The Denver government’s blockbuster financial growth is slowing, Mayor Michael Hancock said Monday in presenting the city budget — and he blames President Donald Trump for “playing games” with the economy and leaving cities to “pick up the pieces.”
But the city isn’t facing a recession yet. Hancock described his budget as a cautious approach to a questionable economy.
“My 2020 budget proposal reflects our solid financial footing, protects the progress we’ve made since the great recession and prepares us for an economic slowdown,” Hancock said Monday.
In the same breath, he knocked President Donald Trump for instigating a trade war and economic instability, saying he is hurting cities like Denver.
Signs of uncertainty are gathering. Sales taxes are flat or declining in several areas, reflecting concerns about a splintering global economy. Sales taxes for automobiles and some construction categories are down this year, and manufacturing is weakening.
“This is weakness we’ve seen develop since the second half of 2018,” said Brendan Hanlon, the city’s chief financial officer.
The city’s sales tax growth, which was more than 7% year-over-year in early 2018, was less than 4% year-over-year in the first half of this year. On the positive side, higher tourism and restaurant sales are helping to sustain that growth. The budget also will be boosted by a leap in property-tax dollars from revaluations this year.
There’s evidence of a statewide slowdown, too. The creation of new businesses has slowed in 2019, and statewide building permits are down 11.3 percent. Across the metro, home sales are down about 0.7% for the year so far, with an especially pronounced drop over the summer.
Nationally, a New York Federal Reserve model is flashing more warning signs of a recession, as CNN reported. Retail sales across the United States are growing at a rate that is “reasonable, but certainly slower than it has been over the last couple years,” said Patty Silverstein, president and chief economist for Development Research Partners in Littleton.
Denver reflects a broader trend: The construction market is starting to slow down, which means companies are buying less material. And consumers’ interest in big-ticket items like automobiles may have peaked earlier in this long economic expansion. Statewide, new registrations for new consumer autos are down 3.3% this year, according to the Colorado Automobile Dealers Association.
Sales taxes make up about half of Denver’s general fund revenue, which feeds hundreds of programs and 33 different agencies. Prior to 2018, sales tax revenues had grown at least 5% every year since 2010. For 2019 and 2020, the city is projecting 4% year-over-year growth.
As tax growth levels out, it creates competition among the departments for new staff — and among the city’s legislators as they try to direct the city’s revenues toward causes from affordable housing to transit and climate.
“I think it makes the politics much more complicated,” said Paul Teske, dean of the School of Public Affairs at CU Denver. “If things have slowed down, that means putting the brakes on and making some tougher decisions.”
The administration is planning no layoffs or cuts to service. But Hanlon asked departments to scrounge for spare dollars and focus on the city’s biggest priorities, including climate, housing and transportation.
The proposal next goes to the Denver City Council, which can request and vote on changes.
The slowdown also will shrink revenues from the new sales taxes that voters approved last year.
For example, organizers originally expected $45 million from a new sales tax for mental health and addiction services. But a weaker economy has dropped those expectations to $36 million for the year, according to Rep. Leslie Herod, a leader of the “Caring 4 Denver” effort.
The same trend will affect new taxes for parks, fresh food and college scholarships.
Other organizations are vulnerable, too: RTD relies on sales and use taxes for about two-thirds of its ongoing revenue. RTD’s sales taxes grew 3% in the first half of 2019, but the district has projected 4.4% growth for this year.
However, the city government still is growing. Revenue for the general fund is expected to climb about 2% to $1.49 billion in 2020, compared to increases of 3.5% or more in recent years.
“You have personnel increases, in terms of wage increases, insurance. We have pension increases that are built into this budget. All of those need to be funded,” Hanlon said.
City financial planners called out several big priorities:
- Spending on housing will continue apace, with about $30 million from the new affordable housing fund and $67 million from other sources.
- $11.4 million will fund bikeways, including $1.1 million for a protected bike lane from Civic Center to Union Station along 18th and 19th streets. That’s part of a bigger multimodal project on those streets.
- $1.5 million for safer crossings at 10 intersections on Federal, part of a $4 million road safety package.
- $8 million of new money for carbon-emission reduction efforts, part of a compromise with Council President Jolon Clark. The city estimates it’s spending $40 million on climate change mitigation.
- $6.2 million to hire 40 new police officers, 15 firefighters and nine sheriff deputies.
- $181 million for parks, trails and rec centers, including money from the new parks tax and from the recent voter-approved bonds package.
The city will hold 15% of its budget in reserve, about $224 million, to protect itself from a deeper downturn and maintain its credit ratings.