Denver City Council members started a more than two-month-long city budget review process Monday with explanations from Mayor Michael Hancock’s administration about how they developed the proposed $1.9 billion spending plan for the coming year.

In a council work session, chief financial officer Brendan Hanlon said the budget assumes Denver’s economy will continue to grow, but at a more moderate pace than the last few years. Some of the factors affecting the city economy include energy prices, international economic conditions and the results of the upcoming elections.

“We’re about six years out from the last economic downturn, which is what most economists say is when you should see things smooth out,” Hanlon said.

More workers, fewer permits, home prices up

Hanlon said the city’s unemployment rate was lower than the state of Colorado, with a rate of 3.8 percent in July for Colorado and a metro area rate of 3.4 percent. He also noted the Denver area had an employment growth rate of 3.1 percent, slightly higher than the state’s 2.7 percent rate.

The number of 2015 city building permits dropped by 4 percent, but the valuations associated with those permits increased by 58 percent due to the strong growth in the city, Hanlon said.

And across 20 metro regions nationwide, Denver had the third highest home price appreciation in June, behind Portland and Seattle, he added.

“I think if we see fewer large, one-time projects come in next year, we will want to keep a close watch on that area,” Hanlon said.

In 2015, Denver home prices increased by 10.2 percent, compared to this year’s 9.7 percent through June.

Sales tax healthy, marijuana revenue to drop? 

Most municipal revenue comes from sales and use taxes, and 2014 saw a very strong 12 percent jump in Denver, compared to a 3.5 percent hike in 2015.

“The thing you have to remember is that’s on top of that 12 percent increase, so the city’s sales tax continues to perform well,” Hanlon added.

Through July of this year, city sales tax revenue is up 6.8 percent, and if retail marijuana sales tax is removed, the rate is still 6.3 percent, he said.

Retail marijuana sales tax revenue is projected to see a 22 percent increase at the end of this year, while the 2017 budget forecasts only an 8 percent increase.

“That factors in a maturing industry and also the state is going to cut its retail marijuana tax about half way through the year, so that’s part of the reason for the smaller increase, too,” Hanlon said.

Medical marijuana is forecast to see flat sales next year, Hanlon added.

Revenues up, spending to follow

City Budget Director Stephanie Adams explained where the city gets its revenue, with sales tax making up 48 percent of the general fund and property tax 9 percent.

Total revenues are projected to increase 3.7 percent and lodging tax collections, with new units coming available, is forecast to increase 7.5 percent, including short-term rentals, Adams said.

The proposed budget was developed with several “core budgeting principles,” she added. Those were to address affordable housing, mobility and public safety, respond to the need to meet customer demand due to growth, align permanent revenues to permanent expenditures and use one-time revenue to help fund capital improvement projects, Adams explained.

“We want you to know that we were aware that (City Council) had budget priorities, too, and those were considered,” she added.

The largest general fund expenditure area is for public safety, with 39 percent of that fund, or $16 million, directed to things like adding 48 new police officers to the Denver Police Department, Adams said.

Personnel costs, in the form of wages and benefits, total nearly $871 million, supplies and services just under $278 million and vehicle and equipment replacement $2.6 million in the proposed budget.

The city budget also calls for 3.3 percent merit salary increases and to cover a projected 6.5 percent increase in health care costs, Adams continued.

There are 11,001 full-time employees on the city payroll this year, Hanlon said, and that number is to increase to 11,443 next year.

An additional 13 City Council aide positions are also in the spending plan, at a cost of $1 million, Adams said.

The capital improvement fund will receive a one-time $19 million transfer to help meet mobility needs, including sidewalks and bike lanes, bridge design, intersection improvements and other such projects, Adams said.

The city reserve fund is projected to end this year with enough money to cover nearly 20 percent of annual expenditures, or $251 million. By the end of 2017, that amount is forecast to drop to 15 percent, or $201 million. Hanlon said that will meet the city’s reserve policy to have at least 15 percent of annual spending in reserve.

Denver City Council will hear more detailed budget information this week from the departments of safety, fire, police, sheriff, arts and venues, the library, Denver Human Services, technology services, Community Planning and Development and North Denver Cornerstone Collaborative. Other departments will follow next week and the Council is to adopt a 2017 budget – with or without spending changes –  by the end of November.