Leaders count on tax increases for new programs
With Denver’s finances languishing, City Council members are increasingly turning to tax increases to find the millions needed to launch or expand city programs.
It was an effective strategy in 2018, when Denver voters passed four such measures. And now, in the middle of a pandemic and economic recession, it’s the strategy behind proposed sales tax increases on the 2020 ballot to tackle the city’s homelessness crisis and to combat climate change.
The money has to come from somewhere, said Councilman Jolon Clark, who sponsored measure 2A, which would fund environmental initiatives within Denver. If residents or city officials want to launch brand-new initiatives like that, or expand traditionally underfunded programs, there aren’t many options.
Even during a bullish economy, Clark said, Denver’s budget is stretched so thin that any new or increased expenditures will mean cutting services or staff.
“Continuing even to find the money to keep up with what our citizens demand … is near impossible for our current budget,” Clark said.
With the pandemic hitting Denver’s tax revenue worse than the Great Recession, the city’s budget is already short hundreds of millions of dollars between 2020 and 2021, said Chief Financial Officer Brendan Hanlon. Cuts, hiring freezes and furloughs are on the horizon, not expanded services.
Critics often point out that sales tax measures are one of the most regressive ways to collect money. Lower-income families pay a disproportionate share of sales taxes compared with higher-income families.
And already Denver’s sales and use tax rate sits at 4.31%, higher than that of most Colorado cities. The rate is 3.12% in Colorado Springs, 3.25% in Grand Junction and 3.85% in Fort Collins, respectively. Commerce City’s rate is higher, however, at 4.5%.
Should voters approve
Clark’s measure and 2B, the tax proposal sponsored by Councilwoman Robin Kniech to fund services for the city’s homeless population, Denver’s sales and use tax rate would jump to 4.81%, though the two measures do exclude some items from the increase.
Still, voter-approved taxes are an efficient way to raise millions for causes Denverites care about. Hanlon pointed to the Parks Legacy Fund as an example. In 2018, voters approved a 0.25% sales and use tax increase to create the pot of money for new land, improvements and renovations.
“Otherwise, you would have to identify $30 million from somewhere else in your budget to satisfy that investment,” Hanlon said.
Actually, that number is higher. The Park Legacy Fund tax raised about $34 million in 2019 and is expected to raise at least $37 million annually this year and next, according to Mayor Michael Hancock’s proposed 2021 budget. So far, the bulk of that cash appears to have been spent on park and trail renovations and improvements, with some going toward buying new land.
The park tax and two others approved by voters in 2018 appear to be well received and working.
The Denver College Affordability Fund collected nearly $12 million in 2019 and is expected to raise about the same this year and next, the budget says. Healthy Foods for Denver’s Kids raised $11 million last year but is expected to collect $8.4 million this year.
But Denver Auditor Tim O’brien published concerns Thursday about the fourth and final tax approved in 2018: Caring for Denver. It raised about $37 million last year and is expected to raise $34 million this year, the budget states.
Some of the cash has been used to launch the Denver Police Department’s widely lauded STAR Program. However, most of the cash, which is funneled to the Caring for Denver Foundation for disbursement, remains unspent, O’brien noted. The auditor found almost $41.5 million unspent as of the end of May.
He pointed to grants the tax had funded — like the STAR Program — and asked city officials what that massive chunk of leftover money could accomplish.
“Caring for Denver needs a plan and better oversight from the city to get the money out the door, so organizations can try new initiatives and do more good work,” O’brien wrote.
Clark said he’s hopeful the new tax measures have the backing they need to pass. They’re blatant issues that stare city residents in the face when they pass by a park or notice that the sun is partially blocked by wildfire smoke, he said.
Denver didn’t always rely on tax measures for new projects, Kniech said. There used to be much more state and federal money for transportation, housing and other areas. But as those resources dried up over the last few decades, the city has had to cover more costs with existing tax revenue.
In the meantime, Denverites’ goals for their city have grown, she said: “You see more (tax) measures because the challenges have become more complicated, but the visions for what we can accomplish have become bolder.”
While city officials should always look internally first to pay for new projects, new taxes are likely still the most effective way to create a dedicated cash flow, Kniech said. She anticipates such a proposal for transportation improvements and projects in the coming years.
Some of that money could come from raising parking meter rates and other fees, for example, Kniech said. But that likely won’t cover the full need, so a proposed tax measure can be expected.
The limit to this approach to paying for new programs comes in whether a given issue is important enough to voters that they’ll agree to increase their own tax burden. Because those priorities change over time, Clark said he anticipates voters will remove old and ineffective taxes in coming decades before voting to approve new ones.