Denver has taken in more than $1.1 billion from seven sales taxes dedicated to specific purposes since voters approved the first one in 2006 — and together, they’re projected to generate another $271 million this year.
But the city and outside partners charged with spending that money sometimes have been slow to do so, especially for the half-dozen new taxes approved in the last six years, The Denver Post found in a review of tax data. Several tax funds were carrying large cash balances at the end of last year, including ones created to provide healthy food for children, to launch a city fund aimed at mitigating climate change and to provide college scholarships.
Those big account balances have prompted questions on the Denver City Council and among outside observers about whether some taxes raise more money than needed for their purposes.
In one case, the city last year expanded the college scholarship tax’s mission beyond what was originally pitched when voters approved its 0.08% rate in 2018. The changes opened up eligibility to older students and some non-residents, while expanding the range of programs that could receive money.
The city’s collections could rise another $170 million annually starting in 2025 if voters in November approve two more dedicated taxes — one aimed at shoring up the finances of Denver Health, the other at raising significant money to tackle the city’s affordable housing needs.
But concerns about existing taxes generating excess revenue could give ammunition to opponents of those proposed measures. The council has referred Denver Health’s 0.34% tax measure to the ballot, and it’s still considering Mayor Mike Johnston’s “Affordable Denver” 0.5% tax proposal, which would collect an estimated $100 million a year.
One council member has said Denver’s effective tax rate — currently 8.81% — already is putting a squeeze on restaurants and stores in his corner of the city.
“I am losing businesses in part because of higher sales tax,” said Councilman Kevin Flynn, whose southwest Denver district borders jurisdictions with lower tax rates.
Flynn was one of two members who voted in May 2023 against expanding the mandate of the Prosperity Denver scholarship fund, which uses the tax proceeds to partially reimburse nonprofits for post-secondary awards and other support they provide to young Denverites.
He pointed out then that based on the financial information he had seen, the tax was not using 61% of what it collected. Executives with the nonprofit that oversees the fund testified that its balance was close to $30 million, and they asked for help unlocking more opportunities for those unspent dollars, including by expanding eligibility rules.
“I did not think it was appropriate for the council to expand the allowable uses of that money beyond what the voters authorized, (and) so soon after the voters approved the provision,” Flynn said in a recent interview. “My suggestion was they look at lowering their rate. I lost that battle.”
The proceeds from Denver’s other four existing dedicated taxes — some of them referred to voters by city officials, others sought by outside interests through initiatives — go to preschool tuition credits for families (the city’s first dedicated sales tax), expansion of Denver’s park system, mental health programs and support of city homelessness programs.
Together, the dedicated taxes account for 1.31% in the sales tax rate, costing an extra 13.1 cents on a $10 purchase in Denver. Though they raise hundreds of millions of dollars, that revenue is many times smaller than the city’s $1.74 billion general fund budget for most regular operations. More than half of the city budget is also derived from sales tax.
The proposed Denver Health and affordable housing taxes, if passed by voters this fall, would become the city’s two largest dedicated taxes. They would give Denver an effective sales tax rate of 9.65%, among the highest in the state beyond mountain communities — and higher than the sales tax rates in Los Angeles and New York City.
That prospect has even strong supporters of the affordable housing proposal suggesting that there isn’t much more room for sales taxes to grow.
“That tool, I do think, will be exhausted,” council president Amanda Sandoval said.
As Johnston pushes for the affordable housing fund that he views as critical to Denver’s future, he has been talking about cumulative tax burdens, a measure that takes sales, property and income taxes into consideration. Research his administration has pulled together suggests Denver would still be in the bottom quarter of large American cities on that metric, even if both proposed taxes pass.
He, too, sees a coming “moment in which you’re not going to be able to keep adding more sales tax to the city,” he said in a meeting with Post journalists last month.
“We don’t want to wait until we get three or four sales taxes down the road, (with proposals) from other well-meaning outside interest groups who want to add things to the sales tax,” Johnston said. “And then all of a sudden, we look up and we’re at 10.5% — and we still haven’t funded affordable housing.”
Expanding mandate for scholarship tax
Among the city’s current dedicated taxes, the one originally intended to support college scholarship programs has taken the most twists and turns.
Nonprofit, business and education advocates seeking greater support for college scholarships first went to Denver voters to ask for their help in 2015. That sales tax request was rejected.
But in 2018, the measure, then dubbed the Denver College Affordability Fund, crossed the finish line with 52% of the vote in support of the 0.08% tax. The fund works with other nonprofits to reimburse up to 75% of the cost of college scholarships and other types of post-secondary education for low-income Denver students.
Between 2019 and 2023, it collected $66.9 million, according to the Denver Department of Finance’s records.
When Prosperity Denver representatives and their backers approached the council early last year, they said the raft of proposed changes would honor the intent of what voters passed in 2018 while also expanding the fund’s reach and boosting Denver’s workforce. They included removing residency requirements for the original targeted group — students 25 and younger — so long as they had graduated from a Denver high school.
