represent official positions on the part of Old Dominion University, - - PowerPoint PPT Presentation

The views expressed in the report do not represent official positions on the part of Old Dominion University, or its President John Broderick, the Old Dominion University Board of Visitors, the Virginia Chamber of Commerce, or its President Barry DuVal, the Virginia Department of Commerce and Trade, or any of the

• ther generous donors.

The Strome College of Business and the University continue to provide important support for this report. However, it would not appear without the vital backing of these donors, who believe in the power of rational discourse to improve our circumstances.

Anonymous Donor Thomas Lyons The Aimee and Frank Batten, Jr. Foundation Patricia W. and J. Douglas Perry Jane Batten Virginia Chamber of Commerce

• R. Bruce Bradley

Virginia Department of Richard T. Cheng Commerce and Trade Arthur A. Diamonstein George Dragas, Jr. Edward L. Hamm, Jr. Hampton Roads Chamber of Commerce

Here is our plan of attack today.

• I’ll set the stage for the report by comparing Virginia

to other cities and regions up and down the Atlantic Coast.

• My colleague Larry “Chip” Filer will focus on state

and national economic trends.

• I’ll return to talk about specific problems and issues,

e.g., migration patterns in and out of Virginia metropolitan areas, how we might save money by consolidating the provision of public services, and the challenges facing Virginia’s airports.

• Let’s talk about “real” incomes---the actual

purchasing power of the money we earn.

• After we adjust the incomes we earn in

Virginia for the cost-of-living, how do we fare? The Answer: Very well!

• In fact, the real spending power of the

median (50th percentile) Virginia household is higher than that of the median household in New York City---and most other large

• cities. Let’s look at the numbers for 2013.

(2013) Actual Median Cost-of-Living “Real” Median

Household Income Index Household Income Loudoun County $122,238 112.4 $108,753 Fairfax County $110,292 122.5 $90,034 Prince William County $98,071 109.6 $89,481 Arlington County $103,208 135.3 $76,281 Chesapeake $69,743 105.9 $65,857 Suffolk $66,085 103.5 $63,850 VIRGINIA $63,907 103.2 $61,925 Virginia Beach $65,219 111.2 $58,650 UNITED STATES $53,046 100.0 $53,046 Charlotte $52,375 108.6 $48,227 Atlanta $46,631 114.1 $40,869 Miami/Dade $43,100 107.0 $40,280 Scott County, Va. $38,355 96.7 $39,664 Lynchburg $38,138 100.0 $38,138 NYC (Manhattan) $69,659 185.5 $37,552 Richmond $40,496 112.8 $35,901 Roanoke $38,145 109.4 $34,867 Philadelphia $37,146 134.5 $27,618

The other four boroughs of New York City differ from

• Manhattan. Here’s how the five boroughs compared to

each other and Virginia in terms of “real” median household incomes in 2013:

Borough Median HH Income COLI “Real” Income Virginia $62,666 107.0 $60,722 Staten Island $72,569 125.4 $57,870 Manhattan $69,569 185.5 $37,552 Queens $57,001 158.6 $35,940 Brooklyn $46,085 188.3 $24,472 The Bronx $34,388 176.8 $19,450

• Note that average household income in Manhattan

was $132,754 in 2013---quite a bit more than Manhattan’s median (50th percentile) household income of $69,569. A few households there earn a lot; the majority of households do not.

• This tells us that incomes are distributed very

unequally in Manhattan (and in all of NYC for that matter).

Measuring Income Inequality: Gini Coefficients 2011

THE VIRGINIA ECONOMY COPES WITH ECONOMIC HEADWINDS

• The Virginia economy struggled in 2013

and 2014, primarily because of ebbing federal spending.

• Our economic performance improved in
• 2015. 2016 bodes to continue that

improvement.

Real GDP Growth Rates:

U.S. and Virginia

2.4 0.02

• 4
• 3
• 2
• 1

1 2 3 4 5 6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 U.S. Virginia

Contributions to 2014 Virginia GDP

Growth by Major Industry Sector

Post-Recession Real GDP Growth

(2009-2014)

• 0.50
• 0.18

0.14 0.28 0.31 0.82 1.00 1.06 1.15 1.40 2.05 2.35 2.36

• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Lynchburg Roanoke Staunton-Waynesboro Harrisonburg Hampton Roads Virginia Washington-NOVA Richmond Kingsport-Bristol Winchester US Charlottesville Blacksburg

State Leading Economics Indices:

Comparison Across Similar States

0.69 0.65 2.10

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2

FL TX NC VA

Virginia

• The Virginia economic slowdown in 2013 and

2014 primarily reflected contractions in federal spending; however, Texas and Florida also are both large recipients of federal spending and their economies didn’t contract as much. Why?

