Hancock Proposes Tightened 2020 Budget to Prepare for Economic Slowdown

Mayor Michael Hancock announced his proposal today, September 9, for allocation of the city’s $1.49 billion general fund in 2020. Top city officials framed the behemoth of a document as a careful plan to fund the administration’s priorities — housing affordability and homelessness, mobility and transportation, climate change and sustainability, and complete and safe neighborhoods — while also tightening the purse strings in preparation for slower projected growth rates and preparing for the possibility of a recession.

“We are taking a proactive approach to an uncertain economic future,” Hancock told city staff and elected representatives this morning.

Denver City Council will review and suggest modifications for the budget next week; it will approve the final version of the document in early November.

Denver’s economy is still growing, but that growth is starting to slow, explained Denver Chief Financial Officer Brendan Hanlon. Although the national economy entered its longest period of expansion in history this summer, and Colorado's economy was first overall for the third year in a row as ranked by U.S. News, there are signs that a recession may be looming within the next 18 to 24 months.

In particular, Hanlon pointed to an inverted yield curve — the difference between short-term and long-term interest rates — which turned negative in July; in response, the Federal Reserve forecast a one-in-three chance of a recession next year, and cut interest rates in July for the first time since 2008, both early indicators that a downturn could be coming. Additionally, Hanlon said, the city is worried that trade wars and tariffs may create instability and make the strength of local industries harder to predict.

Sam Bailey is the vice president of economic development for the Metro Denver Economic Development Corporation, which tracks measures of economic health across nine counties in the Denver area. He says the local data shows a still-strong economy, with employment and consumer spending still high and growing faster than the national average — but not as fast as in the past few years. “We have signs of economic caution, but not of an impending recession,” he says.

Still, the city has seen that slowdown already impact its general fund (the main element of the city's budget under mayoral control), about half of which is generated from the municipal sales and use tax. In several key areas such as construction, manufacturing, medical marijuana and automotive sales, that tax revenue has moderated or even declined in the past year (though tourism and food and beverage categories continue to grow). The city had originally projected that sales-tax revenue would grow at a rate of 5.5 percent in 2020; after looking at last year’s numbers, it has shifted that projection down to 4 percent.

The other half of the general fund revenue comes from agency-generated income such as fines and fees (which are at historic highs, but are also beginning to crest), a limited amount of undesignated reserves, and a few “interagency transfers” specially designated to fund new initiatives such as the Department of Housing Stability and the Office of Climate Action. Overall, the available revenue for the general fund in 2020 is expected to increase by 2 percent. It's still the largest general fund the city has ever had, but its growth has slowed slightly compared to the past two years.

Although slow growth is a different story than no growth, it's still causing a stir in a city government that has become accustomed to a ramped-up expansion in the past few years. Hancock has significantly expanded the size of Denver’s government workforce since he took office in 2011; during the same period, a booming economy has helped the budget grow by over $1 billion. Dozens of new offices and initiatives have popped up (and been folded away) in the process.

Denver’s government won’t be taking any drastic steps to respond to the tightened belt. But, Hanlon said, the administration has known that its strings would be tighter since city agencies started working on their budget proposals in April, when they were directed to find cost-saving measures that did not involve cutting services. Those savings proposals — things like spending less on training and travel, cutting back on contract spending, or creating temporary instead of permanent new positions for special projects — total $25 million.

“We can’t say we can’t invest in priorities just because we see turbulence on the horizon,” Hanlon said.

To show how the priorities are being met, the Hancock administration has attempted to simplify the 613-page budget document into a one-page infographic (below), which outlines the total amount going toward each hot-button issue, and lists some of the specific initiatives that address Denver’s looming problems. Flashy notables include $71.3 million toward the proposed new Department of Housing Stability, $1.9 million toward a new 46-bed “Solutions Center” that will provide short-term behavioral health crisis stabilization to people who are at risk of or are currently experiencing homelessness, $11.4 million for the construction of bike lanes and bike safety, and $8 million toward “efforts to reduce greenhouse emissions.”

Also adding to the expenditures is a July 2020 minimum wage increase for city employees to $14 per hour, the addition of 191 new permanent staff positions (though 55 will be paid for by transfers from existing funds), and 67 new police and fire department positions.

As city council prepares to sort through the proposed budget in hearings starting September 16, not everyone is yet convinced that Hancock is putting his money where his mouth is. “I heard in the press conference a lot of the same rhetoric that we’ve been hearing for years now,” Councilwoman Candi CdeBaca says.

Historically, council has made only minimal changes to the mayor’s proposed budget, but CdeBaca says she’s prepared to counter that precedent if necessary. “This is one of the places where council has a little bit of power that we should definitely be exercising…. It’s an important time for the public to tune in and make sure that all of those campaign promises we heard are being honored.”