Despite economic uncertainty caused by the coronavirus outbreak, a recent assessment by credit rating giant Fitch Ratings determined that Denver is positioned to bounce back and continue to meet its debt obligations post-pandemic.
“Denver’s strong revenue growth prospects, ample revenue-raising flexibility, moderate carrying costs and long-term liability burden, and demonstrated superior financial resiliency during economic downturns” will help insulate the city during economic swings, Fitch’s May 7 report stated.
The city’s finance department projects a revenue loss of at least $180 million due to the crisis. Sales taxes make up the largest revenue loss, which are estimated to fall below budget by $140 million, or about 18.5%. The Hancock administration reacted to the downturn by curtailing hiring and spending and is also planning to cut departmental budgets by 7.5%.
The city is still preparing 2021 revenue projections, but expects shrinking the budget to pressured revenues will be a two-year long process, Fitch reports.
Nevertheless, Fitch’s recent analysis reflects “a very strong anticipated resilience even through the current severe economic contraction,” the report stated. Property and sales tax revenues that keep Denver in operation “are likely to continue at a strong pace of growth given rapid population gains and robust economic expansion.”
Denver’s “ample” independent legal ability to raise revenues — derived from local control over fees and charges, the special tax on retail marijuana and the voter-approved wiggle room on property tax revenues — also give the city a leg up, Fitch found, when it comes to weathering the storm.
The credit rating agency also highlighted the city’s ability to make spending cuts during times of economic and revenue decline.
“Fitch expects currently sound reserve funding and a demonstrated ability to make budgetary adjustments will allow the city to maintain a high level of financial flexibility through the current economic contraction,” the report stated.
Additionally, Fitch found Denver's financial state is aided by its local economy, which continues to expand "rapidly" throughout most employment sectors, including professional and business services, construction and mining, education, health care and tourism.
The city's "expansive employment base remained resilient in the face of recent fluctuating oil prices and stalled exploration activity within the Front Range,” the report noted.
Denver’s young population and “highly educated” workforce also are expected to “support healthy economic growth over the medium and long term,” according to IHS Markit, a global research and analytics firm. However, rising living costs largely due to home prices, “could start to dampen in-migration in the future.”
Still, the city’s historical revenue growth has exceeded the level of inflation and U.S. GDP growth, which has been aided by steady property and sales tax gains, according to Fitch’s analysis.
“Fitch expects the revenues to continue this trend given the rapidly expanding employment base and strong demographic trends,” the agency stated. “An analysis of Denver’s operating resilience assuming elevated revenue stress due to the current economic contraction indicates the city had adequate tools to maintain a strong reserve cushion.”