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February 27, 2024 HB 24-1125
Legislative Council Staff
Nonpartisan Services for Colorado’s Legislature
Fiscal Note
Drafting Number:
Prime Sponsors:
LLS 24-0883
Rep. Valdez; Soper
Sen. Priola; Bridges
Date:
Bill Status:
Fiscal Analyst:
February 27, 2024
House Finance
Amanda Liddle | 303-866-5834
amanda.liddle@coleg.gov
Bill Topic: TAX CREDIT COMMERCIAL BUILDING CONVERSION
Summary of
Fiscal Impact:
☒ State Revenue
☒ State Expenditure
☐ State Transfer
☒ TABOR Refund
☐ Local Government
☐ Statutory Public Entity
The bill creates a new refundable tax credit for 2026 through 2035 for expenditures
related to the conversion of a commercial structure to a residential structure. It
increases state expenditures beginning in FY 2024-25 and decreases state revenue in
future years.
Appropriation
Summary:
For FY 2024-25, the bill requires a General Fund appropriation of $127,823.
Fiscal Note
Status:
The fiscal note reflects the introduced bill.
Table 1
State Fiscal Impacts Under HB 24-1125
Budget Year
FY 2024-25
Out Year
FY 2025-26
Out Year
FY 2029-30
Revenue
1
General Fund (Tax) - - ($5,000,000)
General Fund (Fees) $1,500 $2,500 $152,500
Total Revenue $1,500 $2,500 ($4,847,500)
Expenditures General Fund $127,823 $132,961 $132,961
Centrally Appropriated $18,534 $23,168 $23,168
Total Expenditures $146,357 $156,129 $156,129
Total FTE 0.8 FTE 1.0 FTE 1.0 FTE
Other Budget
Impacts
TABOR Refunds $1,500 $2,500 Not estimated
General Fund Reserve $19,173 $19,944 $19,944
1
Revenue from application fees is assumed to begin in FY 2024-25 and from issuance fees in FY 2027-28. The tax
credit will reduce revenue by a total of $40 million and is expected to impact FY 2027-28 through FY 2035-36,
with the full annual reduction assumed beginning in FY 2029-30. See Table 2 for more detail. Page 2
February 27, 2024 HB 24-1125
Summary of Legislation
The bill creates a new refundable state income tax credit, available for tax years 2026 through
2035, for certain costs related to the conversion of a commercial structure to a residential
structure.
Application and reservation. To claim the tax credit, a person must submit an application, a
conversion plan, and an estimate of the qualified conversion expenditures under the conversion
plan to the Office of Economic Development (OEDIT).
OEDIT may make reservations for the tax credit between 2025 and 2032, up to $5 million per
year. If OEDIT reserves less than $5 million in a calendar year, the difference may be reserved in
the following year instead.
Application fee. OEDIT may charge an application fee up to $500 for conversion projects with
more than $250,000 in qualified conversion expenditures and up to $250 for conversion projects
with less than $250,000 in qualified conversion expenditures.
Conversion timeline. An approved applicant must commence a conversion plan and incur
20 percent or more of the estimated qualified conversion expenditures (expenditures) within
18 months of receiving notice from OEDIT that a tax credit has been reserved for the applicant.
The applicant must complete the conversion on or before December 31, 2035.
Claiming the tax credit. After completing the conversion, the applicant must notify OEDIT and
provide documentation. Upon review, OEDIT may issue a tax credit certificate equal to
25 percent of the applicant’s expenditures. OEDIT may impose an issuance fee up to three
percent of the amount of the tax credit, which must be paid before the tax credit is issued. Any
application or issuance fee revenue collected must be applied to the administration of the tax
credit.
If the amount of the tax credit exceeds the applicant’s tax liability, 90 percent of the amount of
the credit not used as an offset against income taxes is refunded to the taxpayer.
Recapture. If, as of the last day of any taxable year within 15 years from when the applicant
placed a conversion in service, the converted structure is not a qualified residential structure, the
applicant must add the full amount of the credit to its return as a recaptured credit for that
taxable year.
Reporting. The bill requires OEDIT, in consultation with the Department of Revenue (DOR), to
submit an annual report to the General Assembly on the impact of the tax credit.
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February 27, 2024 HB 24-1125
Background
In July 2023, the City and County of Denver published a compatibility assessment,
1
identifying
buildings in the area determined to be compatible for a commercial to residential conversion.
The assessment identified 16 candidates for commercial to residential conversion within the City
and County of Denver.
State Revenue
The bill decreases General Fund revenue on net. It decreases revenue from income taxes and
increases revenue from fees. A summary of the bill’s revenue impacts by year can be found in
Table 2 below. All affected revenue streams are subject to TABOR.
