Of the responding municipalities, 87% reported seeking state funding in at least one area since January 2024. The average funding success rate for all project types reported was 71%. The most common area for which municipalities sought state funding in the last two years was water, wastewater, and stormwater projects, an area where Eastern Plains communities pursued funding at a higher rate. In general, large municipalities were more likely to seek state funding for projects, with law enforcement being the most common type of funding support pursued by larger municipalities.

Since January 2024, federal funding was pursued at a much lower rate than state funding. The difference in state and federal funding sought is due to the different types of funding available at the federal level, and that federal funds are often distributed by the state. Of the types of projects that sought federal funding, two of the three most common categories included road infrastructure and maintenance (35%) and pedestrian or cyclist safety (34%), with water infrastructure ranking highly again (34%). The award rate for federal funding was generally lower than it was for state funding at 54%.

About one in six municipalities canceled a project or service due to reductions in state and federal funding. This tracks national trends, where municipalities are adjusting their budgets as federal COVID-19 relief funds wind down or are canceled. While the survey included questions to understand state and federal grants not awarded, it did not account for projects that were not pursued at all due to capacity restraints and concerns over securing state or federal funding.

Not surprisingly, large-scale infrastructure investments such as water and wastewater projects and road construction and maintenance projects were overwhelmingly identified as the most important areas for which Colorado municipalities receive state funding. Eastern Plains communities and Western Slope and Mountain towns viewed water as the most important area in which they receive state funding, while the Front Range declared road construction or maintenance as the most important area for state funding.

The budgeting process has largely remained the same for municipalities this year. Only 14% of municipalities indicated they made significant changes to their budgeting processes this year. In their comments, respondents most often attributed new staff and management as the reasons for initiating new practices. Other respondents noted the need to reevaluate projects amid economic uncertainty, particularly slowing revenues and rising costs.

When it came to determining their municipal budget, 65% of responding municipalities reported that the budgeting process was a little more or much more challenging this year.

The top sources of challenges this year are economic uncertainty and expected increases in salary and benefits costs, which accounted for the largest share of municipalities indicating it as a significant challenge. These challenges were followed by expected inflation, unexpected expenses, and reduction in local revenues, outlining the challenges municipalities are facing when it comes to keeping up with rising costs.

Municipal Spotlight:

Dolores and Gypsum

Policing without a police department

Partnerships with county sheriff’s departments can be an effective way for communities to save both time and money. For smaller municipalities with limited resources to fund their own police departments, contracting with the county sheriff’s office is often the practical choice. Gypsum and Dolores indicated in their survey responses that a partnership with the county has been the easier financial approach, as establishing a municipal police force is too costly and beyond their capacities.

In both of these communities, these contracts have been in place for decades. County sheriff’s departments are able to leverage greater resources for capital spending and have the capacity to respond to issues as they arise. Respondents also indicated that relationships with deputies have been positive, especially when deputies are consistently assigned and have the opportunity to build connections and ties to the community.

Municipal leaders emphasized the importance of clear and predictable contract terms, including defined service levels and mechanisms to address staffing or cost changes. Greater predictability in multi-year agreements was cited as critical for effective budget planning and reduced uncertainty during negotiations.

In recent years, these contracts have increased significantly. Survey responses from CML members indicate that these increases are driven by competitive salaries to attract and retain talent, higher liability insurance costs for law enforcement, and differences in administrative practices across counties. Officials also noted that workforce shortages affecting law enforcement agencies statewide influence both contract pricing and service delivery.

For leaders in Gypsum and Dolores, these trends have raised concerns about affordability and alignment between costs and services. Respondents cited instances of unclear or unmet deliverables and expressed concern that rising costs do not always align with financial capacity while acknowledging that these challenges reflect broader structural pressures rather than a decline in service quality. Together, these examples illustrate both the long-term value of municipal-sheriff partnerships and the growing importance of clear contracts, predictable cost structures, and shared expectations as fiscal pressures continue to affect local governments.

