City finance leaders told the Fort Collins City Council at a work session that national and regional economic shifts and weaker-than-expected local sales tax collections have created a probable shortfall in the city’s 2025 and 2026 budgets.

"Conditions have significantly changed since the 2025 budget was adopted last fall," Chief Financial Officer Caleb Weitz said, opening the informational briefing. Weitz and Revenue Director Jen Posnanovich said sales-tax performance to date will require stronger growth than currently forecast to meet the adopted 2025 budget.

Posnanovich presented early-year collections and said the city’s 2024 actual sales-tax collections were about 2.1% below the 2024 budget, resulting in a need for 4.2% growth this year to meet the 2025 budget. "Because of the 2024 sales tax shortfall, 4.2% growth is needed to hit our 2025 budget," she said. Staff is currently using a working forecast of 2% growth for 2025, which would produce an estimated $3.8 million shortfall for 2025 and a forecasted $5.7 million shortfall in 2026 if the same pattern continues.

Posnanovich told council that the year-to-date picture is complicated by one-time use-tax and audit receipts that inflated early 2025 receipts; removing those one-time items shows a weaker underlying sales-tax trend. She said public-facing retail categories are generally softer, while online sales and some use-tax categories have been stronger early in the year because of permit-related collections and audit activity.

Weitz and Budget Director Lawrence Pollock said the city also faces expenditure pressure. Personnel costs are higher than budgeted because turnover is lower than expected; staff reported that first-quarter 2025 turnover rates, if they continue, would be roughly half of previous years’ totals, increasing payroll costs relative to the adopted budget. The city manager has implemented a hiring pause with exception rules for critical positions.

Weitz said the city will consider achievable near-term savings for 2025 and will present a formal 2026 budget revision process this fall. "We expect to make decisions here in June on what reduction options to take," he said; the formal revision timeline begins with a council finance presentation in September and an appropriation ordinance in November.

Councilmembers asked for additional detail, including a map of downtown public versus private parking (a separate agenda item) and comparisons with peer cities. Staff noted that other Front Range municipalities are also seeing budget pressure, often tied to retail shifts and one-time revenue that masks underlying softness. Utility funds, staff said, remain relatively strong because of development activity while the general fund faces the largest uncertainty.

Staff emphasized the update was informational; no formal budget actions were taken at the work session. Staff said it will return with refined rolling forecasts, proposed 2025 reduction actions where necessary, and a recommended process for the 2026 budget revision.