Five Year Forecast Farrell Hanzaker, Chief Financial Officer David - - PowerPoint PPT Presentation

Five Year Forecast

Farrell Hanzaker, Chief Financial Officer David Bradley, Director of Budget and Management Services

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Agenda

• Current Economy and Selected Economic Trends
• Consumer Revenues, Employment, Housing, Tourism, Military, Income and Tax Burden
• Major Revenue Trends
• Expenditure Assumptions and Drivers
• City and Schools’ Forecast and Sensitivity Analyses
• Combined Expenditures and Revenues
• Closing Thoughts

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Economic Trends

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Consumer Revenues

Economic Indicator Performances: Growth Rates Recession Recovery Long‐Term Average Past Recoveries Consumer Revenues General Sales ‐4.0% 3.3% 3.4% 5.8% Restaurant Meal Sales 0.4% 4.6% 4% 6.3% Hotel Sales ‐1.3% 4.6% 3.4% 5.2%

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Recession Recovery Long‐Term Average Past Recoveries Unemployment Rate 7.1% 4.2% 4.3% 3.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Unemployment Rate

Virginia Beach Virginia US

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56% 81% 0% 20% 40% 60% 80% 100% 120% 140% 160% 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Foreclosures as a % of their Pre‐Boom‐and‐Bust Average

Source: Real Estate Assessor

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Housing

63.2% 56.8% $52.58 $126.34 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 $110.00 $120.00 $130.00 $140.00 48.0% 50.0% 52.0% 54.0% 56.0% 58.0% 60.0% 62.0% 64.0% 87 91 95 99 03 07 11 15

Occupancy Rate vs Average Daily Rate

Occupancy Rate ADR

Source: Smith Travel Research

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Tourism

53.9% 14.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 69 74 79 84 89 94 99 04 09 14

Military Earnings as a Percentage of Total Earnings

Source: Bureau of Economic Analysis

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42,339 87,843 30,061 48,640 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Military and Private Sector Average Salary & Benefits

Military Private Sector

Source: Bureau of Economic Analysis

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51,161 34,248 38,873 30,000 35,000 40,000 45,000 50,000 55,000 02 03 04 05 06 07 08 09 10 11 12 13 14

Per Capita Income

Nominal Inflation‐Adjusted

Sources: Bureau of Economic Analysis and Bureau of Labor Statistics

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67,281 58,545 53,681 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 05 06 07 08 09 10 11 12 13 14 15

Median Household Income

Nominal Inflation Adjusted

Sources: Census Bureau and Bureau of Labor Statistics 12

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$1,763 $1,830 $1,401 $1,560 $1,483 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800 $1,900 05 06 07 08 09 10 11 12 13 14 15 Millions

Total City Budget

Nominal Constant Dollar

Per Capita Expenditures as a % of Per Capita Income R.E. Taxes as a % of Median Household Income Virginia Beach 6.12% 3.14% Chesapeake 7.19% 3.33% Norfolk 8.57% 3.54% Portsmouth 8.12% 3.50% Suffolk 7.23% 3.24% Hampton 9.11% 3.54% Newport News 9.07% 3.24%

Sources: Bureau of Economic Analysis; Auditor of Public Accounts; and Census Bureau

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Tax Burden

Revenues

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106.5 313.6 103.35 296.7 100 150 200 250 300 350 400 85 88 91 94 97 3 6 9 12 15

Real Estate Appreciation

Actual Growth of 3.52% Shiller's Annual Growth Rate of 3.35%

Sources: Robert Shiller and Real Estate Assessor's Office

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$441 $557 $420 $440 $460 $480 $500 $520 $540 $560 $580 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Millions

Real Estate

Budget Actual Projection

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$132 $128 $149 $166 $120 $125 $130 $135 $140 $145 $150 $155 $160 $165 $170 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Millions

Personal Property

Budget Actual Projection

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$51 $8 $73 $‐ $10 $20 $30 $40 $50 $60 $70 $80 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Millions

Consumer Spending

Budgeted Actual Projection

General Sales BPOL Restaurant Hotel

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$438 $479 $410 $420 $430 $440 $450 $460 $470 $480 $490 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22

Millions

State

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School Revenues

$342 $348 $355 $366 $377 $421 $429 $437 $445 $453

100 200 300 400 500 FY 18 FY 19 FY 20 FY 21 FY 22

Millions State Funding City Funding

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$32 $33 $25 $27 $29 $31 $33 $35 $37 $39 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Millions

Federal

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3.3% 44.1% ‐2.2% ‐0.03 ‐10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

Change in Wireless Only Households & Va Telecom Tax

Wireless Only Households Decline in VB Telecom Taxes

Sources: National Center for Health Statistics and Finance Department

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136.82 183.38 100 110 120 130 140 150 160 170 180 190 04 05 06 07 08 09 10 11 12 13 14 15 Index of Growth

Growth in Services vs Retail

Retail Services

Source: Commissioner of the Revenue's Office

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Expenditure Drivers and Assumptions

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City and Schools’ Expenditure Assumptions