Additional challenges to creating this year’s budget:

“Budgeting for emergency response needs due to flooding, which we are expecting annually now”
_{– Eastern Plains community}

“Insurance costs (liability and health insurance) are really putting pressure on our budget”
_{– Western Slope/Mountain community}

“Law enforcement contract [with the county] has gone up significantly”
_{– Western Slope/Mountain community}

“Managing tariffs”
_{— Western Slope/Mountain community}

“A possible new development that would greatly increase a lot of items in our budget”
_{– Eastern Plains community}

“We are still recovering from a voter-approved reduction in sales tax on food for home consumption that went into effect in FY2024”
_{– Front Range community}

“Large increases in general liability, law enforcement and property insurance coverage”
_{– Front Range community}

“Uncertainty as to what the State Legislature will do in terms of mandates, TABOR, property taxes, and pet projects”
_{– Eastern Plains community}

In comments provided by respondents, increasing costs was a common barrier to safeguarding their budgets into the future. Many noted that higher costs for service delivery, paired with flat or volatile revenue sources make unfunded mandates and offering competitive wages and benefits more difficult to navigate.

Barriers to saving money:

“Aging infrastructure, rising costs, and less state and federal funding”
_{– Western Slope/Mountain community}

“Competing priorities – immediate service needs, infrastructure demands, or community expectations often outweigh long-term savings. Rising costs – Inflation, labor agreements, and healthcare premiums”
_{– Front Range community}

“Cost of infrastructure maintenance, particularly roads. Keeping competitive wages to retain employees.”
–_{– Eastern Plains community}

“Increased cost of personnel expenses – revenues are not keeping up with costs, especially on the benefit side. Going to have to look at benefit reductions in the future although we are already behind on pay.”
_{– Western Slope/Mountain community}

“Increases in inflation, unfunded mandates, lack of consistency in direction from the Legislature and Executive Branch, unwillingness of the residents to increase taxes, economic uncertainty tied to interest rates, housing prices, inflation, etc.”
_{– Eastern Plains community}

“Infrastructure needs are critical. Deferred maintenance [needs] are outweighing new project needs and cannot be deferred any longer”
_{– Western Slope/Mountain community}

“It’s hard to save funds when you have too many present-day needs”
_{– Front Range community}

“The continued flattening and declining of major revenue sources of sales and use taxes (and other revenues tied to economic conditions) and property tax.”
_{– Front Range community}

Municipal Spotlight:

Keystone

Keystone’s first budget

“As the budget process proceeded, it was incredibly rewarding to see the thought and care that the council put into their decisions.” – John Crone, Keystone Town Manager

Keystone, Colorado’s newest incorporated municipality, completed their first budget this year. For already established municipalities, the annual budget process follows certain steps, where finance officers and elected officials know what to anticipate in terms of financial trends and their community’s goals and priorities.

Keystone had the opportunity to build their budget from the ground up, and in the process remind us of a few important municipal budgeting principals along the way. Among the challenges faced by the town was uncertainty around revenues and expenditures. Their revenue data was limited to the 2% sales tax remitted by Summit County, and additional data from Keystone’s incorporation effort. Information on expenditures was fairly straightforward, as the town’s staff remains small but mighty, and many services are subcontracted, allowing these line items to remain broad.  Additionally, as a brand new town, Keystone has yet to establish long-range plans, strategic goals, or other priorities to help shape the budget. The town was trying to budget for existing issues, while simultaneously trying to study the issues and determine their level of need.

While starting a budget almost from scratch is daunting, Keystone’s town council was meticulous in learning the process and coming up with solutions. The dedication of staff and council yielded a successful first budget. The town’s cautious and thoughtful approach will allow them not only to meet their needs, but to make investments in infrastructure and in ways they did not anticipate being able to do for several years.

