Denver is expected to lose an estimated $180 million this year as the coronavirus pandemic rages across the country, surpassing the city’s losses from the first year of the Great Recession, said Chief Financial Officer Brendan Hanlon.
City officials and department heads are working on a range of cost-saving measures to close the gap. Mayor Michael Hancock and Hanlon agree that limiting cuts on city services and employees are top priorities. But during the recession such cuts couldn’t be avoided, and Denver saw employee furloughs alongside belt-tightening in parks, social services and law enforcement agencies, among other services.
Some city projects could be halted or canceled and indeed furloughs are on the table, though as a last resort, Hanlon said. Department heads have been asked to find 7.5% worth of cuts in their budgets, prioritizing measures that wouldn’t hurt resident services.
The city can count on perhaps as much as $100 million of the budget hole to be filled by reserves, Hanlon said.
The vast majority of the revenue shortfall comes from lost sales and use tax and lodgers tax, he said. As the pandemic ramped up, event after event canceled in Denver, translating to fewer out-of-town visitors spending less money in shops, restaurants, hotels and more.
The losses will touch virtually every municipality across the state. Colleges and universities are preparing for a possible financial disaster, and the pandemic could cost Colorado state government up to $3 billion.
At this juncture the losses are just estimates because the pandemic is a fluid situation and it’s unclear how long those cancellations and shortfalls will last, Hanlon said.
“I never would have thought I would have been describing numbers of this magnitude even a month ago, so I don’t even know what the next weeks hold,” Hanlon said.
Not only is tax revenue falling, but unbudgeted spending is on the rise. As of April 7, Denver had spent nearly $11 million on its coronavirus response, contracting hotel rooms for people without housing who have symptoms, buying protective equipment and more, according to cost estimates compiled by city spokesperson Julie Smith.
Sales and use and lodgers taxes account for the vast majority of Denver’s expected general fund loss, Hanlon said.
In 2008, the first year of the Great Recession, Denver’s sales and use tax dropped about 10%, Hanlon said. The city’s on track to surpass that figure. Plus, the city has already lost about 44% of its estimated lodgers tax revenue for the year — far greater than the loss in 2008, he said.
“It is a greater challenge,” he said. “The 2008 experience was truly a financial economic issue. This is a public health crisis and the way we respond to the public health challenge.”
The unclear timeline of the crisis mires current and future shortfalls in uncertainty, Hanlon noted. While the Great Recession began in 2009, Denver officials were still cutting budgets in 2013. Throughout the recession, the city had to cover budget gaps totaling about $550 million, Smith said in March.
The timeline for the city to recover from the pandemic remains unclear, Hanlon said. While some are hoping for a quick bounceback, others are expecting a more drawn-out process.
Denver’s dependence on sales and use and lodgers taxes has historically yielded mixed results, Hanlon acknowledged. When the economy surges, as it has in recent years, revenue surpluses allow the city to build its general fund reserves. But as markets tank, the city is susceptible to lost revenue as fewer and fewer out-of-town visitors arrive throughout the year.
Currently, Denver’s general fund reserve sits at about $261 million, 18% of the city’s budgeted expenditures, Hanlon said.
City officials aim to keep about 15% of the city’s budgeted expenditures set aside for emergencies. The last time the reserve balance dipped below 15% was during the recession, when it shrank as low as 10.7%. Hanlon said he expects to request a reserve draw of between $90 million to $100 million so the balance doesn’t drop below 12%.
“You want to make sure that you still have enough capacity in that tool that if you saw a major revenue fluctuation in the last part of the year,” he said.
Hanlon also said some financial help could come from the federal government, but it’s not yet clear how much the city can expect or when it might come through.