Fort Collins Tackles $15.4 Million Budget Gap With Hiring Freeze and Merit Pay Cuts
Fort Collins City Council voted 5-0 on November 3 to adopt a 2026 budget that slashes employee merit increases from 3% to 2%, implements a hiring freeze through early 2026, and eliminates vacant positions to close a $15.4 million general fund deficit driven by declining sales tax revenue and unexpectedly high personnel costs.
The budget adjustments, formalized through Ordinance 186, represent one of the most significant mid-cycle corrections in recent city history, comparable to pandemic-era fiscal challenges. No layoffs of classified staff are planned, though multiple vacant positions will be eliminated permanently.
"If the money doesn't come in, you got to make some adjustments to the money that goes out," said Rich Stave, a Fort Collins resident, during public comment on the budget.
Sales Tax Projections Fall Short of Expectations
The city's largest revenue source—sales and use tax—is forecast to underperform expectations for 2026 based on weaker-than-anticipated taxable sales growth in 2024, according to Caleb Weitz, the city's chief financial officer. The conservative projection follows Fort Collins budget policy requiring staff to base revenue estimates on historical lows rather than optimistic assumptions.
Fort Collins' annual sales tax collections have historically tracked regional economic conditions, with notable declines during the 2008 recession and 2020 pandemic followed by recovery periods. The current forecast decrease represents one of the sharper projected declines in recent years outside of major economic shocks.
Photo traffic enforcement revenue projections were also reduced, contributing to the overall revenue shortfall, Weitz told council during the November 3 meeting.
Personnel Costs Exceed Budget Due to Retention
The city faces increased personnel expenses because fewer employees left city service than budgeted, creating a gap between planned vacancy savings and actual payroll costs. Fort Collins typically anticipates annual employee separation rates of 8% to 12% based on Colorado municipal benchmarks, but actual turnover came in significantly below those levels in 2024 and 2025.
Essential departments including Police, Fire and Information Technology documented particularly low turnover due to competitive compensation packages and targeted retention initiatives that differentiate Fort Collins from peer municipalities, according to city budget documents.
The lower-than-expected turnover eliminated millions of dollars in anticipated vacancy savings that had been built into the 2025-2026 two-year budget adopted in November 2024.
Additional personnel budget corrections address the collective bargaining agreement funded through one-time sources in 2025, requiring ongoing funding for 2026 to maintain compensation levels.
Hiring Freeze and Phased Position Releases
The hiring freeze will remain in effect through the beginning of 2026, followed by a phased release designed to ensure orderly hiring activity as positions are unfrozen, according to city staff. The approach aims to control near-term spending while maintaining the ability to fill critical vacancies in public safety and essential services.
City Manager Kelly DiMartino's final budget proposal eliminates numerous vacant positions across departments but includes no involuntary layoffs or reductions in force of classified staff. An exhibit to the ordinance provides detailed information on all proposed reductions.
The budget adds one new sales tax auditor position expected to generate more revenue than its direct cost, representing a strategic investment to improve collections enforcement.
One-Time Funding Sources Bridge Gap
Fort Collins will use one-time savings from strong benefits fund performance and the Digital Equity reserve to help balance the 2026 budget. The Digital Equity reserve, originally established to support community broadband and technology access initiatives, will be redirected to cover operational costs instead of funding eviction and immigration legal defense programs.
Council directed staff at an October 14 work session to preserve the eviction and immigration legal defense funds by using Digital Equity reserves, reflecting the priority placed on those social service programs.
Fort Collins maintains a policy of keeping general fund reserves at approximately 15% to 20% of annual expenditures, using such funds to cover temporary shortfalls but avoiding their use for ongoing operational costs. The city has tapped reserves multiple times over the past decade, most notably during the 2020 pandemic downturn.
The 2026 approach differs from historical practice by redirecting a specialized reserve fund originally designated for a specific purpose, signaling heightened fiscal pressure beyond typical contingency fund use.
Limited Service Enhancements Included
Despite the overall budget constraints, the 2026 appropriation includes targeted enhancements in transportation and utilities. The Transportation Fund receives significant operational funding for Transfort transit operations, reflecting ongoing commitments to regional mobility despite reduced revenue from Loveland's withdrawal from the Flex partnership.
Enterprise funds receive funding for the Halligan Reservoir project mitigation credits, allowing environmental permits and continued progress on the long-term water supply initiative. The Utilities Customer Information System project receives additional funding to operate legacy systems through the planned May 2026 go-live date for the new system.
The appropriation also addresses cost pressures in the grocery tax rebate program, which provides relief to lower-income residents.
Council Member Kelly Olson expressed concerns about using 2050 climate tax funds for non-climate purposes and urged future councils to include inflation adjustments in baseline funding for programs supported by that tax revenue. "I'd like an answer now, but of what you're thinking in that area," Olson said, seeking commitment that baseline funding levels established when the tax passed would not erode over time.
DiMartino confirmed staff interpret the 2050 tax ordinance and council intent as requiring baseline funding levels be maintained with reasonable inflation adjustments. "We have heard that message clearly," DiMartino said. "Staff has interpreted it the same way."
The 2026 budget requires second reading approval before final adoption. Questions about Fort Collins' budget can be directed to the Finance Department at 970-221-6788 or fcgov.com/finance.