• 2% salary increase for City & School employees
• 2% inflation for City and School budgets
• Healthcare cost increasing by 2.5% starting in FY 2018‐19

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Other Expenditure Assumptions

• City and Schools use differing VRS assumptions based on anticipated changes

for each fund

• Schools’ capital expenditures are flat in FY 2017‐18 and increase starting in

FY 2018‐19

• Operating Budget impacts from CIP projects and other Council commitments

are included in the City’s forecast

• City and School debt based on allocated but unissued debt

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City General Fund Baseline Forecast and Sensitivity Analysis

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$1.06 $1.08 $1.10 $1.12 $1.14 $1.16 $1.18 $1.20 $1.22 FY 2016‐17 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Billions

Baseline Forecast

Expenditures Revenues

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654)

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$1.07 $1.10 $1.13 $1.16 $1.19 $1.22 FY 2016‐17 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Billions

VRS Impact

VRS increasing 1% Expenditures Revenues

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) VRS increase only 1% 53,350 (3,071,699) (7,132,768) (9,815,851) (8,852,718) Variance 2,649,309 2,702,295 5,512,682 5,622,936

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$1.09 $1.12 $1.15 $1.18 $1.21 $1.24 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Billions

Healthcare Costs

Healthcare Increases 5% Expenditures Revenues

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) Health increases 5% 53,350 (6,615,925) (11,692,016) (18,218,556) (18,473,906) Variance (894,917) (1,856,953) (2,890,023) (3,998,252)

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$1.09 $1.12 $1.15 $1.18 $1.21 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Billions

Inflation Forecast

Inflation 3% Expenditures Revenues

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) Inflation 3% (1,927,217) (9,796,170) (16,118,361) (23,937,929) (25,533,683) Variance (1,980,567) (4,075,162) (6,283,298) (8,609,396) (11,058,029)

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$1.09 $1.12 $1.15 $1.18 $1.21 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Billions

Real Estate Growth of 4%

Expenditures Revenues 1% Real Estate Increase

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) 1 % Real Estate Increase in FY 19 53,350 (2,715,638) (1,461,192) (1,218,359) 6,630,664 Variance ‐ 3,005,370 8,373,871 14,110,174 21,106,318

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Schools’ Operating Budget Baseline and Sensitivity Analysis

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740 760 780 800 820 840 860 880 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Millions

Baseline Forecast

Revenue Expenditures

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast (16,348,562) (18,807,979) (24,293,925) (21,367,669) (18,530,049)

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Virginia Retirement System (VRS) Rates

• The General Assembly’s 2016‐2018 biennial budget adopted higher VRS

employer contribution rates for instructional retirement benefits than those

• riginally planned

FY 2015‐16 FY 2016‐17 FY 2017‐18 FY 2018‐19 FY 2019‐20 Phase‐in of VRS Rates Agreed Upon in 2012 Legislative Session 79.69% 89.84% 89.84% 100% 100% Expected Employer Rates Based

• n Phase‐in Schedule

14.06% 14.66% 14.66% 15.79% 15.79% Employer Rates Based on General Assembly’s 2016‐2018 Budget 14.06% 14.66% 16.32% TBD TBD

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‐35 ‐30 ‐25 ‐20 ‐15 ‐10 ‐5 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Millions

Impact of Full‐Day Kindergarten

Baseline Shortfall Full‐Day Kindergarten

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast (16,348,562) (18,807,979) (24,293,925) (21,367,669) (18,530,049) Full‐Day Kindergarten (18,588,562) (23,287,979) (31,013,925) (30,327,669) (29,730,049) Variance (2,240,000) (4,480,000) (6,720,000) (8,960,000) (11,200,000)

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‐30 ‐25 ‐20 ‐15 ‐10 ‐5 FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Millions

Health Insurance Rate Increase of 5 Percent

Baseline Shortfall Health Insurance Rate Increase (5%)

FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 Baseline Forecast (16,348,562) (18,807,979) (24,293,925) (21,367,669) (18,530,049) Health Increase (5%) (16,348,562) (20,297,455) (27,384,589) (26,177,748) (25,184,635) Variance ‐ (1,489,477) (3,090,664) (4,810,079) (6,654,586)

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City and Schools’ Combined Expenditures and Revenues

City and Schools’ Surplus and Deficit FY 2017‐18 FY 2018‐19 FY 2019‐20 FY 2020‐21 FY 2021‐22 City Surplus and Deficit 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) Schools’ Deficit (16,348,562) (18,807,979) (24,293,925) (21,367,669) (18,530,049) Combined Expenditures and Revenues Expenditures 1,897,954,582 1,939,358,734 1,987,761,056 2,034,698,320 2,075,540,645 Revenues 1,881,659,370 1,914,829,747 1,953,632,068 1,998,002,118 2,042,534,941 Total Combined Deficit (16,295,212) (24,528,987) (34,128,988) (36,696,202) (33,005,704)

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Closing Thoughts

• Moving towards sustainable forecasts
• State budget
• Recession on the horizon?
• Favorable interest rate environment
• Tax restructuring
• New/expanded programs

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Questions?

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