Table 2
General Fund Revenue Impact Assumptions for HB 24-1125
Fiscal Year
Tax Credit
Reservations
1
Application Fee Issuance Fee
Tax Credits
Claimed
FY 2024-25 $3,000,000 $1,500 $0 $0
FY 2025-26 $5,000,000 $2,500 $0 $0
FY 2026-27 $5,000,000 $2,500 $0 $0
FY 2027-28 $5,000,000 $2,500 $51,000 ($1,700,000)
FY 2028-29 $5,000,000 $2,500 $99,000 ($3,300,000)
FY 2029-30 $5,000,000 $2,500 $150,000 ($5,000,000)
FY 2030-31 $5,000,000 $2,500 $150,000 ($5,000,000)
FY 2031-32 $5,000,000 $2,500 $150,000 ($5,000,000)
FY 2032-33 $2,500,000 $1,000 $150,000 ($5,000,000)
FY 2033-34 $0 $0 $150,000 ($5,000,000)
FY 2034-35 $0 $0 $150,000 ($5,000,000)
FY 2035-36 $0 $0 $150,000 ($5,000,000)
Total - $20,000 $1,200,000 ($40,000,000)
1
Tax credits do not impact revenue when they are reserved (left column); however, they reduce state revenue
when they are claimed (right column).
Income taxes. The bill will reduce General Fund revenue by $40 million across fiscal years
between FY 2025-26 and FY 2035-36. Because the issuance of the tax credit occurs in the tax
year that the conversion project is placed into service, the year in which credits will be claimed
depends on when the conversion project is completed. It is assumed that the first qualified
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City and County of Denver, Gensler. “Office to Residential Repositioning: Downtown Denver.” City and County of Denver. July 2023.
https://denvergov.org/files/assets/public/v/4/community-planning-and-development/documents/urban-design/adaptive-
reuse/adaptive_reuse_office_to_residential_conversion_study.pdf Page 4
February 27, 2024 HB 24-1125
project will impact revenue in FY 2027-28, with the completion of projects ramping up to drive
$5 million in revenue reductions per fiscal year beginning in FY 2029-30.
Refundability. For tax credit amounts in excess of the total income tax paid by the taxpayer, the
taxpayer is eligible to receive 90 percent of the excess amount as a refund. Tax-exempt
recipients of the tax credit may receive 90 percent of the total tax credit amount through a
refund. The fiscal note assumes that none of the recipients of the tax credit will be tax-exempt
and that the total tax credit will not exceed the total income tax paid for any taxpayer. If
100 percent of the tax credit recipients were tax-exempt, the bill would reduce General Fund
revenue by up to $36 million across the ten tax years that the tax credit may be claimed, rather
than the $40 million assumed in this fiscal note.
Fees. The bill will increase fee revenue by an estimated $1,220,000 across all years, as shown in
Table 2, with fee revenue assumed to be collected in the General Fund. It is assumed that OEDIT
will begin accepting applications and reserving tax credits for approved applicants in early 2025.
It is further assumed that issuance fees will be collected after a project is placed into service and
before OEDIT issues a certificate for the tax credit.
Fee impact on businesses. The bill authorizes OEDIT to charge both an application fee and
issuance fee. The application fee may be charged at a rate of up to $500 for applications
requesting more than $250,000 in tax credits per the bill and up to $250 for applications
requesting less than $250,000 in tax credits per the bill. The issuance fee may be up to 3 percent
of total qualified expenditures. The fiscal note assumes the maximum allowable application and
issuance fee will be charged. These fee amounts are estimates only; actual fees will be set
administratively by OEDIT based on program costs and the number of businesses subject to the
fee. The table below identifies the fee impact of this bill. Fee revenue may be used only to offset
implementation expenditures of the bill.
Table 3
Fee Impact on HB 24-1125
Fiscal Year Type of Fee
Proposed
Estimated
Fee
Number
Affected
Total Fee
Impact
FY 2024-25 Application Fee
1
$500 3 $1,500
Issuance Fee - - -
FY 2024-25 Total $1,250
FY 2025-26 Application Fee
$500 5 $2,500
Issuance Fee - - -
FY 2025-26 Total $2,500
FY 2029-30 Application Fee
$500 5 $2,500
Issuance Fee $50,000 3 $150,000
FY 2029-30 Total $152,500 Page 5
February 27, 2024 HB 24-1125
State Expenditures
The bill increases state expenditures by about $146,000 and 0.8 FTE in FY 2024-25, $156,000 and
1.0 FTE in FY 2025-26, and $206,000 and 1.0 FTE in FY 2026-27. Expenditures are summarized in
Table 4 and explained below.