• The Answer: Relatively speaking, we are

more dependent upon federal spending than they are. Simply put, their economies are more diversified than ours.

Federal Spending Trends in Virginia

(In Billions)

Virginia U.S. VA Share

FY 2010 $100.4 $2,483.5 4.04% FY 2011 $117.7 $3,291.1 3.57% FY 2012 $114.4 $3,707.7 3.09% FY 2013 $92.8 $2,917.4 3.18% FY 2014 $91.8 $2,763.8 3.32% FY 2015 $67.2 $2,214.7 3.03% FY2012-FY2015

• 33%
• 11%

Philadelphia Federal Reserve Leading Economic Index

Virginia’s Three Largest Metro Areas

• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 2009 2010 2011 2012 2013 2014 2015

Va Beach/Norfolk Richmond NOVA

• The gap between the index average and

actual real GDP is a rough measure of the dependence on federal spending dollars.

2014 Index Average 2014 Actual Real GDP

Hampton Roads 2.53

• 0.10%

Richmond 1.98 1.60% DC/NOVA 2.95 0.30%

Months Required to Re-establish Peak Employment Levels

U.S. 3.10% Virginia 1.05%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 12 24 36 48 60 72 84 96 Change from Pre-Recession Peak

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 1 13 25 37 49 61 73 85 97

Change from Pre-Recession Peak

Hampton Roads Richmond Lynchburg Roanoke VA

RICH ROAN HROADS LYNCH

Months Required to Re-establish Peak Employment Levels: Virginia and the Major Metros

VIRGINIA

Unemployment Rates:

Metro Area Comparison

Changes in Labor Force Participation

(2014-2015)

Best/Worst Performing Sectors

Metropolitan Area Best Performing Sector Worst Performing Sector

Blacksburg

Goods Producing Federal Government 9.20% 0.00%

Charlottesville

Professional and Business Services Manufacturing 20.34%

• 7.32%

Hampton Roads

Employment Services Information 28.36%

• 30.13%

Harrisonburg

Private Service Provision Goods Producing 11.30%

• 9.59%

Lynchburg

Education and Health Services Construction 20.42%

• 31.25%

Richmond

Employment Services Information 44.66%

• 22.77%

Roanoke

Education and Health Services Information 13.19%

• 22.73%

Wash DC

Ambulatory Health Services Hospitals 29.48%

• 7.66%

Defense Spending

• Let’s take a look at DOD issues in greater

detail.

• The Department of Defense influences the

Virginia economy in two main ways: –Compensation of military and civilian employees –Contracts with private sector firms for goods and services

Changes in Employment and Average Compensation for Virginia by Sector

EARNINGS IN 2001 EARNINGS IN 2012 EARNINGS IN 2013 PERCENT CHANGE, 2001-2010 PERCENT CHANGE, 2010-2013 PERCENT CHANGE, 2012-2013

Military Active-Duty Employees

$47,536 $93,058 $90,500 89.80% 0.80%

• 2.80%

Federal Government Civilian Employees

$72,732 $120,022 $119,631 59.20% 3.30%

• 0.30%

State and Local Government Employees

$42,796 $59,086 $60,122 36.80% 2.70% 1.80%

Private Nonfarm Employees

$35,891 $47,644 $48,090 28.50% 4.30% 0.90%

DOD Funds Awarded to Firms and Organizations in Virginia: FY 2010 to FY 2015

Caps on Department of Defense Discretionary Spending

FY2012 – FY2021

No Sequestration

Net Operating Income for the Port of Virginia 2004-2015

33

Port of Virginia TEUs Handled 1991-2014 (000s)

34

The Port of Virginia Serves Businesses Throughout Virginia

Tourism and Hotels

Revenue Per Available Room (REVPAR)

Virginia, 1987-2015

$61.90 $59.50 $67.40

10 20 30 40 50 60 70 80 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Growth in Tourism Spending

Virginia, 2013 to 2014

5.5% 4.7% 4.4% 4.2% 4.0% 3.9% 3.5% 3.4% 2.9% 1.6%

0% 1% 2% 3% 4% 5% 6%

Eastern Shore Central Virginia Shenandoah Valley Northern Virginia Virginia Mountains Coastal Virginia Southern Virginia Chesapeake Bay Blue Ridge Highlands Heart of Appalachia

Residential Housing

Housing Price Growth:

U.S. and Virginia

19.2% 11.3%

• 10.9%
• 5.0%

3.1% 5.6%

• 15
• 10
• 5

5 10 15 20 25

Virginia Expanded Index U.S. 2005 2008 2014

Virginia Building Permits

Single Family Homes, 1988-2015

49,025 29,285 49,867 15,400 21,862 16,663

10000 20000 30000 40000 50000 60000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

