The uncertainty over what state legislators will do when they begin hashing out the state budget later this month has Denver Public Schools (DPS) officials worried.

DPS Chief Financial Officer Chuck Carpenter warned the board of education Thursday that if the state doesn’t come through on its promises or if funding is cut, it will have real consequences for the district’s budget.

“We’re not predicting anything,” Carpenter said. “We don’t know what’s going to happen at the Capitol.”

Carpenter added: “The state volatility is incredibly real for this organization right now.”

The district’s finance team is already preparing for possible scenarios that could include asking voters to approve a mill levy increase or 10% cuts to the central office.

The district’s mill levy is set at 25% — below the state cap of 29% — meaning the district is not yet taxing at the maximum rate allowed under Colorado law.

Superintendent Alex Marrero cautioned that with seven schools at or below 215 students (the size determined to be critically low and at risk of closure), he may have to request that the board reconsider its three-year moratorium on closures.

In 2024, the board approved the closure of seven schools and restructuring three others to save the district about $30 million.

The Denver school board is heading into its annual budget cycle, when staff typically present the proposed spending plan in May and the board votes on adoption in June.

As previously reported by The Denver Gazette, the district has limited financial flexibility with a negative unrestricted net position that has persisted for at least two decades, an analysis of district audits has found.

In practical terms, when the unrestricted net position is negative for a long time, it means most of the district’s resources are already committed to debt, pensions or other obligations.

While that does not mean DPS is facing an immediate cash crisis, it does indicate that the district has limited financial flexibility if revenue declines, costs rise or unexpected expenses emerge — all of which Carpenter said are possibilities.

Long-term borrowing — bonds and certificates of participation — account for roughly 85% of the district’s liabilities, while pension liabilities represent a much smaller share, about 12% on average.

The district’s funding mix has also shifted over the past 20 years, with state support shrinking as local property taxes have made up a growing share of revenue.

Even before Carpenter’s financial update Thursday, Director Kimberlee Sia (the former board treasurer) has said declining enrollment and the state’s share of funding shrinking have made her increasingly uncomfortable with the delicate balance the district must strike with its roughly $1.5 billion budget.