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 announced plans for layoffs and furloughs amid a projected $250 million budget shortfall over the next two years, the decision may have seemed like a sudden blow during a chaotic period in the global economy.

In reality, the city’s trouble has been bubbling for years. Johnston, who took office in mid-2023, has been bracing for big budget changes since at least 2024.

As early as last September, he was advising a conservative approach for the 2025 budget in remarks to the City Council — and warning that “we have to look at more significantly slowing or stopping the growth of government.”

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 2024 and 2025 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 4,000 employees and expanded both programs and the purview of city government. 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 $50 million to make up for this year and an estimated $200 million gap in 2026. The mayor is set to require furloughs and layoffs, and officials are considering whether they will need to cut or reduce programs.

More decisions about exactly how many layoffs to order and other cost-saving measures are expected in the coming months, as officials write the 2026 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,” said Flynn, who has been on the council since 2015. “But we can’t do that.”

Rising costs have mounted

One of the biggest impacts on Denver’s budget has come from the growth in both personnel and contract costs. The general fund, which pays mostly for personnel and day-to-day operations, shot up 83% between 2012 and 2022, Johnston said in a recent interview with The Denver Post.

In November, the council approved a $4.4 billion overall budget for 2025, with $1.76 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 15,000 city employees, representing about $1.2 billion in costs in 2025.

Meanwhile, city contracting costs have also become broader in scope and more expensive with inflation, growing about 70% since 2012.

During the COVID-19 pandemic, the city received hundreds of millions of dollars from the federal government through the American Rescue Plan Act. Officials used some of it on new projects, like opening shelters for Johnston’s All in Mile High initiative and, earlier, a rent-assistance program.

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 2022 and 2024, migrant sheltering and services cost the city about $95 million, putting pressure on the budget. Denver expected to receive about $32 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.

The ongoing homelessness initiative, which Johnston singles out as one of his top priorities, costs about $57 million annually, including to run shelters in large hotels. Johnston said that while he expects cuts to that program, it’s likely to be less impacted than other budget items. Reducing homelessness is an investment in the city’s economy, he said.

“Homelessness was the reason I ran for mayor,” Johnston said. “It was the single most important issue in the city and we’re making dramatic impact on actually resolving this issue.”

Johnston’s critics have challenged the idea that the budget crisis was unavoidable. Lisa Calderón, who ran for mayor in 2023 and came in third, said she believes Johnston’s administration should have been more conservative with the budget.

“There is not a culture where you can speak up and say, ‘I think we are misspending, overspending money,’ ” she said.

Johnston defends his team’s choices, saying his advisers did take action once revenues started slowing. But they couldn’t have predicted the worsening conditions, he said. In the 2025 budget, the city left about 200 positions vacant to help decrease payroll costs.

A closer look at the ‘rainy day fund’

Denver has a target of having 15% of what it spends each year on operations set aside as savings. In 2024, that was about $260 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, said 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 11%, with about $202 million remaining.

With revenue growth slowing in recent years, something has to change to keep it from falling even lower, Adams said.

“I think there was a little bit of us thinking, and hoping, this was a bit of an anomaly,” Adams said in a recent interview.

When explaining the decision to go below 15% to the council last September, Budget Director Justin Sykes said 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 said 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 2022, sales tax revenue grew by 9%. In 2024, it was only 2%.

Denver’s income growth slows

Slightly more than half of the city’s expenses are paid for with revenue from Denver’s 5.15% sales tax rate, part of the effective 9.15% sales tax paid on purchases in the city.

The growth in that source of income has tapered off in recent years — something city officials attribute to decreases in consumer confidence. An index produced by the market research firm Ipsos shows that after a surge in consumer confidence following the COVID-19 pandemic, buyers’ sentiments have mostly sagged since 2021.

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 1.8% of Denver’s land, once brought in 13% of the city’s property and sales tax revenues, according to the Downtown Denver Partnership.

Now, that share is closer to 8%.

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 16th Street mall has dragged on and perceptions of unsafe conditions have lingered. Johnston hopes the reopening of 16th Street — with a rebrand dropping “Mall” from its name — and investments in public safety will reinvigorate the area.

That’s indicative of Johnston’s overall plan to move the city through the crisis.

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 $800 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 said in an interview last month, “and the second is, you have to increase revenue. You have to grow your way out of this.”

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