The Structure of the Washington DC Metropolitan Area Economy

11% 10% 19% 3% 2% 2% 4% 2% 35% 12%

Fed Other Fed Wage & Salary Federal Procurement International Hospitality Associations Health/ED Other Local Serving Activities Non-Local Business

Job Growth: Comparing Metro Areas

January 2014-January 2015

4.4% 4.3% 3.8% 3.8% 3.8% 3.3% 2.9% 2.6% 2.5% 2.0% 1.9% 1.7% 1.7% 1.6% 1.5%

0% 1% 2% 3% 4% 5%

Dallas Atlanta Miami SF-Oakland Houston Seattle Phoenix Los Angeles Detroit New York Boston Philadelphia Minneapolis Chicago DC

Federal Procurement Spending in Northern Virginia

2010-2014 (millions) $45,155 $45,237 $42,806 $38,441 $38,017

$- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

2010 2011 2012 2013 2014 In Millions

Wash DC Metro Leading Economic Index

Month-Over-Year Percent Change, 2005-2015

U.S. and Virginia Real GDP

Forecasts (2015 and 2016)

1.33 1.98 2.40 2.98

• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Real GDP VA Real GDP Virginia U.S.

• The Virginia economy continues to be highly sensitive

to sequestration.

• The latest budget deal once again cushions some of

the scheduled decline in federal spending, but this relief lasts only for two fiscal years.

• An elusive longer-term budget deal would provide

valuable predictability and stability for Virginia businesses, governmental units and organizations.

• Ultimately, Virginia would be well advised to

transition to private streams of revenue in order to reduce its dependence on federal spending. This clearly applies to Hampton Roads and Northern Virginia, but is easier said than done.

Virginia’s Airports

Changes in the Number of Flights at Virginia’s Largest Airports, July 2011-July 2015

Seats and Fares at the Top Four

2007-2014

Richmond, VA

Higher fares, fewer seats 2007 2014 Change Fares $380.31 $409.85 +7.8% Seats 2.5 mil. 2.1 mil.

• 12.9%

65th busiest airport in 2014

Norfolk, VA

Higher fares, fewer seats 2007 2014 Change Fares $388.72 $413.99 +6.5% Seats 2.6 mil. 1.9 mil.

• 27.9%

72nd busiest airport in 2014

Washington-Dulles, VA

Higher fares, fewer seats 2007 2014 Change Fares $410.85 $453.40 +10.4% Seats 12.1 mil. 8.7 mil.

• 28.6%

29th busiest airport in 2014

Washington-National, VA

Lower fares, more seats 2007 2014 Change Fares $390.28 $371.44

• 4.8%

Seats 13.1 mil. 13.3 mil. +1.6% 21st busiest airport in 2014

Traffic at Dulles and Reagan, 2004-2013

Declining Freight and Air Traffic at Dulles

• Why have these declines been occurring at Dulles?

A variety of reasons---but Congressional actions appear to be most important.

• Years ago, Reagan (DCA)was severely restricted

terms of the distance of flights that could leave from it—the “perimeter rule.” Longer domestic flights and international flights were restricted to Dulles (IAD).

• Over time, however, Congress has given Reagan

additional “slots”---authorizations for landings and takeoffs and has relaxed the perimeter rule.

• This has been very good for Reagan and very bad

for Dulles.

• However, as we have seen, the Dulles decline has

been matched by reductions in traffic at nearly all

• f Virginia’s larger airports (though 2015 has

witnessed some recovery).

• Airline load factors have risen (along with airline

profitability) as airlines are offering fewer flights and seats.

• Deteriorating air connections are not part of

anyone’s recipe for economic development.

• It may be time for the Commonwealth to give

extensive thought to airport specialization and master airports that will serve larger areas.

• Virginia boasts 95 counties, 39 independent cities,

and 95 towns with less than 5,000 inhabitants.

• In 2012, the Census reported that there were more

than 85,000 governmental units in the U.S., many

• f which involve tasks such as education or

sanitation and overlap geographical boundaries.

• In Virginia, the Census reported that we had 518

active local governmental units in 2012---229 of these were classified as “municipal.”

• Would we be better off if some of these units

merged, or alternatively, if some of them merged their provision of public services?

• Could we save money, or improve the quality of
• ur services, by merging their provision across city

and county lines?

• Are there economies of scale in the provision of

some public services that should cause us to think seriously after merging them? THE QUESTIONS OF THE DAY

• Of course, some merging of service provision

already has occurred. For example, James City County and the City of Williamsburg jointly

• perate a school district. So also do Greensville

County and the City of Emporia, Alleghany County and the Town of Clifton Forge, and Rockbridge County and the City of Lexington.

