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 1

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 2

Economic Trends 3

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% 4

Unemployment Rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Virginia Beach Virginia US Recession Recovery Long ‐ Term Average Past Recoveries Unemployment Rate 7.1% 4.2% 4.3% 3.6% 5

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Housing Foreclosures as a % of their Pre ‐ Boom ‐ and ‐ Bust Average 160% 140% 120% 100% 81% 80% 56% 60% 40% 20% 0% 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Source: Real Estate Assessor 7

Tourism Occupancy Rate vs Average Daily Rate 64.0% $140.00 63.2% $126.34 $130.00 62.0% $120.00 60.0% $110.00 58.0% 56.8% $100.00 56.0% $90.00 $80.00 54.0% $70.00 52.0% $60.00 50.0% $50.00 $52.58 48.0% $40.00 87 91 95 99 03 07 11 15 Occupancy Rate ADR Source: Smith Travel Research 8

Military Earnings as a Percentage of Total Earnings 60.0% 53.9% 50.0% 40.0% 30.0% 14.7% 20.0% 10.0% 0.0% 69 74 79 84 89 94 99 04 09 14 Source: Bureau of Economic Analysis 9

Military and Private Sector Average Salary & Benefits 100,000 87,843 90,000 80,000 70,000 60,000 48,640 50,000 42,339 40,000 30,061 30,000 20,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Military Private Sector Source: Bureau of Economic Analysis 10

Per Capita Income 55,000 51,161 50,000 45,000 38,873 40,000 34,248 35,000 30,000 02 03 04 05 06 07 08 09 10 11 12 13 14 Nominal Inflation ‐ Adjusted Sources: Bureau of Economic Analysis and Bureau of Labor Statistics 11

Median Household Income 75,000 67,281 70,000 65,000 58,545 60,000 53,681 55,000 50,000 45,000 40,000 35,000 30,000 05 06 07 08 09 10 11 12 13 14 15 Nominal Inflation Adjusted Sources: Census Bureau and Bureau of Labor Statistics 12

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

Tax Burden Per Capita Expenditures as a % of R.E. Taxes as a % of Median Per Capita Income 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 14

Revenues 15

Real Estate Appreciation 400 350 313.6 300 250 296.7 200 106.5 150 103.35 100 85 88 91 94 97 0 3 6 9 12 15 Actual Growth of 3.52% Shiller's Annual Growth Rate of 3.35% Sources: Robert Shiller and Real Estate Assessor's Office 16

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

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

Consumer Spending $80 $73 $70 General Sales $60 $51 $50 BPOL Millions $40 Restaurant $30 $20 $8 $10 Hotel $ ‐ FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Budgeted Actual Projection 19

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

School Revenues 500 $453 $445 $437 $429 $421 $377 400 $366 $355 $348 $342 300 Millions 200 100 0 FY 18 FY 19 FY 20 FY 21 FY 22 State Funding City Funding 21

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

Change in Wireless Only Households & Va Telecom Tax 50.0% 44.1% 40.0% 30.0% 20.0% 10.0% 3.3% ‐ 0.03 0.0% ‐ 2.2% ‐ 10.0% 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 Wireless Only Households Decline in VB Telecom Taxes Sources: National Center for Health Statistics and Finance Department 23

Growth in Services vs Retail 190 180 183.38 170 Index of Growth 160 150 136.82 140 130 120 110 100 04 05 06 07 08 09 10 11 12 13 14 15 Retail Services Source: Commissioner of the Revenue's Office 24

Expenditure Drivers and Assumptions 25

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 26

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 27

City General Fund Baseline Forecast and Sensitivity Analysis 28

Baseline Forecast $1.22 $1.20 $1.18 $1.16 Billions $1.14 $1.12 $1.10 $1.08 $1.06 FY 2016 ‐ 17 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 Expenditures Revenues FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 Baseline 53,350 (5,721,008) (9,835,063) (15,328,533) (14,475,654) Forecast 29

VRS Impact $1.22 $1.19 $1.16 Billions $1.13 $1.10 $1.07 FY 2016 ‐ 17 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 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 53,350 (3,071,699) (7,132,768) (9,815,851) (8,852,718) 1% 30 Variance 2,649,309 2,702,295 5,512,682 5,622,936

Healthcare Costs $1.24 $1.21 Billions $1.18 $1.15 $1.12 $1.09 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 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 53,350 (6,615,925) (11,692,016) (18,218,556) (18,473,906) 5% 31 Variance (894,917) (1,856,953) (2,890,023) (3,998,252)

Inflation Forecast $1.21 $1.18 Billions $1.15 $1.12 $1.09 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 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) 32 Variance (1,980,567) (4,075,162) (6,283,298) (8,609,396) (11,058,029)

Real Estate Growth of 4% $1.21 $1.18 Billions $1.15 $1.12 $1.09 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 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 33 Variance ‐ 3,005,370 8,373,871 14,110,174 21,106,318

Schools’ Operating Budget Baseline and Sensitivity Analysis 34

Baseline Forecast 880 860 840 Millions 820 800 780 760 740 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 Revenue Expenditures FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 FY 2020 ‐ 21 FY 2021 ‐ 22 Baseline (16,348,562) (18,807,979) (24,293,925) (21,367,669) (18,530,049) Forecast 35

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 originally planned FY 2015 ‐ 16 FY 2016 ‐ 17 FY 2017 ‐ 18 FY 2018 ‐ 19 FY 2019 ‐ 20 Phase ‐ in of VRS Rates Agreed 79.69% 89.84% 89.84% 100% 100% Upon in 2012 Legislative Session Expected Employer Rates Based 14.06% 14.66% 14.66% 15.79% 15.79% on Phase ‐ in Schedule Employer Rates Based on General 14.06% 14.66% 16.32% TBD TBD Assembly’s 2016 ‐ 2018 Budget 36