Denver’s finance leaders say the city should consider spending cuts for 2026 because of economic uncertainty, rising costs and weak revenues.
The city expects “essentially flat revenue in 2026,” according to the Department of Finance. “Even with no expansions, the city’s natural [spending] growth would outpace revenue.”
The city will have to keep spending frozen or even reduce it next year, finance leaders said.
“As a starting point for agencies, what we're emphasizing is that budgets need to be as flat as possible or less than what they were in 2025,” said Justin Sykes, the city’s budget director.
The city budget is suffering, in part, from economic uncertainty and a business slowdown. Sales tax revenues for 2024 came in $40 million short of expectations, reflecting slower spending in the local economy. Meanwhile, economic uncertainty from President Donald Trump’s trade wars could make things even worse, according to city officials.
Meanwhile, the Trump administration may try to cut the city’s federal funding, which totals $100 million to $200 million and is not included in the general fund.
The city’s budget has been struggling since 2024, when the general fund deficit was $108 million, with spending exceeding revenues. At the time, the city had spent more than $100 million on its homelessness and immigration responses.
For 2025, the city projects a smaller $7 million budget deficit, thanks to significant cuts to city spending. But the prior years have already stretched the budget thin, draining the local government’s savings account and leaving it with less cushion for the years ahead.
Reductions from this year should continue into 2026 and beyond, the finance department suggested.
“Given ongoing trends, budget changes in 2026 should be sustainable for multiple years and should not be viewed as temporary,” the Department of Finance stated.
The city will ask agencies to take vacant jobs that were frozen in 2025 out of the budget altogether.
In the past, the city has enacted furloughs and layoffs for city workers during tough economic times. Whether that’s on the table this year is uncertain.
While the Department of Finance predicts the long-term economic outlook is positive, “the next several months are going to be very, very uncomfortable for some industries and some individuals,” said Lisa Martinez-Templeton, the city’s economist.
Nonetheless, the Mayor’s Office is planning big projects: buying land for a new women’s soccer league stadium, creating the city’s fourth biggest park at the Park Hill Golf Course, the 5280 Trail and more than 240 others.
Some of these projects will be funded from the city’s capital funds as one-time expenses, so they don’t contribute to the general fund deficit. The mayor also hopes he can convince voters to approve a new package of debt to fund big city projects, even amid the budget turbulence.
Denver hopes to “find its footing” through 2026, hoping for a recovery. The city is planning for zero-budget growth over the next few years.
Savings are down.
The city’s general fund reserve – kind of like the city’s piggy bank– has dropped from $391 million in 2022, when Mayor Michael Hancock was in office, to $239 million in 2024.
Most years, the city tries to keep 15 percent of its budget in the reserves to ensure Denver has enough money to function in case of crises. But that figure fell to 13.5 percent in 2024, the lowest since the pandemic hit in 2020.
The Department of Finance estimated the cushion could be as low as 11.5 percent by the end of 2025. Savings are falling because the city is running a deficit.
“If in a particular year, we spend more than we bring in, the only way that we're able to do that is by dipping into our fund balance,” said Sykes.
The city has not yet forecasted whether those reserves will increase in 2026 but is considering ways of bringing the fund balance back up by spending even less.
Headed into a tough year, Denver has fewer savings than the Johnston administration predicted, potentially leaving it less prepared for an economic emergency.
Other major cities and the state of Colorado are seeing budget gaps, too. Los Angeles is facing a $1 billion shortfall; Chicago’s could be between $1 billion and $3 billion. And Denver’s neighbor in Aurora is looking at an $11.5 million shortfall, according to the Department of Finance.
Denver leaders have not yet said whether they expect a shortfall, or how big that deficit could be. That lack of information upset some council members.
“You should be able to tell us what [our deficit] is, because you work for us,” said Councilmember Kevin Flynn. “If we can tell people what Aurora’s is and what Chicago’s is and we can’t tell what ours is, that’s unacceptable.”
The Department of Finance pledged to make a projection by May.
Multiple economic factors are at play.
While the country’s not currently in a recession, it is vulnerable to one. Brokerages like JP Morgan and Moody’s are seeing a 60 percent probability of a recession after tariffs. City finance leaders trace most of the trouble to President Donald Trump’s trade wars.
Warning signs are flashing for the economy. The public is less confident in the nation’s economic policy than during most recent recessions, and confidence is nearly as bad as it was during the worst of the COVID-19’s economic impacts, according to the Economic Policy Uncertainty measure. Just over half of U.S. households believe the economy will be worse at this time next year, according to polling from Numerator.
Unemployment at the city and national level has been trending upward since 2022, though local unemployment is slightly lower than nationwide. Denver’s unemployment rate is a reflection of a slowdown in labor-force growth in Denver.
“This is the first time our year-over-year change in labor force growth has dropped, aside from the Great Recession and COVID — so a little concerning,” Martinez-Templeton said.
According to the University of Colorado Leeds School of Business, business leaders’ confidence in the economy has plummeted to near pandemic lows at around 32 percent in the state. For perspective, a stable or growing economy would be at 50 percent, according to the university.
Councilmember Diana Romero-Campbell raised a concern that we don’t have Denver-specific data that would help the Department of Finance predict sales-tax revenue.
Pessimism is mounting, and many people – both Republicans and Democrats – fear unemployment will grow in the next year, Martinez-Templeton said.
People will likely cut expenses. If there’s a recession, mass layoffs are likely. If that occurs, spending will drop, along with sales tax revenue, she said.
The city still has plans for big spending.
The Capital Improvement Fund has been growing and is expected to hit $144 million in 2026.
This money can be used for one-time expenses, new construction, design, planning studies, community outreach for capital projects and professional services — think parks, buildings and other long-term investments.
Money for the fund comes from property taxes, the annual capital budget, special revenue funds, grants, special districts and bond packages approved by voters.
Denver has a six-year capital improvement plan focused on 250 “needed projects worth over $7 billion.”
In November 2025, voters will be considering Johnston’s Vibrant Denver Bond – another funding source for capital investments. The city will ask voters how they want the money to be spent.
With voter approval, Johnston’s Vibrant Denver bond would raise roughly $800 million to invest in parks, playgrounds, trails, arts and culture venues, rec centers, libraries and other city facilities, streets, bridges, bike and pedestrian safety, and safer healthier neighborhoods.
What’s next?
Monday’s Department of Finance presentation to the Budget and Policy Committee launched the legislative process in which City Council looks at the year ahead and makes recommendations to the Mayor’s Office.
Over the summer, the city council will outline its priorities.
By Sept. 15, Johnston will release a proposed 2026 budget. City Council will consider the proposal later that month through a series of hearings.
The Mayor’s Office will have until Oct. 20 to submit a second draft of the budget to council, and by Oct. 27, the public will have a chance to weigh in.
By Nov. 3, Council will propose budget amendments. The mayor will have until Nov.7 to respond to those. Council has until Nov. 10 to approve the final general fund budget.
