It looks like Denver’s sales tax to fund college scholarships might be doing more to grow government than to help low-income students pay for higher ed.

As reported Wednesday in The Gazette, the program has accumulated millions of dollars in revenue in the last five years yet has distributed less than half of those funds to the intended beneficiaries – even as the program’s administrative expenses stand at nearly $2 million.

Meaning, the sales tax, approved by the city’s generous voters at the ballot box in 2018, has been a smashing success – when it comes to expanding the bureaucracy at City Hall. That’s troubling, of course, but probably not surprising.

The revelations come from audit findings released this week by Denver’s eagle-eyed auditor, Tim O’Brien. And it’s a pretty safe bet the scholarship program isn’t the only cash cow at City Hall that has turned the tables by milking the public.

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Indeed, O’Brien’s office issued a press statement in which he hints at some broader implications. He refers to the new findings as, “yet another voter-approved tax that is bringing in significant revenue – but with little city supervision for how those dollars go out the door.” 

Denver voters have a history, arguably, of voting their hearts over their wallets. You have to wonder how many of the other funds they’ve agreed to create in recent years are being run fast and loose, as well:

• In 2006, Denver voters approved a 0.12% sales tax to fund the Denver Preschool Program and reauthorized the tax – throwing in a 0.03% rate increase – in 2014. The program underwrites preschool tuition credits to families in the city.
• In 2020, Denver voters passed the Homelessness Resolution Fund – a 0.25% hike in the local sales tax – to subsidize services for the homeless.
• Also on the 2020 ballot, Denverites agreed to raise the local sales tax another 0.25% to create the Climate Protection Fund, which raises $40 million a year for equity-based efforts intended to mitigate the causes of climate change.

Especially in that light, the audit findings on the scholarship program are enough to make any taxpayer stop and think. The audit exposes what amounts to a blueprint for mismanagement that could as easily apply to the other earmarked sales taxes.

The scholarship’s chain of command is a labyrinth that invites misspending.

A nonprofit called Prosperity Denver Fund actually manages the program. Yet, neither the city nor Prosperity Denver Fund directly provides students with the scholarship to go to college. Instead, eligible students must first secure a scholarship from a nonprofit – called a “supported organization” – and the latter gets reimbursed by Prosperity Denver Fund. And then there’s Denver’s Office of Children’s Affairs, which oversees the program and manages the contract with Prosperity Denver Fund. (If you had trouble following all that, so did we.)

The upshot, the audit found, is the program collected $46.4 million in revenue from the sales tax as of September 2022, but of that amount, it paid out only about $20.9 million or 45% of the money. In the meantime, the program has stockpiled nearly $30 million in cash. 

In fact, the money collected for the program has been growing since its first year, when $8.9 million came in. Last year, the program collected $14.5 million.

O’Brien and his team at the Auditor’s Office do a great job bird-dogging City Hall in general, and they deserve a shout-out for this audit. We’d urge them to keep up the good work – and cast a wider net.

While they’re at it, Denver’s new mayor should figure out who’s responsible – assuming that’s possible, given the convoluted chain of command – and hold them accountable.

Denver Gazette Editorial Board