How Denver’s budget reached a crisis point: a long surge in hiring, costly policies and sagging sales tax growth

When Denver Mayor Mike Johnston informed plans for layoffs and furloughs amid a projected million budget shortfall over the next two years the decision may have seemed like a sudden blow during a chaotic period in the global business activity In reality the city s trouble has been bubbling for years Johnston who took office in mid- has been bracing for big budget changes since at least As early as last September he was advising a conservative approach for the budget in remarks to the City Council and warning that we have to look at more significantly slowing or stopping the upsurge of ruling body The choked budget can be explained with three quick facts For years the city s expenses have grown Its main source of revenue hasn t And the city s savings account is running low In Denver s and budgets the Johnston administration chose to cut into the city s savings more than what s recommended Over the last decade under Johnston and former Mayor Michael Hancock the city added about employees and expanded both programs and the purview of city authorities And as those expenses grew residents stopped spending as much as they once did on things like restaurants and visits downtown causing sales tax revenue to flatten Now the city has million to make up for this year and an estimated million gap in The mayor is set to require furloughs and layoffs and personnel are considering whether they will need to cut or reduce programs More decisions about exactly how a great number of layoffs to order and other cost-saving measures are expected in the coming months as bureaucrats write the budget The mayor typically unveils his proposed budget for the next year in mid-September and the council approves the final version in November For Councilman Kevin Flynn the budget situation and the low city reserves are kind of frightening If we could retrospectively reduce spending money that we ve already spent and claw it back that would be great announced Flynn who has been on the council since But we can t do that Rising costs have mounted One of the biggest impacts on Denver s budget has come from the improvement in both personnel and contract costs The general fund which pays mostly for personnel and day-to-day operations shot up between and Johnston disclosed in a latest interview with The Denver Post In November the council approved a billion overall budget for with billion in general fund spending As Denver has hired more people to accommodate demand for services by the growing city population those employees compensation has also increased There are now nearly city employees representing about billion in costs in Meanwhile city contracting costs have also become broader in scope and more expensive with inflation growing about since During the COVID- pandemic the city received hundreds of millions of dollars from the federal regime through the American Rescue Plan Act Authorities used particular of it on new projects like opening shelters for Johnston s All in Mile High initiative and earlier a rent-assistance initiative Once those grant dollars dried up Johnston s administration decided to continue the projects The mayor has also used general fund dollars to pay for things like migrant and homeless services Between and migrant sheltering and services cost the city about million putting pressure on the budget Denver expected to receive about million from the Federal Emergency Management Agency to offset that cost and is now in a legal battle with the Trump administration over the money Father Joseph Dang left shows Denver Mayor Mike Johnston a welcome kit for each resident that is inside each of the new tiny homes at the new Overland Park micro-community in Denver on March This long-in-the works micro society is located on CDOT land in far southern Denver and is part of All In Mile High the mayor's initiative to move people from encampments to temporary housing Photo by Helen H Richardson The Denver Post The ongoing homelessness initiative which Johnston singles out as one of his top priorities costs about million annually including to run shelters in large hotels Johnston revealed that while he expects cuts to that project it s likely to be less impacted than other budget items Reducing homelessness is an funding in the city s financial sector he declared Homelessness was the reason I ran for mayor Johnston commented It was the single majority vital issue in the city and we re making dramatic impact on certainly resolving this issue Johnston s critics have challenged the idea that the budget emergency was unavoidable Lisa Calder n who ran for mayor in and came in third disclosed she believes Johnston s administration should have been more conservative with the budget There is not a heritage where you can speak up and say I think we are misspending overspending money she declared Johnston defends his squad s choices saying his advisers did take action once revenues started slowing But they couldn t have predicted the worsening conditions he reported In the budget the city left about positions vacant to help decrease payroll costs A closer look at the rainy day fund Denver has a target of having of what it spends each year on operations set aside as savings In that was about million Under Johnston and Hancock s administrations it became a common practice to use any dollars above that margin to balance the budget The city s financial guidelines say that fund should be used only to pay for one-time expenses But over the years as the stockpile continued to grow city leaders began using it for ongoing payments stated Stephanie Adams who was a city budget director during Hancock s administration and now serves as the deputy chief financial officer In the past two years the city s budget writers chose to let the rainy day fund slip below that recommended level It now sits closer to with about million remaining With revenue rise slowing in latest years something has to change to keep it from falling even lower Adams commented I think there was a little bit of us thinking and hoping this was a bit of an anomaly Adams declared in a latest interview When explaining the decision to go below to the council last September Budget Director Justin Sykes announced Denver would have had to cut its expenditures significantly to stay at that recommended level This was something that was reached based on the weighing of those tradeoffs he declared at the time The hope was that sales tax revenue would rebound and the city would be able to refill its savings account Instead revenue further flattened In sales tax revenue grew by In it was only Denver s income upsurge slows Slightly more than half of the city s expenses are paid for with revenue from Denver s sales tax rate part of the effective sales tax paid on purchases in the city The expansion in that source of income has tapered off in new years something city functionaries attribute to decreases in consumer confidence An index produced by the sphere research firm Ipsos shows that after a surge in consumer confidence following the COVID- pandemic buyers sentiments have mostly sagged since Related Articles Gov Jared Polis signs much-amended restaurant tipped wages bill adding Your move Denver Judge rules in favor of Denver other cities over Trump threat to withhold federal transportation dollars Denver Mayor Mike Johnston taps former planning director to return to job temporarily Johnston should promotion overhaul of city s courts and sentencing Letters New equestrian center hotel project at National Western Center wins approval from Denver council But nationwide spending habits aren t the only factor Denver s struggling city center is also contributing to a sluggish income Downtown which represents only of Denver s land once brought in of the city s property and sales tax revenues according to the Downtown Denver Partnership Now that share is closer to The area has struggled to attract the same amount of foot traffic as office space has remained empty in the wake of the pandemic while construction on the th Street mall has dragged on and perceptions of unsafe conditions have lingered Johnston hopes the reopening of th Street with a rebrand dropping Mall from its name and investments in general safety will reinvigorate the area That s indicative of Johnston s overall plan to move the city through the emergency After making cuts to city expenditures the mayor wants to move full steam ahead on capital projects like the National Women s Soccer League stadium more expansion at the National Western Center and an million bond proposal for voters Denver pays for capital projects with another section of the budget separate from the general fund For us there are only two solutions to this One is you have to cut costs Johnston stated in an interview last month and the second is you have to increase revenue You have to grow your way out of this Stay up-to-date with Colorado Politics by signing up for our weekly newsletter The 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