Denver officials outline $200 million 2026 budget gap, detail layoff process and employee supports

Denver Mayor and the City Council were briefed Tuesday on a projected gap of roughly $200 million between baseline 2026 expenditures and the city’s projected general fund revenues, city budget and human resources officials said, and on the personnel processes the administration will use if layoffs are required.

Justin Sykes, the city’s Budget and Management director, told council members that sales and use taxes — the largest single source of general fund revenue — have slowed, that June 2025 sales activity fell about 0.4% from June 2024, and that a modeled increase in tariffs could reduce Denver’s 2026 sales-and-use-tax revenue by roughly $25,000,000. Sykes said the administration now expects essentially flat general fund growth in 2025 and lower revenue in 2026.

The mayor framed the shortfall as a human problem for city employees. “This has been the hardest leadership task I probably ever had to undertake over the last 4 months,” the mayor said, adding that cabinet members are trying to protect staff as the city adjusts to lower revenues.

Why it matters: Denver’s fiscal rules call for a 15% general fund reserve target; as of the end of 2024 the city reported roughly $239,000,000 in general fund reserves. City staff said a continued gap of the size presented would exhaust a large portion of those reserves and that, under current assumptions and proposed short-term steps, the city could end 2025 with roughly 10–11% in fund balance. Officials said bringing the balance back to 15% will be a multi-year effort.

Steps already under way and possible next steps: Sykes and other presenters described actions the administration has taken and is planning, including a position-review committee that screens vacancies, the hiring freeze announced in May, spending reductions for services and supplies, agency-specific efficiency work and targeted furloughs. City staff estimate the mayor’s previously announced furlough plan will save about $10,000,000 and that the hiring freeze generates roughly $5,000,000–$10,000,000 in savings; they said these actions are intended to avoid further draws on reserves while preserving core services.

Human resources process and employee supports: Heather (OHR) and other Office of Human Resources staff described the layoff process they will use if agencies determine reductions are necessary. Agencies will identify the classifications in which reductions are required; OHR then provides a standardized ranking tool that scores employees in four categories — skills, abilities, performance and years of service — to determine who in a classification will be separated. Under Career Service Rule 14, years of service must account for 25% of the ranking. Agency weightings for the other categories are set before the ranking tool is issued and must be reported to OHR; the OHR executive director, Kathy Nesbitt, and the city attorney’s office review submitted weightings.

OHR described the severance and transition package the city plans to offer to affected employees: 30 days of paid administrative leave from the date of separation, a lump-sum severance payment that varies by experience band (roughly the equivalent of 2 to 8 weeks of pay on average, depending on years of service and accruals), a health-insurance stipend through October, 120 days of employee assistance program access, a six-month LinkedIn Premium membership and individualized support with the Denver Workforce Center. Staff said separation payouts for accrued leave and unemployment-insurance liabilities were included in calculations of the severance envelope. OHR staff also said they have prepared a layoff separation guide that will be provided to affected employees.

Legal and procedural safeguards: OHR staff said the city is following Career Service Rule 14 for layoffs and that rule changes to paid leave (Rule 10) will align city care-bank access with FMLA (employees become eligible at 12 months). Council members asked how years of service are counted and whether prior council-aide service is included; OHR said it would confirm and follow up with specifics. Council members also pressed for demographic information on those who could be affected and for transparency about how departments set weightings and classifications.

Numbers not finalized: City officials emphasized they do not yet have a final, department-level count of layoffs and will not release names or individual impacts before notifying affected employees. Several council members asked for more detail in upcoming budget materials and one-on-one briefings; staff said the proposed 2026 budget book will be released in about a month and that council one-on-ones are planned for the week of Sept. 8. The mayor and finance staff repeated that decisions will be presented to employees first and to council and the public thereafter.

Council concerns and next steps: Council members pressed for clarity about long-range plans to restore reserves to 15%, requested breakdowns of other general fund revenue streams beyond sales tax, and asked the administration to identify contracts and “nice-to-have” spending that could be reduced. The administration said those trade-offs — contracts, services and program reductions alongside personnel changes — will be part of the forthcoming budget book and hearings. The charter deadline referenced by staff for the proposed 2026 budget was Sept. 15.

The mayor and council adjourned after the presentation; city staff said more detailed fiscal and personnel information will be provided during the formal budget release and subsequent committee hearings.