SUBJECT:
Title
2026 Budget Forecast and Assumptions
Department
DEPARTMENT: Finance
Presenter
PRESENTER(S): Sara Hancock, Finance Director
Cassie Bethune, Budget & Fiscal Manager
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Time
TIME ESTIMATE: 60 minutes
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For time estimate: please put 0 for Consent items.
Fiscolicy
POLICY ISSUES:
Council consideration of policy direction on budget forecast assumptions and priority focus areas for the 2025 Budget.
Recommendation
STAFF RECOMMENDATION:
Staff are requesting direction on three key areas: forecast assumptions, budget priority areas, and potential projects to be considered for a 2026 ballot item.
Body
SUMMARY/KEY POINTS
Town departments have submitted their initial 2026 Budget requests, and the Finance department is working to review within the context of the Town’s available funds, Council priorities, and anticipated financial forecast. Staff will be discussing functional areas of the budget where monitoring helps inform the 2026 Budget, including:
• Revenue and expenditure monitoring.
• Approach to the long-term financial forecast and capital improvement plan.
• Considerations for debt issuance for future projects.
BACKGROUND OF SUBJECT MATTER:
Ahead of the formal presentation of the recommended 2026 Budget, Town staff is presenting information to support Council’s desire to better understand revenue, expenditure, and staffing trends for prior budgets, as well as the approach to the long-term financial forecast. The information contained in this presentation includes:
• Historical Information
o Revenues/Expenditures and Population Growth
o Staffing
• Long-Term Financial Strategy
• Forecast Assumptions
o Future Growth Projections
o General Fund Projections
• Prioritization
o Federal Grant Exposure
o Major Capital Projects
• Debt Capacity
Revenues & Expenditures; Staffing
From 2017 to 2024, the Town of Erie experienced substantial growth in population and in both revenues and corresponding expenditures. Population has grown on average, 7.7% year over year. As the graphs in the presentation reflect, while inflation adjusted expenditures closely track or even lag population growth, actual expenditures for 2022-2024, reflecting the high inflation and wage pressures in this period, exceeded the pace of population growth. Across all funds expenditures grew on average 17% year over year, while revenues across all funds grew on average 13%. This is compressed in earlier years and accelerates in 2022-2024, where revenue growth exceeded 16% year over year.
Overall, the Town has had sufficient revenues to support the rapid growth of the Town. However, the expenditure growth, while consistent with population growth from an inflation-adjusted perspective, is in nominal dollars exceeding the rate of population growth. These charts demonstrate the increasing cost of doing business.
Staffing increased substantially over the last three years. The Town added 60.3 FTEs in all funds, including 31.6 in the General Fund since 2021. These additions are spread across all functions of the organization, including Utilities and Public Works functions, public-facing and service-providing staff, as well as internal service departments, such as Human Resources and Finance. In 2021, and using staffing ratios from other Front Range cities of differing populations, the Town developed a long-range staffing plan reflecting the staffing we should expect at different population levels. That plan, summarized in the presentation, suggested that when the Town reached 41,000 residents, the Town would benchmark approximately 352 FTEs. The Planning & Development Department’s latest quarterly report estimates the Town’s population at 41,283. Thus, with the Town‘s budgeted 345.9 FTEs in 2025, staffing trends compared with other Front Range cities are aligned with population growth.
However, it is important to note that population alone does not drive staffing requirements; FTE counts are driven even more by the level of service expected by the community and Council, revenue availability or constraints, and the projects and/or issues Council wants to complete.
Long-Term Financial Strategy
Adjusting for inflation shows the Town’s expenditures are in line with population increases. However, simply adjusting for inflation does not increase the revenue available to pay for services; for that we need strategy. To maintain both service levels expected by residents AND prudent reserves, Finance staff have been working closely with Town Management to maintain an ongoing long-term financial strategy. This strategy reflects two critical concepts - budgeting for Town resiliency and forecast assumptions rooted in both trend data and forward-looking economic factors.
Staff consider the following elements when reviewing budgets for resiliency and trend data:
o Council Priorities
o These priorities should reflect the Council’s policy and project areas. Budget recommendations should align to one or more of these priorities and present clear outcomes to achieve the desired result.
o Revenue & Expense Trends
o Budget staff review revenue and expense data at the macro and micro levels for trends. This is especially important for expenses, where unspent funds may exist on a line-item level and need analysis across departments and funds. Revenue trends for different sources and industries may change due to economic factors or development in the Town, so this data is also analyzed at the macro and micro levels for year over year trends.
o Emerging Community Needs
o Town staff considers community surveys, Council feedback, capital and maintenance needs as they arise. The forecast anticipates long-term plans, especially related to capital and maintenance needs. However, as unplanned or critical needs arise, they are incorporated into the forecast.
o Long-term Debt Needs
o As debt is issued, the forecast includes all debt payments and corresponding revenue source for the debt for the duration of the debt. For future debt issuance, the budget includes anticipated debt payments to consider the impact of the debt to the fund.
