a 1% sales tax, you'll pay an extra penny on every dollar spent on taxable goods in your town.

On the flip side, if you are one of the thousands of Coloradans feeling squeezed out of the housing market, this bill is designed with you in mind. Renters who earn at or below 30% of the Area Median Income are facing a deficit of 134,000 affordable rental homes across the state. By giving housing authorities a dedicated revenue stream, they can bypass the wildly competitive and often slow process of applying for state or federal grants. They can issue bonds, get cash up front, and start putting shovels in the ground much faster to build the deeply affordable housing that the private market simply won't build on its own.

Here is what you should do to stay ahead of this:

• Watch your local city council or county commissioner agendas: Before a tax measure can even go to the voters, the local government must pass a resolution determining the tax is fair. This is your first chance to weigh in.
• Check your voter registration: Because these proposed taxes are subject to TABOR, they can only be approved during an election. Make sure you are registered to vote at your current address so you have a say in whether your local housing authority gets these new taxing powers.
• Read the fine print on future ballots: The bill requires the ballot question to explicitly describe exactly what the tax will be used for. Hold your local housing authority to those promises if you decide to vote yes.

What It Means for Your Business

If you are a commercial real estate developer, a contractor, or a commercial lender, Section 4 of this bill is the absolute most critical piece of legislation you will read this session. The introduction of the shortfall guaranty contract fundamentally alters the risk profile of partnering with an Urban Renewal Authority (URA). If you enter into one of these contracts and the tax increment revenue fails to cover the URA's debt, you are on the hook for the difference out of pocket. Crucially, this obligation becomes a super-priority lien on the property, running with the land and taking priority over any mortgage or non-tax encumbrance. Commercial lenders are going to pay very close attention to this. You can expect banks to tighten their underwriting standards or require larger cash reserves if they know their mortgage could be subordinated to a URA shortfall lien.

For retail business owners and restaurants, your focus should be on the potential for new local sales taxes. If your local housing authority successfully passes a ballot measure, they can impose a sales and use tax of up to 1% on any transaction taxable by the state. The bill requires the housing authority to designate a liaison to coordinate with the Colorado Department of Revenue, meaning you will be the one responsible for collecting this new tax at the point of sale and remitting it. This means point-of-sale (POS) system updates, changes to your accounting software, and making sure your staff understands why the local tax rate suddenly jumped.

However, it isn't all compliance and risk—there is a massive upside here for the construction and trades industries. If housing authorities suddenly have millions of dollars in new, dedicated tax revenue and the ability to issue bonds, they are going to start building. This means a surge in public contracts for general contractors, architects, plumbers, electricians, and materials suppliers who specialize in multi-family and affordable housing builds.

Here is what you should do THIS WEEK to protect and position your business:

• Call your real estate attorney and your commercial lender: If you currently have projects in the pipeline involving a URA or TIF financing, ask them how a potential super-priority shortfall lien would impact your loan covenants and financing terms moving forward.
• Talk to your POS vendor: Confirm that your point-of-sale software can easily accommodate sudden, hyper-local municipal tax changes without causing accounting headaches.
• Look into public bidding requirements: If you run a contracting or trades business, start reviewing the vendor registration processes for your local city and county housing authorities so you are first in line when the new projects drop.

Follow the Money

Because this bill relies entirely on local voter approval, it does not mandate a direct, immediate cost to the state's general fund. The fiscal impact is entirely decentralized. However, the potential shift in local economics is staggering. If a major municipality—like Denver or Colorado Springs—were to pass a 1% sales tax or a 5-mill property tax dedicated solely to their housing authority, we are talking about tens to hundreds of millions of dollars annually being redirected from the private economy into public housing development.

Furthermore, the shortfall guaranty contracts act as an insurance policy for public money. Historically, when a TIF-funded urban renewal project failed to generate the expected tax revenue, local governments and URAs were left holding the bag on the debt, stretching public finances thin. By allowing URAs to legally force developers to cover that delta—and backing it up with a priority tax lien—this bill aggressively protects taxpayer dollars and shifts the financial burden of market failures squarely onto the private developers who pitched the projects.

Where This Bill Stands

HB26-1206 was introduced in the House on February 12, 2026, and has been assigned to the House Finance Committee. This is the very first step in a long legislative journey. Sponsored by Rep. Junie Joseph and Sen. William Lindstedt, the bill has solid backing from advocates who argue that the state's housing crisis cannot be solved without giving local governments bigger financial hammers.

However, expect a massive lobbying fight in the coming weeks. While affordable housing advocates and municipal leagues will champion the dedicated funding streams, commercial real estate developers, banking associations, and business groups are highly likely to push back hard against the shortfall guaranty liens in Section 4. They will argue that subordinating a bank's mortgage to a URA lien will chill development and make lenders walk away from Colorado projects entirely. Keep an eye on the Finance Committee calendar; the amendments introduced during that first hearing will tell us exactly which side is winning the tug-of-war.