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Statewide survey highlights budget challenges for Colorado municipalities
DENVER, COLO. – Thursday, Jan. 22, 2026 – Colorado Municipal League’s (CML) 2026 State of Our Cities and Towns survey, administered from August to October 2025, examined municipal revenues, state and federal funding, budgeting processes, and how municipalities are adapting to economic challenges.
Respondents rated conditions compared with the prior year using a scale ranging from “much better” to “much worse.”
The general economic outlook among CML members is mixed amid continued economic uncertainty. Unfunded street and road maintenance and improvements were the most common challenges reported, followed closely by lack of affordable housing, increased health and liability insurance costs and state-mandated expenditures. Large municipalities (populations of 25,000 or greater) and those located along the Front Range were more likely to report that their local economy felt worse and cite slow growth in tax revenues as a challenge. About one in six municipalities reported canceling a project or service due to reductions in state and federal funding.
“Municipalities are managing their budgets carefully and showing resilience but increasing costs and unmet infrastructure needs remain real challenges,” said Kevin Bommer, CML executive director. “The results of this survey highlight how policy decisions at the state and federal level shape the capacity of cities and towns to meet community needs — and why CML continues to advocate for ‘partnership, not preemption.’”
“The results reflect how differently communities are experiencing economic conditions depending on size and region,” said Maeve McHugh, municipal research analyst for CML. "That variation is important when evaluating funding needs, infrastructure priorities and long-term planning.”
General economic outlook
When asked about overall views about the economy in 2025 compared to 2024, nearly half (48%) of responding municipalities indicated that they felt it was the same, while just over one-third reported that their overall economy was somewhat or much worse this year (31% and 4%, respectively). Alternatively, 17% of respondents reported the economy was somewhat better, and no municipalities reported it was much better this year.
Large municipalities reported a worse overall economic outlook, compared to medium (populations of 2,000 to 24,999) and small municipalities (populations of less than 2,000), where revenue was more likely to be reported as about the same rather than better or worse than last year. Western Slope and Mountain communities were more likely to report feeling better about their economies this year.
Municipal revenue
Data about revenue trends were mixed. Nearly half (48%) of respondents indicated their revenue was about the same in 2025 compared to 2024, while 26% reported revenues were somewhat or much better, and an equal share indicated revenues were somewhat or much worse.
Considering changes in municipal revenue, over two-fifths of municipalities reported increases in revenue from sales, use and excise taxes and/or property taxes. Of the survey’s respondents, municipalities with populations under 2,000 were least likely to report increases in revenues from sales, use and excise taxes. The greatest reported decrease in revenues was attributed to a loss of state funding.
The same top challenges identified earlier continued to surface in revenue-related responses, including unfunded street and road maintenance, housing affordability, insurance costs and state-mandated expenditures. Affordable housing was a more common concern in Western Slope and Mountain communities, while state-mandated expenses and increased liability insurance costs were more prevalent on the Eastern Plains.
State and federal funding
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. Law enforcement grants were the most common type of funding sought by larger municipalities.
Since January 2024, federal funding was pursued at a much lower rate than state funding. 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 state funding at 54%.
Consistent with those findings, respondents also cited project and service cancellations tied to reduced state and federal 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 identified road construction or maintenance as the most important area for state funding.
Budgeting and planning process
While the budgeting process has remained largely the same, 65% of responding municipalities reported that it was somewhat or much more challenging than last year. The top sources of challenge this year were economic uncertainty and expected increases in salary and benefits costs, which accounted for the largest share of municipalities indicating these factors as significant challenges. These were followed by expected inflation, unexpected expenses and reduction in local revenues, outlining the challenges municipalities face in keeping up with rising costs.
Impacts and adaptation
In the face of uncertainty, nearly a quarter of municipalities with reserve funds reported plans to use reserves to meet their needs, with another quarter undecided at the time of their response. To further bolster their budgets, nearly two-thirds of respondents indicated that they would pursue new grants. Nearly 60% plan to increase existing fees and 30% of municipalities plan to add new fees.
Many municipalities reported growing economic uncertainty and concerns about increasing expenses. About 51% reported plans to make targeted cuts, meanwhile, 44% indicated that they are not making cuts to their budgets. Some solutions to increasing revenue include bolstering aid to local businesses to help sales tax revenues, adjusting utility billing structures and revisiting growth projections to better plan what revenue is needed.
The most common approaches to saving money include increasing partnerships with other local governments and contracting out services. Western Slope and Mountain communities are more likely to increase working in partnership, while Front Range municipalities were more likely to incorporate automation to provide services.
Among respondents, the most common planned increase was police department budgets, with 44% of municipalities projecting increases, followed by utilities at 41%. To offset these increases, respondents commented that limiting capital and special projects and deferring maintenance would help to balance increases elsewhere in their budgets.
Read the complete report online.
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Colorado Municipal League (CML) is a nonprofit, nonpartisan organization established in 1923 and represents the interests of 271 cities and towns. For more information on the Colorado Municipal League, please visit cml.org, call 303-831-6411 or stay connected on Facebook, X, LinkedIn and YouTube.
CONTACT(S):
- Maeve McHugh, municipal research analyst, mmchugh@cml.org
- Kevin Bommer, executive director, kbommer@cml.org