Table 4
Expenditures Under HB 24-1125
FY 2024-25 FY 2025-26 FY 2026-27
OEDIT
Personal Services $91,009 $113,761 $113,761
Operating Expenses $1,024 $1,280 $1,280
Capital Outlay Costs $6,670 - -
Salesforce $29,120 $17,920 $17,920
Centrally Appropriated Costs
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$18,534 $23,168 $23,168
FTE – Personal Services 0.8 FTE 1.0 FTE 1.0 FTE
OEDIT Total $146,357 $156,129 $156,129
Department of Revenue
GenTax Programming and Testing - - $39,619
Office of Research and Analysis - - $7,392
Document Management (Paid to DPA) - - $3,097
DOR Total - - $50,108
Total Cost $146,357 $156,129 $206,237
Total FTE 0.8 FTE 1.0 FTE 1.0 FTE
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Centrally appropriated costs are not included in the bill’s appropriation.
Office of International Trade and Development (OEDIT). Beginning in FY 2024-25 and
ongoing through FY 2035-36, OEDIT requires personnel and contractor resources to implement
and manage the application process for the tax credit.
Program management. OEDIT requires one additional program manager beginning in
September 2024 to implement the program. The program manager is responsible for
developing the program guidelines, policies, and procedures; coordinating the application
process; tracking the compliance and issuance of tax credits; and working with DOR to meet
reporting requirements. OEDIT may receive applications and make reservations of the tax
credit through December 31, 2032. Therefore, beginning January 1, 2033, OEDIT’s personnel
needs will reduce to 0.5 FTE.
Salesforce. The buildout and maintenance of the tax credit application in Salesforce is
expected to require 130 hours of development in FY 2024-25 and 80 hours of ongoing
program maintenance, billed by the contractor at a rate of $224 per hour. Application
expenditures impact FY 2024-25 through FY 2032-33, as OEDIT may reserve a tax credit for
applicants through December 31, 2032. Page 6
February 27, 2024 HB 24-1125
Department of Revenue (DOR). Beginning in tax year 2026, which impacts work on tax return
forms in FY 2026-27, DOR will require resources for GenTax programming and development,
paper form changes, and reporting done by the Office of Research and Analysis (ORA) within
DOR. Programming and form changes are one-time expenditures in FY 2026-27, while ORA
expenditures are ongoing.
GenTax Programming and Testing. For FY 2026-27, the bill will require changes to DOR’s
GenTax software system. This includes $18,540 in GenTax programming costs, $14,455 in
development and testing in support of the GenTax programming, and $6,624 in business
and user acceptance testing following the GenTax programming.
Office of Research and Analysis. The Office of Research and Analysis within the
Department of Revenue will perform 231 hours of work at a rate of $32 per hour in
FY 2026-27, and 229 hours of work in future years, to update database fields and conduct
ongoing reporting.
Document Management. For FY 2026-27, DOR will incur $3,097 in document management
costs. This includes adding two additional lines to five tax return forms and the tax exempt
tax return form. These expenditures will occur in the Department of Personnel and
Administration (DPA) using reappropriated DOR funds. The population workload impact is
expected to be minimal and absorbable.
Centrally appropriated costs. Pursuant to a Joint Budget Committee policy, certain costs
associated with this bill are addressed through the annual budget process and centrally
appropriated in the Long Bill or supplemental appropriations bills, rather than in this bill. These
costs, which include employee insurance and supplemental employee retirement payments, are
shown in Table 2.
Other Budget Impacts
TABOR refunds. In FY 2024-25 and FY 2025-26, the bill is expected to increase the amount of
state revenue required to be refunded to taxpayers by the amounts shown in the State Revenue
section above. This estimate assumes the December 2023 LCS revenue forecast. A forecast of
state revenue subject to TABOR is not available beyond FY 2025-26. Because TABOR refunds are
paid from the General Fund, increased General Fund revenue will increase the TABOR refund
obligation, but result in no net change to the amount of General Fund otherwise available to
spend or save.
General Fund reserve. Under current law, an amount equal to 15 percent of General Fund
appropriations must be set aside in the General Fund statutory reserve. The bill is expected to
increase the amount of General Fund held in reserve by the amounts shown in Table 1.
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February 27, 2024 HB 24-1125
Local Government
For conversion projects that would not have occurred without the availability of the tax credit,
the bill will create minimal workload for local governments related to:
administrative processes for zoning changes for buildings converted from commercial to
residential uses in areas not currently zoned for residential; and
processing building permits associated with the conversion.
In addition, residential property tax rates are lower than commercial property tax rates;
therefore, conversion projects that would not have occurred without the availability of the tax
credit will lower property tax revenue compared to current law.
Effective Date
The bill takes effect 90 days following adjournment of the General Assembly sine die, assuming
no referendum petition is filed.
State Appropriations
For FY 2024-25, the bill requires a General Fund appropriation of $127,823 to the Office of
Economic Development and International Trade (OEDIT) and 0.8 FTE.
State and Local Government Contacts
Personnel Revenue State Auditor
Local Affairs Office of Economic Development Counties
Municipalities RTD Special Districts
The revenue and expenditure impacts in this fiscal note represent changes from current law under the bill for each
fiscal year. For additional information about fiscal notes, please visit the General Assembly website.