• Also, there are sanitation, tourism, economic

development, hospital and airport districts that involve multiple municipalities.

• Even so, would we benefit from additional joint

provision of services?

• We examined the cost data that the cities and

counties report to the Auditor of Public Accounts, adjusted them for differences in the cost-of-living, and then looked at what the operational cost curves look like for 25 distinct public services.

• These services ranged from General Financial and

Administrative Activities and the Public Health to Libraries and K-12 Instruction.

• We controlled for 11 different factors that

plausibly might cause differences in municipal spending, but may not be related to efficiency--- things such as poverty rates and fiscal stress as measured by the Commonwealth.

• From this analysis, we generated numbers and

graphs that illustrate how average per capita costs per unit of service change as the sizes of cities and counties grow. We were looking for evidence of economies of scale.

Per Capita Cost Per Unit Curve for General Financial and Administrative Services in 134 Virginia Cities and Counties, 2013

200,000 400,000 600,000 800,000 1,000,000 1,200,000

Median-sized Governmental Unit

• Pop. = 25,655

Danville

• Pop. = 42,412

Richmond

• Pop. = 211,172

Virginia Beach

• Pop. = 449,628

Fairfax County

• Pop. = 1,116,897

Galax

• Pop. = 7,052

Per Capita Cost Per Unit Curve for General Financial and Administrative Services in 134 Virginia Cities and Counties, 2013

200,000 400,000 600,000 800,000 1,000,000 1,200,000

Median-sized Governmental Unit

• Pop. = 25,655

Danville

• Pop. = 42,412

Richmond

• Pop. = 211,172

Virginia Beach

• Pop. = 449,628

Fairfax County

• Pop. = 1,116,897

Galax

• Pop. = 7,052

Economies of Scale until the unit reaches a population of about 640,000

Per Capita Cost Per Unit Curve for Maintenance of Roads, Bridges and Highways in 134 Virginia Counties and Cities, 2013

Per Capita Cost Per Unit Curve for Maintenance of Roads, Bridges and Highways in 134 Virginia Counties and Cities, 2013

Economies of Scale Exist: Discussions Merited

• Legislative and City Council Activities
• Financial and Administrative Activities
• Elections
• Commonwealth’s Attorney
• Courts
• Public Libraries
• Law Enforcement and Traffic
• Inspections
• Sanitation and Waste Removal
• Maintenance of Bridges, Roads and Highways
• Maintenance of Buildings and Grounds
• Welfare and Social Programs
• K-12 Instruction
• K-12 Administration

Efficiency of Operations

• Can we use these data to infer how efficiently a

particular governmental unit is providing a specific service? Perhaps---but it is complicated.

• We can compare each city’s or county’s actual

performance to what the model says a typical city

• r county with those characteristics would do.

Actual Spending Versus Predicted Spending

Actual Spending Versus Predicted Spending

Consider the City of Lynchburg. What we can’t tell is whether the City of Lynchburg really is cost-efficient in its overall spending, or whether it instead it has chosen to provide a lower level of services, or if it is a combination of these two.

Explaining Domestic Migration to and from Virginia’s Metropolitan Areas

You Are a Virginian. Were Your Born in Virginia? 1900-2012

Who Is Moving into Virginia?

Where Are Movers Coming From or Going to?

Which Virginia cities and counties gained (or lost) the most residents--- births and deaths not included--- between 2010 and 2013?

So…Why do people move?

• Charles Tiebout (1956): “People vote with

their feet.” We looked at 358 metro areas, 2010-2013 Most Important Explanatory Factors

• Job Availability and Employment Growth
• Economic Freedom
• Quality of Amenities

Not very important:

• Metro Area Size and Population
• Cost-of-living
• Taxation Levels
• Economic inequality
• Climate

What about the “Richard Florida Variables?”

• “Creative Classes” Representation
• Florida’s Measurement of Tolerance
• Rate of technological change

These variables explain only 5% of the variability in migration rates between and among metropolitan areas.

• Note that there likely is a difference between what

determines the growth of an area in the short term and what moves it upward in the long term.

• For example, migrants in need of work may pay

little attention to tax rates; however, this does not mean that a non-competitive tax system will be good for a region’s growth over several decades. Witness the sustained negative out-migration rates

• f states such as Connecticut, Illinois, Michigan,

New York (-153,000 in 2014), New Jersey and

• Massachusetts. California appears to be joining

this list.

The Percent of All Businesses That Are Small Is Holding Steady in Virginia

Percent of Employment Accounted for by Firms

• f Various Sizes: Virginia, 1988 and 2011

Percent of all Business Establishments Accounted for by New Firms: U.S., 1977-2012