In the face of uncertainty, nearly a quarter of municipalities with reserve funds will tap into them to meet their needs, with another quarter undecided at the time of their response.

To adapt to changes in revenues in the face of economic uncertainty and worries about ever-increasing expenses, 56% of municipalities reported plans to make targeted or across the board cuts, while 44% indicated that they are not making cuts to their budgets.

Additional money-saving strategies include increasing partnerships with other local governments and contracting out services. Western Slope and Mountain communities are more likely to increase working in partnership with other local governments, while Front Range municipalities were more likely to incorporate technology and automation to provide services.

Municipal Spotlight:

Larkspur

Contracted Services

For small municipalities, hiring contractors to carry out certain services is essential to balancing their budgets. In Larkspur, contracted services include their water and sewer operators, information technology, engineering services, and landscaping city-owned property. In a smaller municipality like Larkspur with a full-time staff of six, it is not feasible to manage large scale infrastructure like water or street engineering.

Larkspur already subsidizes water fees for residents and hires locally for their landscaping needs. These contracts are critically important to Larkspur’s budgeting process. While the town will need to continue contracting for water, IT, and engineering services, staff are being creative with how they might shift landscaping operations in-house, without overburdening the two public works employees.

Automation is another strategy municipalities are considering to save money. As the artificial intelligence (AI) applications for local government are coming to light, less than 50% of municipalities reported using or having plans to use AI to provide services in 2026.

While many municipalities are looking to external solutions (partnerships with other local governments, nonprofits, and private entities, as well as contracting out and leveraging AI) they are also making operational adjustments to manage costs.

Nearly 65% of municipalities reported that they are currently considering, have plans to start, or are already delaying projects or programs to save money. Another 36% of respondents report plans to or are already deferring maintenance, with another 28% considering. Some are combining departments, where 22% of municipalities plan to or are already doing and another 6% are currently considering. Hiring freezes were less common, with 26% of municipalities at least considering it. Of those already implementing hiring freezes, 7% plan to discontinue, and 57% will continue.


Other ways in which municipalities are saving money:

“Cutting or reducing services such as maintaining parklands, reduction in snow removal, halting overtime pay, delaying projects for possible better times”
_{– Eastern Plains community}

“Energy performance savings, increasing insurance deductibles, reducing employer retirement match, reduction in professional development, eliminated some employee benefits, and reduction in services to community.”
_{– Front Range community}

“Pass a larger portion of healthcare to employees (we have historically absorbed increases) Compressed work week has resulted in lower overtime costs. Modifying PTO buyout to reduce expense and encourage employees to actually use their PTO.”
_{– Front Range community}

“Renegotiating contracts, switching vendors for subscription-based services that have lower prices, consolidating and streamlining software subscriptions with interchangeable functionality”
_{– Western Slope/Mountains community}

“Taking a more defensive, sustainable posture to infrastructure maintenance is key to maintaining services, landscaping and policing. Staying ahead of maintenance with technology and well-trained staffing. Eliminating as much staff turnover as possible and investing in their knowledge and professionalism. Grants have consistently created opportunities for rapid improvements in delivering our forecasted and planned developments.”
_{– Western Slope/Mountain community}

“We will reduce training, subscriptions, memberships, etc. We will not hire up to support succession planning. Adopting renewable energy to reduce long term facilities costs.”
_{– Eastern Plains community}

Despite reported economic uncertainty, more municipalities indicated that they plan to increase or make no changes to budgets for departments and services. The most common planned increase is police department budgets, where 44% of municipalities project increases, and utilities with 41% reporting planned increases. To balance these increases, respondents commented that limiting capital and special projects and deferring maintenance would help to balance increases elsewhere in their budgets.

Despite challenges and unforeseen obstacles, 2026 will bring opportunities for Colorado municipalities to continue to strengthen their commitment to their communities. In step with our members, CML will rise to the occasion, seeking creative solutions to problems outlined in this report.