Fort Collins staff propose $15.4 million in general-fund reductions for 2026; managers recommend avoiding layoffs, preserving 2% pay increase

City staff presented a package of recommended reductions on the city’s 2026 general fund on Wednesday as part of a work session, saying a combination of lower revenue and higher costs has produced a $15.4 million budget gap.

The city’s finance team told council it expects $8.7 million in lower revenues, primarily from sales and use tax, and about $6.7 million in higher expenses driven largely by personnel costs and other inflationary pressures. "We are forecasting $8,700,000 in lower revenues," Chief Financial Officer Caleb Weitz said, and staff recommended a set of reductions and policy changes to close that gap without involuntary layoffs.

Staff recommended a mix of citywide personnel measures and service‑area reductions to reach $15.4 million in savings. The package would: preserve a 2% pay increase for 2026; avoid involuntary separations for classified and unclassified employees; eliminate 27 vacant positions; implement a phased release of the hiring freeze; and use a mix of ongoing and one‑time savings. Weitz described the broad elements as "a very difficult conversation" but said the plan is intended to protect jobs while restoring budget balance.

Why it matters: the general fund is the city’s primary operating fund for municipal services. Staff said the city did not generate unassigned reserves in 2024 — a once‑available one‑time cushion — and revenue forecasts from the state and locally show slower growth than prior years, making the city less flexible heading into 2026.

Revenue and cost drivers: Sales and use tax make up roughly half of governmental revenue for Fort Collins; Sales and Use Tax Director Jen Posnanevich reported year‑to‑date collections through August that are roughly $1.7 million under budget and showed a combined 3 percent shortfall for 2026 (about $7.1 million) on staff’s adjusted forecast. Posnanevich said some one‑time audit and permit use‑tax receipts have masked softer underlying trends: "If we take out some of that one‑time revenue...we would be 3% under budget for sales tax," she said.

Staff also flagged other revenue risks: photo enforcement revenue is estimated to be about $1.5 million under budget in 2025, and staff conservatively forecast up to an additional $1.5 million shortfall in 2026; interest income is lower because of reduced fund balances; and the state is projecting smaller revenue growth than historical averages. Staff noted the city has already implemented actions in 2025, including a hiring pause followed by a hiring freeze and tighter spending controls, and said additional year‑end actions remain possible.

Selected recommended adjustments and clarifying details: staff presented both service‑area and citywide measures. Highlights included:

- 27 vacant positions recommended for elimination (staff noted some eliminations could be reassessed if equivalent vacancies arise).

- $10.4 million in reductions originated from service areas; the remainder came from citywide personnel and other actions. About 70% of the reductions are ongoing and 30% are one‑time savings.

- Program/service reductions and funding shifts include trimming some one‑time reserve‑funded items and shifting $415,000 from digital inclusion funds to cover an anticipated grocery tax rebate shortfall for 2026, staff said.

- A recommended new sales tax auditor (a general‑fund addition) was forecast to generate at least $200,000 a year in additional audit revenue.

Council questions and priorities: Councilmembers pressed staff on several priorities and requested follow‑up information. Councilmember Tricia asked about the eviction prevention and legal defense funds; staff clarified that the immigration/legal defense reduction is $22,000 and said staff will bring options back to council, including potential reallocation of existing council funds for training and conferences. Councilmember Julie and others urged preserving eviction and immigration legal defense funding, calling those programs cost‑effective and high priority.

Councilmembers also probed the photo‑enforcement shortfall and asked for a breakdown of citation issuance and payment trends, and asked detailed questions about specific service reductions, including sustainability and Poudre River flow support. Staff said they will provide follow‑up materials for the council’s Oct. 14 work session and bring the 2026 appropriation item to council in November.

What’s next: staff will return Oct. 14 with additional information requested by council, with the expectation of bringing the budget appropriation item forward for council action in November. The city asked council for feedback on the recommended mix of personnel and service reductions and for direction on any alternate priorities to preserve.