And reimbursements would now be allowed for support of older students between the ages of 26 and 30, so long as those students live in Denver for at least six months before their first day of post-secondary classes. The update also would allow new uses for fund dollars, including a wider range of education programs, including certificate and apprenticeship programs as well as support services at the high school level designed to increase college enrollment.
Eleven council members approved those changes, but Flynn and then-Councilman Jolon Clark voted no. In the public hearing, Clark, who now leads Denver Parks and Recreation, raised concerns about doing away with the residency requirement, noting that Denver Public Schools allows students from outside the city to opt into enrollment.
Steve Kurtz, the vice chair and treasurer of Prosperity Denver’s board of directors, defended the 2023 changes recently by focusing on what motivated them — including the economic impact of the COVID pandemic and a wave of new migrant families arriving in the city.
The original ordinance language was viewed by many of the fund’s partner organizations as too restrictive to help some low-income students, he said, including those who experienced homelessness during high school and could not provide three years of residency documentation.
“If we’re getting more low-income kids into post-secondary (education) and through post-secondary — that’s the key, through post-secondary education to graduation — how can anyone argue that what we’re doing is a bad thing?” Kurtz said.
Just months after the council approved the changes, the city auditor’s office released a report that critiqued Prosperity Denver’s data practices and recordkeeping. Some organizations were not adequately checking students’ eligibility and were receiving reimbursements that should never have been approved, the report found.
Kurtz said Prosperity Denver was well aware of its data challenges and was already working on potential solutions by the time the audit came out. It has recovered improper reimbursements, he said.
The organization also was working out plans to spend more of its $30 million-plus fund balance. Financial data provided by Kurtz and Rebecca Arno, Prosperity Denver’s new CEO, show that the expanded mission approved by the council resulted in a doubling of spending — to $11 million — in the 2023 fiscal year, which ended last September, compared to the prior year.
“We recognize that our fund balance is high, which is exactly why we went back to the City Council for the ordinance changes last summer,” they wrote in an email to The Post. “We plan to spend down our fund balance over the next four years through these new programs and expansion of our central scholarship support program.”
Ramping up spending on newer tax
Scrutiny by Flynn and others has also focused on the city’s 0.25% Climate Protection Fund tax.
That special revenue fund, approved by more than 62% of voters in November 2020, collected $138.6 million in its first three years. That’s an average annual haul of $46.2 million, well over the $36 million supporters originally estimated.
The fund birthed a new city agency, the Denver Office of Climate Action, Sustainability and Resiliency. It has celebrated some big successes so far, including launching a wildly popular and nationally recognized instant-rebate program for e-bike purchases by city residents. In 2022 and 2023, the program spent $7.5 million and provided 7,968 vouchers.
The CASR office’s year-end 2023 report paints a picture of a fledging city department still growing into its voter-approved mission. Its expenditures by year have gone up from just $1.6 million in 2021 to $17.9 million in 2022 to $39.8 million last year, leaving the office with a fund balance of upwards of $79 million at the beginning of 2024.
For Flynn, the most recent CASR-funded contract he has seen on a council agenda is another sign of a special revenue fund with more money that it knows what to do with. A $3 million contract approved with Sukle Advertising and Design will go toward social media, digital and event-focused engagement work through the spring of 2027. The campaign’s focus is to “inject climate change and climate action more prominently into the public dialogue.”
“It seems to demonstrate that if there is enough money in the CASR fund to do something like this, then clearly there is more money than we really need,” said Flynn, who said he wished he’d called the contract out from the consent agenda to vote against it.
But Emily Gedeon, the spokeswoman for the climate office, said spending has followed plans developed for the fund. She noted that its five-year plan calls for expending more than $211 million on programs by the end of 2025.
“(For) much of 2021 when the Climate Protection Fund started collecting revenue, the office was focused on building the five-year plan, designing and building out programs, hiring staff and setting up the procurement and contracting processes to get the work underway,” Gedeon wrote in an email. “We’re now an office of nearly 70 people with growing programs and committed expenditures.”
Fund balances don’t always tell the full story of how a dedicated sales tax fund is operating. According to the city’s finance department, the Healthy Food for Denver’s Kids program, which is funded through a 0.08% sales tax proposed by activists and approved by voters in 2018, brought in $69.3 million through 2023.
As of December, the fund’s balance was nearly $30 million — or more than 40% of those total collections.
But Jessica Murison, the fund’s fiscal and contract administrator with the Denver Department of Public Health and Environment, is tracking her own numbers. The fund is getting money out the door rapidly and responsibly via its competitive grant process, she said, citing figures showing that 89% of collections to date have been spent or earmarked for coming years.
The tax was intended to provide grants to programs that provide healthy food and food-based education for children. Those programs have served more than 121,000 children on average per year, and the fund has supported the delivery of more than 25.5 million pounds of food via grocery boxes and other delivery methods to Denver families since its inception, according to DDPHE.
“I think it’s been a really successful program. I think we run it really tight,” Murison said. “As a city employee, I feel very strongly that we want to be good stewards of taxpayer dollars.”
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Originally Published: August 11, 2024 at 6:00 a.m.
