Colorado Springs officials are asking city departments to prepare for expense cuts later this year as the city’s sales tax revenue remains flatter than expected.

The city’s 2025 budget had included a forecast that sales tax revenue would increase by around 3.5% from the previous year. Instead, tax revenue from the first quarter of the year has remained about the same as it was in 2024.

The most recent sales tax report from April, which covers taxes collected through March 31, shows Colorado Springs has received $56 million in sales tax revenue. The revenue is up slightly from the first quarter of 2024, when the city brought in $55.6 million in tax revenue.

“We’re not sounding an alarm or freezing spending or anything like that. It’s a yellow light, slowing down and making sure we are good stewards of the funding we have,” City Finance Director Charae McDaniel said.

Sales tax is the largest source of revenue for Colorado Springs’ general fund, which makes up just under half of the total funds in the city budget. The 2025 budget projected the city would bring in $261.5 million in sales and use tax and $29 million in property tax.

To make up for the drop in expected revenue, departments leaders were asked to reduce their expenses by around 3.5 percent for the rest of the year. The extent of the change varies by department. The police and fire departments were asked to make fewer cuts to avoid impacting public safety.

“We are working closely with City Finance to make sure we are making them in the right places with minimal impact to our community,” police spokesperson Caitlin Blanco said.

McDaniel said the city made similar cuts the last two years because of issues with inflation and tax revenue. The reductions for the rest of the year are meant to avoid cutting services or making any drastic changes to the city.

“Most of the savings we can generate is to hold positions vacant and reassign people to cover what we need to cover,” McDaniel said.

Taxes on hotels and motels were up 10.9% from the same period in 2024. The city’s Lodgers and Automobile Rental Tax, which had seen an early jump in the first report of the year, is now up just 1.1% compared to last year.

The biggest decline in taxes came from business services, including professionals and consultants, which is down 21.5%. Medical marijuana has seen a 13% drop in tax revenue and the building materials industry is down around 10%.

McDaniel said it was unlikely the city would include a growth in sales tax for Colorado Springs’ 2026 budget. She said the city wanted to see a few more months of tax data, including the busier summer months, before setting the budget forecast in September.