o Staffing Growth
o Departments are asked to engage in a prioritization process considering their long-range staffing plan. This includes considering staffing levels for core service delivery (level 1), essential community services (level 2), and aspirational services (level 3). Department Directors are asked to review the plan for upcoming years, modify the plan as changes arise, and consider if the planned needs still align with current needs. After departments submit their budgets with any personnel requests, if there are funds available, new FTEs are considered within constraints in a collaborative process with the senior leadership team.
o De-Prioritized Areas
o Departments are asked to consider any areas that are no longer a staff, resident, or Council priority. If a program or expense exists, these are removed or repurposed in the budget.
o Capital Planning
o Except for the Erie Community Center, Police Department Facility, and utilities projects, the Town has funded other capital projects with cash. This means capital planning hinges on the cashflow, particularly the transfers from the General Fund to the Capital Improvements Fund (CIF). The transfer must support cash-funded projects in the CIF. If not, the projects must be reduced, have timing adjusted, or be removed from the fund.
Forecast Assumptions
This year, the revenue forecast has been the focus of budget development, as economic factors have become less predictable. Budget staff developed a scenario tool to evaluate what growth could be expected from key revenue sources, including property tax and sales and use tax. This tool drills to an aggregate level using past collection trends and allows for more precision in individual revenue sources. An advantage of this structure is that trend scenarios are not mutually exclusive, and different trends can be considered across scenarios - meaning a flat percentage for all revenues is not used. Staff has grouped and labeled the scenarios as “Very Constrained”, “Somewhat Constrained”, and “Optimistic”.
Based on recommendations from the Town’s compensation consultant, which reflect current inflation trends and the Town’s labor market, the expenditure forecast assumes 2% market adjustments and 3% merit adjustments. If Council supports this approach, it will ensure staff compensation does not lose ground relative to inflation, staff can progress through salary ranges at a reasonable pace, and the Town doesn’t suffer the expense, lost productivity, and poor quality associated with excessive turnover. To be conservative, we also assume costs in other areas will increase at 3.0%, which is slightly more than the current rate of inflation. These assumptions are built into the forecast and staff recommends the ”Somewhat Constrained” scenario forecast. Staff are seeking Council confirmation of this approach (or further direction if Council wants staff to use a different scenario for developing the 2026 Budget process).
Prioritization of Capital Projects
While the 2026 Budget requests are not yet available for consideration, staff are seeking guidance on what types of projects to prioritize in the CIF. Given that transfer funds to the CIF are limited and dependent on available unassigned operating funds from the General Fund, we must prioritize to sustain the CIF fund. Currently, the Fund’s most costly projects, grouped in terms of their relative priority are:
• Street Maintenance - Ongoing
• Public Works Maintenance, Multiple Projects - Ongoing
• Parks Maintenance, Multiple Projects - Ongoing
• Affordable Housing Incentives - 2025, One-time
• Makerspace - 2025, One-time
Several CIF, Public Works, and Utilities projects (some multiple funds) are also fully or partially grant-funded by federal or state pass through funds from federal agencies. At this time, all of the Town’s active federal grants have agreements in place that ensure reimbursement or payment per the grant terms. The Grants team and department project teams have worked very closely with the granting federal agencies and, currently, have no reason to believe any active grants are at risk.
Debt Scenarios
At Council direction, staff have reviewed options for future debt issuances. The Town debt ratio is very low, at .10, with $8,956,430 in outstanding debt to $9,099,965,631 in estimated actual assessed property value. The Town has the capacity to issue debt, in the form of Certificates of Participation, GO Bonded Debt, or Revenue Bonds. With Council direction on priority areas for debt-funded projects, staff could reduce capital projects in the recommended 2026 Budget, anticipating to use voter-approved debt issuance or other debt mechanisms for those projects Council wants to fund through those means, instead of cash funding those projects.
Council Direction
In summary, staff needs direction in three critical areas to move forward on the 2026 Budget process. These areas include the following:
• Do you agree with the priority areas identified for the 2026 Budget?
o Core Operations & Current Service Levels
o Capital Maintenance
o Public Safety
o Parks & Recreation
o New Capital Projects
• Do you agree with the staff’s recommended revenue and expenditure assumptions for the long-range forecast?
o Very Constrained - Flat to 3% Growth
o Staff Recommended - Somewhat Constrained - 3%-5% Growth
o Optimistic - 5%+
• What priority areas should staff prepare debt scenarios for?
o Public Safety Building (currently budgeted - COPs)
o Parks & Recreation Projects
o Town Center
o Infrastructure Projects
priorities
TOWN COUNCIL PRIORITY(S) ADDRESSED:
☒ Attractive Community Amenities
☒ Engaged and Diverse Community
☒ Prosperous Economy
☒ Well-Maintained Transportation Infrastructure
☐ Small Town Feel
☒ Safe and Healthy Community
☒ Effective Governance
☐ Environmentally Sustainable
☒ Fiscally Responsible
attachments
ATTACHMENT(S):
1. Presentation